Public-interest statutory functions not taxable as Service Tax when government vehicles are made available for Army and supply support.

Making vehicles available by a State Government department to the Army, GREF and the public in special geographic circumstances was treated as a public-interest activity performed in discharge of a statutory function. On that basis, the activity was not liable to Service Tax as Goods Transport Agency service or rent-a-cab service. Circular No. 89/7/2006-ST was applied for the principle that government activities carried out as mandatory or statutory functions in public interest are not taxable merely because consideration is received. The demand and penalties were therefore unsustainable.

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Issues: Whether the activity of making vehicles available by a State Government department to Army and GREF was a taxable service under Goods Transport Agency or Rent-a-Cab service, or whether it was a non-taxable activity performed in public interest as part of a statutory function.

Analysis: The appellant was a department of the Government of Sikkim and the vehicles were made available in the special circumstances of the State's geography and the need to maintain transport and supply lines for the Army, GREF and the public. The activity was found to be undertaken in public interest and in discharge of a statutory function. Circular No. 89/7/2006-ST clarified that activities performed by Government or its wings in public interest as mandatory or statutory functions are not to be subjected to Service Tax even if consideration is received.

Conclusion: The activity was not taxable under Service Tax, and the demand and penalties were unsustainable.

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