State police deployment charges under statutory authority were treated as sovereign function receipts, not taxable security services.

State police deploying additional force under statutory authority was treated as performing a sovereign function, because the charges were fixed by law and credited to the Government treasury, so the receipts were not liable to service tax. The police department was also held not to be a security agency engaged in the business of rendering security services, since it acted as an instrumentality of the State discharging statutory duties and the recoveries were only cost recovery, not profit-making business activity. On that basis, the service tax demand could not be sustained and the impugned orders were set aside.

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Issues: (i) whether the State Police department was a security agency engaged in the business of rendering security services within the meaning of the service tax law, and (ii) whether the amounts recovered for deployment of additional police force were statutory fees for performance of sovereign/statutory functions and therefore outside the levy of service tax.

Issue (i): whether the State Police department was a security agency engaged in the business of rendering security services within the meaning of the service tax law

Analysis: The definition of security agency required a person to be engaged in the business of rendering security-related services. The police department was an instrumentality of the State discharging statutory and constitutional duties relating to public peace, order and security. The charges recovered were only cost recovery for deployment of additional force on request and not an activity undertaken with a profit-making character. On that basis, the element of business activity was not established.

Conclusion: The State Police department was not a security agency engaged in the business of rendering security services.

Issue (ii): whether the amounts recovered for deployment of additional police force were statutory fees for performance of sovereign/statutory functions and therefore outside the levy of service tax

Analysis: The departmental circular distinguished statutory duties performed by sovereign authorities from non-statutory services undertaken for consideration. The record showed that deployment of additional police force was authorised by the Rajasthan Police Act and the relevant State notifications, the charges were prescribed by law, and the amounts collected were deposited into the Government treasury. These features satisfied the conditions in the circular and showed that the activity was part of the statutory function of maintaining public peace and order.

Conclusion: The amounts recovered were statutory fees for a sovereign function and were not liable to service tax.

Final Conclusion: The demands of service tax on the police department could not be sustained, and the impugned orders were set aside.

Ratio Decidendi: A State police authority performing deployment of additional force under statutory mandate, with charges fixed by law and credited to the Government treasury, does not become a security agency engaged in business, and such receipts are not subject to service tax.

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