Service tax on security agency services includes gross receipts, with extended limitation and no penalty absent deliberate evasion.
Extended limitation under service tax can apply where a registered assessee fails to file returns and disclose material facts, and the notice is issued within the statutory period. A corporation whose charter and actual activities include business and commercial projects may be treated as a commercial concern for security agency service tax purposes, regardless of its welfare objective or income-tax status. The taxable value of security agency service covers the gross amount charged, including salaries paid to security personnel, not merely the commission retained. Penalties under sections 76, 77 and 78 were deleted because the facts did not show deliberate evasion or mala fide intent, while the tax demand with interest was sustained.
Issues: (i) whether the show-cause notice demanding service tax for the disputed period was within limitation; (ii) whether the appellant was a "commercial concern" and therefore covered by "security agency service"; (iii) whether service tax was payable on the gross amount charged, including security personnel salaries; and (iv) whether penalties under sections 76, 77 and 78 were sustainable.
Issue (i): whether the show-cause notice demanding service tax for the disputed period was within limitation.
Analysis: For the period prior to the amendment of section 73, the extended period could be invoked on omission or failure to file returns or disclose material facts, without requiring proof of fraud, suppression or wilful misstatement. The appellant had obtained service tax registration but did not file the prescribed returns for the relevant period, and the material on taxable value was furnished only later. The relevant date for the earliest period was the last date for filing the return, and the notice was issued within five years from that date.
Conclusion: The demand was held to be within limitation and not time-barred.
Issue (ii): whether the appellant was a "commercial concern" and therefore covered by "security agency service".
Analysis: The appellant's statutory charter permitted it to engage in business, trading and allied commercial activities, and its own accounts reflected income from commercial projects. The decisive test was the nature of the activity and the manner of functioning, not merely the welfare objective. Exemption from income-tax for a specified class of corporation did not determine whether the entity was a commercial concern for service tax purposes.
Conclusion: The appellant was held to be a commercial concern and was covered by the taxable service definition.
Issue (iii): whether service tax was payable on the gross amount charged, including security personnel salaries.
Analysis: The assessable value of security agency services was taken to be the gross amount charged for the service. The salary component paid to security personnel formed part of the taxable value, and the tax could not be restricted to the commission retained by the appellant.
Conclusion: Service tax was held payable on the gross amount charged, including salaries.
Issue (iv): whether penalties under sections 76, 77 and 78 were sustainable.
Analysis: The appellant was a government corporation and had been in correspondence with the department regarding liability. The circumstances did not show deliberate evasion or mala fide intent. In such a case, penalty was not warranted.
Conclusion: The penalties were set aside.
Final Conclusion: The demand of service tax with interest was sustained, but the penalty component was deleted, resulting in only partial relief to the appellant.
Ratio Decidendi: For service tax, extended limitation may apply where returns are not filed and material facts are not disclosed, the classification as a commercial concern depends on the real nature of the entity's activities and functioning, the taxable value of security agency service includes the full amount charged for the service, and penalty is not sustainable absent deliberate intent to evade.