2017 (4) TMI 902 - AT - Service Tax

Statutory body exempt from service tax for statutory functions under EPF Act

M/s Employee Provident Fund Organization Versus CST, Delhi

The Tribunal held that the appellant, a statutory body performing mandatory statutory functions under the Employees Provident Fund and Miscellaneous ... Banking and Other Financial Services - taxability of amount collected by the EPFO towards, inspection charges and administrative charges, penal damages, penal interest from defaulters. - appellant is involved in collection of contribution from the employers covered by the provision of the Act, collection of inspection charges and administrative charges, penal damages, penal interest from defaulters and disburse accumulated provident fund to the Members alongwith interest, pay various kinds of pension benefits to members and to family members and incur expenses in administering the scheme - Revenue entertained a view that the appellants are engaged in providing taxable service under the category of “Banking and Other Financial Services - Held that: - the appellant is a statutory authority created for a specified welfare function. Section 1 (3) of EPMF & MP Act stipulates that it applies to establishments of specified categories, mainly employing 20 or more persons. The schemes framed under the Act are to be laid in the Parliament as mentioned in Section 6D. Section 7A talks about determination of moneys due from employers. Such determination, in case of dispute, will be resolved by the officers mentioned therein. The appellant is concerned with ‘Public’ – namely the employers who are governed by the EPMF & MP Act. The employers are governed by the said Act for delivery of welfare benefits to the employees (members of the Fund). The appellant is an “authority” having vested with statutory powers to enforce the due contribution of fund, administration charges, penal charges etc. The appellant has power to impose penal consequence on employers for violation of any provisions of EPMF & MP Act, and also for coercive recovery of dues. The fee and other charges collected by the appellant from the employers in the present dispute are fixed by the law with no discretion or option vested with appellant or the employers. As such these cannot be considered as amounts received for providing any taxable service of BOFS. The employees who ultimately benefit, have not paid any consideration to the appellant. They only contributed their part of fund, through the employer, to the appellant. The contribution to the fund is not the subject matter of disputed tax liability. The other charges like administrative charges, inspection charges paid by the employers, are being subjected to service tax. We find that in the absence of a service provider and service recipient relation between the appellant and the employers, no service tax liability can arise in the transaction. The exemption now granted vide N/N. 9/2010-ST to EPFO (appellant) has no relevance to decide their tax liability during the present disputed period which is under pre-negative list based tax regime. We note that the service tax liability on various services rendered by Government or statutory /public authorities under went statutory changes after the new tax system (based on negative list) was introduced with effect from 01/07/2012. In fact, the Circulars dated 18/12/2006 and 23/08/2007 (code 999.01) issued in the pre-negative list regime are no longer applicable, as clarified by Board vide Circular No. 192/02/2016 – ST dated 13/04/2016. The appellants are not liable to pay service tax on their statutory activities performed in terms of EPMF & MP Act, 1952 - appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the appellant's activities fall under the category of 'Banking and Other Financial Services (BOFS)' and are subject to service tax.2. Whether the administrative charges, inspection charges, penal damages, interest on delayed payments, interest on investments, receipts from pension fund, and miscellaneous receipts are taxable.3. Whether the appellant is a public authority performing statutory functions and thus exempt from service tax.4. Whether the penalties and extended period demand imposed by the Original Authority are legally sustainable.Issue-Wise Detailed Analysis:1. Categorization under BOFS and Service Tax Liability:The Revenue's view was that the appellant's activities, including fund management and collection of various charges, fall under 'Banking and Other Financial Services' as defined in Section 65 (105) (zm) read with Section 65 (12) of the Finance Act, 1994. The statutory definition of BOFS includes services provided by a banking company, financial institution, or any other body corporate in relation to banking and other financial services. However, the Tribunal found that the appellant, being a statutory body created by an Act of Parliament, performs mandatory statutory functions, not taxable services. The appellant's role involves administering government schemes, which are compulsory and statutory, not discretionary services provided for consideration.2. Taxability of Various Charges:The Tribunal examined the nature of the charges collected by the appellant:- Administrative Charges: These are mandated by Rule 30 read with Rule 54 of the Employees Provident Fund Scheme and are compulsory payments by employers, not consideration for services.- Inspection Charges: Similar to administrative charges, these are statutory and not for any specific service rendered.- Penal Damages and Interest on Delayed Payments: These are penalties for non-compliance with statutory obligations and not service-related income.- Interest on Investments and Receipts from Pension Fund: These are earnings from investments and not related to any service provided.- Miscellaneous Receipts: The Tribunal found no evidence of these being consideration for taxable services.3. Public Authority Performing Statutory Functions:The Tribunal held that the appellant is a public authority performing statutory functions as mandated by the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The functions of the appellant are in the nature of statutory obligations to ensure social welfare, as recognized by the Hon'ble Supreme Court in the case of Regional Provident Fund Commissioner vs. The Hoogly Mills Company Ltd. The Tribunal emphasized that public authorities performing statutory duties are not providing taxable services, as clarified by CBEC Circulars dated 18/12/2006 and 23/08/2007.4. Penalties and Extended Period Demand:The Tribunal found no grounds for attributing malafide intention to the appellant, a Government of India organization, for not complying with the provisions of the Finance Act, 1994. The demand for an extended period and penalties under Sections 77 and 78 of the Finance Act, 1994, were deemed unsustainable as the appellant's activities were statutory and not taxable services.Conclusion:The Tribunal concluded that the appellant is not liable to pay service tax on its statutory activities performed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The relationship and transactions between the employers and the appellant are in discharge of statutory obligations, not service provisions. Consequently, the impugned orders were set aside, and the appeals were allowed. The Tribunal's decision was based on the interpretation of statutory provisions, judicial precedents, and CBEC clarifications, ensuring that statutory functions are not misconstrued as taxable services.