Statutory police security services to public bodies were not taxable, as treasury-collected charges fell outside security agency service.

Services rendered by a sovereign public authority in discharge of statutory policing duties, with charges credited to the Government treasury, do not amount to taxable security services under the Finance Act, 1994. The applicable CBEC circular excluded charges collected for mandatory statutory functions where the levy is credited to the treasury, and the Tribunal view accepted that a police department is not a business entity running a security agency. On that basis, the demand for service tax was unsustainable and the impugned order was set aside.

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Issues: Whether the activity of providing armed security guards by the police department to public sector banks, undertakings and Government departments, and the collection made therefor, constituted taxable security services under the Finance Act, 1994.

Analysis: The police department was discharging statutory duties under the Police Act, 1861, and the amounts collected were being deposited in the Government treasury. The applicable CBEC circular states that charges collected by a sovereign public authority for carrying out statutory and mandatory functions are not liable to service tax when the levy is under the relevant law and the collection is credited to the Government treasury. The activity was also covered by the earlier Tribunal view that the police department is not a business entity engaged in running security services and its functions do not fall within the statutory definition of security agency.

Conclusion: The activity was not taxable as security services and the service tax demand was unsustainable; the appeal succeeded and the impugned order was set aside.

Ratio Decidendi: Services rendered by a sovereign public authority in discharge of statutory obligations, with collections credited to the Government treasury, do not constitute taxable security services where the statutory definition does not encompass such public-law functions.

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