Seed certification is not a sovereign function when rendered for consideration, and tax demand must be recomputed on a cum-tax basis.

Seed certification and related inspection were treated as an optional activity undertaken on application and for consideration, so they were not regarded as a sovereign function and fell within taxable technical inspection and certification service. The note also records that absence of intention to evade tax meant the extended period of limitation and penalties were not sustainable. On quantification, where no amount was recovered over and above the certification charges, cum-tax treatment was available and the demand had to be recomputed within the normal period of limitation.

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Issues: (i) Whether the activity of seed certification and related inspection carried out by the respondent was a sovereign function or a taxable service under technical inspection and certification service; (ii) whether the extended period of limitation and penalties were sustainable; (iii) whether the assessee was entitled to cum-tax benefit and consequential quantification of demand.

Issue (i): Whether the activity of seed certification and related inspection carried out by the respondent was a sovereign function or a taxable service under technical inspection and certification service.

Analysis: The respondent's certification activity was governed by Section 9 of the Seeds Act, 1966, which showed that certification was available only on application by a person desirous of obtaining certification. The service was therefore optional and not a compulsory statutory discharge in the nature of a sovereign function. The statutory and departmental circulars relied upon did not take the activity out of the taxable net where the certification was rendered for consideration and fell within the scope of technical inspection and certification service.

Conclusion: The activity was not a sovereign function and was liable to service tax under technical inspection and certification service.

Issue (ii): Whether the extended period of limitation and penalties were sustainable.

Analysis: The record showed a clarification from the department indicating that the activity was being carried out in discharge of statutory obligations and that there was no intention to evade tax. In these circumstances, the ingredients for invoking the extended period were not established. For the same reason, penalties were not warranted.

Conclusion: The extended period of limitation and penalties were not sustainable.

Issue (iii): Whether the assessee was entitled to cum-tax benefit and consequential quantification of demand.

Analysis: The respondent had not recovered any amount over and above the charges collected for certification. The demand, therefore, had to be worked out on a cum-tax basis, and the matter required recomputation by the adjudicating authority within the normal period of limitation.

Conclusion: Cum-tax benefit was available and the matter was remanded for quantification of the demand within the normal period.

Final Conclusion: The appeal succeeded in part: the finding that the activity was non-sovereign and taxable was affirmed, but the extended-period demand and penalties were set aside, and the matter was sent back for fresh quantification of the sustainable demand.

Ratio Decidendi: Where seed certification is rendered only on application and for consideration, it is not a sovereign function and may fall within taxable technical inspection and certification services, but absence of mala fide intention can bar the extended period and penalties.

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