Sovereign statutory functions are not taxable service when compulsory levies fund the activity and no individual service is provided.

Compulsory life insurance activity undertaken by a State department as part of its statutory and sovereign functions was held not to be a taxable service, because it was a mandatory public duty rather than a commercial service rendered to any individual for consideration. The Board circular on sovereign or statutory functions supported the conclusion that no service tax was leviable on such activity. The related demand on general insurance was also unsupported by any material finding, so the demand and penalties could not survive and the impugned order was set aside.

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Issues: Whether the compulsory life insurance activity undertaken by a State department as part of its statutory and sovereign functions constituted taxable service liable to service tax, and whether the consequential demand and penalties were sustainable.

Analysis: The activity was held to be a mandatory function performed under the relevant statutory framework and not a commercial service rendered to any individual for consideration. Reliance was placed on the Board circular clarifying that activities performed by sovereign or public authorities in discharge of statutory obligations do not constitute provision of taxable service and no service tax is leviable. The demand relating to general insurance was also not supported by any material finding.

Conclusion: The activity was not taxable, and the demand as well as penalties could not survive.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Activities performed by a sovereign or public authority in discharge of statutory obligations under law, where the fee collected is a compulsory levy deposited in the Government treasury and the activity is not rendered as a service to any particular person for consideration, do not constitute a taxable service.

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