2016 (12) TMI 289 - AT - Service Tax

State Police not liable for service tax on security services as government agency, court rules.

The court held that the State Police, as an agency of the State Government, does not qualify as a 'person' engaged in the business of providing security ... Levy of tax on state police - Security Agency Service - Section 65(105)(w) read with Section 65(94) of the Finance Act, 1994 - agency of state government - whether the state police represented by the Superintendents of Police of various districts, would be covered within the definition of security agency services and service tax will be liable to be paid by them on the amounts recovered by them for providing security personnel to various organizations? - Held that: - police department, which is an agency of the State Govt., cannot be considered to be a person engaged in the business of running security services. Consequently, the activity undertaken by the police is not covered by the definition of Security Agency under Section 64(94) of the Act. We also find that in terms of CBEC circular on this subject, the fees collected by the police department is in the nature of fee prescribed for performing statutory function, which has been deposited into the Govt. treasury. In the light of the CBEC circular also, there can be no levy of service tax on such activities carried out by the police department. In line with the above discussions, the appeals filed by the police department succeed - appeal allowed - decided in favor of Department. Issues Involved:1. Whether the State Police can be considered a 'person' under the definition of Security Agency Services.2. Whether the State Police is engaged in the 'business' of providing Security Services.3. Applicability of CBEC circulars regarding statutory functions and service tax liability.4. Legality of service tax demands on fees collected by the State Police for providing security services.Detailed Analysis:1. Definition of 'Person' under Security Agency Services:The appellants argued that the term 'person' in the definition of Security Services does not include the State or its instrumentalities. The judgment referenced the Constitution Bench of the Supreme Court in West Bengal Vs. Union of India [AIR 1963 SC 124], which held that the definition of 'person' does not include the State. Consequently, the Superintendent of Police, an agency of the State Government, does not fall within the term 'person' as per the General Clause Act, 1897. The court concluded that the Superintendent of Police is not covered within the term 'person' for the purposes of the Finance Act, 1994.2. Engagement in the 'Business' of Security Services:The appellants contended that the State Police is not engaged in the business of rendering security services. The court noted that the term 'business' implies an activity undertaken with the intent of earning profit. The charges recovered by the Police were in the nature of cost recovery for additional police force deployment, which is a statutory duty for maintaining law and order. The court agreed with the appellants, stating that these activities cannot be considered as business activities.3. CBEC Circulars on Statutory Functions and Service Tax Liability:The CBEC circular No. 89/7/2006-ST dated 18.12.2006 and circular No. 96/7/2007-ST dated 23.8.2007 clarify that charges collected by sovereign/public authorities for statutory functions are not liable for service tax if:- The duties are statutory and mandatory.- The fee is levied as per relevant law.- The amount collected is deposited into the government treasury.The court found that the State Police's activities met all these conditions. The fees were collected under Section 46 of the Police Act, 2007, and were deposited into the government treasury. Thus, the activities were statutory functions, and no service tax was leviable.4. Legality of Service Tax Demands:The court examined the lower authorities' view that the activities were not statutory duties but services undertaken for consideration. The court disagreed, emphasizing that the deployment of additional police personnel, even on request, is for public security and maintenance of law and order, which are statutory functions. The fees collected were statutory and deposited into the government treasury.Conclusion:The court concluded that the State Police, an agency of the State Government, is not a 'person' engaged in the business of running security services. The activities undertaken by the police are part of their statutory functions, and the fees collected are statutory, deposited into the government treasury. Therefore, no service tax is leviable on such activities. The appeals filed by the police department were allowed, and the impugned orders were set aside.Pronouncement:The judgment was pronounced in the Open Court on 25.11.2016.