Commercial activity by a State corporation is taxable, and a new rule applies prospectively unless retrospective effect is clearly stated.

Commercial activity by a State-owned corporation in collecting tender amounts and retaining commission was not treated as a statutory or sovereign function, so service tax could not be escaped on that basis. The Court accepted that the corporation acted in a commercial capacity rather than under a vested statutory right. The later insertion of Rule 9A was held to be prospective, not clarificatory, because no retrospective operation was expressly indicated in the notification. As a result, the 1% taxation basis under that rule could not be extended to the earlier period, and the levy sustained by the Tribunal remained undisturbed.

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Issues: (i) Whether the activity of granting the privilege to run bars and collect related amounts could be treated as a statutory right or sovereign function so as to escape service tax; (ii) whether Rule 9A of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 was clarificatory or retrospective so that the benefit of taxation on only 1% of the retained amount could be extended to the earlier period.

Issue (i): Whether the activity of granting the privilege to run bars and collect related amounts could be treated as a statutory right or sovereign function so as to escape service tax.

Analysis: The relevant rules showed that the appellant, as an agency, merely collected tender amounts, remitted the bulk to the State and retained a small commission. The Court held that the activity was not a true statutory function or devolution of a statutory right. The privilege related to selling eatables and collecting empty bottles and cartons, not to any vested sovereign or statutory power to vend liquor. The Tribunal's view that the activity was undertaken by the corporation in a commercial capacity and not under authority of law was accepted.

Conclusion: The issue was answered against the assessee and in favour of Revenue.

Issue (ii): Whether Rule 9A of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 was clarificatory or retrospective so that the benefit of taxation on only 1% of the retained amount could be extended to the earlier period.

Analysis: The amendment inserting Rule 9A was notified under the enabling provisions of the Tamil Nadu Prohibition Act, 1937, and nothing in the notification indicated retrospective operation. The Court held that a newly inserted rule takes effect from the date of notification unless an anterior date is expressly fixed. The rule was therefore prospective, not clarificatory, and could not be applied backward to extend the 1% basis for the earlier period.

Conclusion: The issue was answered against the assessee and in favour of Revenue.

Final Conclusion: The appeals failed in their entirety, and the levy sustained by the Tribunal was not disturbed.

Ratio Decidendi: A commercial activity carried on by a State-owned corporation under a statutory framework is not exempt from service tax merely because it is connected with a governmental privilege, and a new rule is prospective unless the notification clearly makes it retrospective.

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