Statutory municipal functions outsourced for a fee do not become Business Auxiliary Service when they remain non-commercial in character.

Cleaning of nullahs, removal of roadside garbage and disposal of waste soil carried out for a municipal corporation was held not to fall within Business Auxiliary Service because the work was part of the corporation's statutory municipal function. The activity was not treated as a commercial service rendered on behalf of the client merely because it was outsourced to a private entity for consideration. On that basis, the service tax demand was not sustainable and the order dropping the proceedings was maintained.

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Issues: Whether cleaning of nullahs, removal of roadside garbage and waste soil undertaken on behalf of the municipal corporation for consideration was taxable under Business Auxiliary Service.

Analysis: The activity in question was found to be a statutory obligation of the municipal corporation and had been outsourced to the respondent. Such work was held not to be a business activity of the client and, therefore, the respondent could not be said to be rendering a service on behalf of the client within the meaning of Business Auxiliary Service. The view taken by the lower authorities was supported by the principle that performance of a sovereign or statutory function does not acquire the character of a commercial service merely because it is carried out by a private entity for a fee.

Conclusion: The activity was not taxable under Business Auxiliary Service and the demand could not be sustained.

Final Conclusion: The appeal failed on merits and the order dropping the proceedings was maintained.

Ratio Decidendi: Work performed in discharge of a statutory municipal function does not amount to a commercial service on behalf of the client so as to fall within Business Auxiliary Service.

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