Statutory security collections by a State authority were treated as sovereign functions, not taxable security agency services.

State and its instrumentalities collecting charges under statutory powers for deployment of security personnel were held not to fall within the ordinary meaning of a "person" carrying on a security business, so they could not be treated as a security agency under the Finance Act, 1994. The collections were made under prescribed notifications for discharge of sovereign and statutory functions relating to public security, peace and order, and were deposited in the Government treasury. As the activity was not commercial in nature, service tax was held not leviable on such statutory collections and the demand was unsustainable.

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Issues: Whether the appellant, being a State/Home Guards authority providing security services and collecting charges under statutory powers, was liable to service tax as a "security agency service" under the Finance Act, 1994.

Analysis: The definition of "security agency" required a "person" engaged in the business of rendering security-related services. The Tribunal held that the State or its instrumentalities do not fall within the ordinary meaning of "person" for this purpose, and therefore cannot be treated as a security agency. It further held that the charges recovered for deployment of additional police/security personnel were recovered under statutory authority, pursuant to prescribed notifications, for discharge of sovereign and statutory functions relating to public security, peace and order, and were deposited in the Government treasury. In these circumstances, the activity was not a commercial business activity and the CBEC circulars governing sovereign/public authorities supported non-leviability of service tax on such statutory collections.

Conclusion: The appellant was not liable to pay service tax on the amounts collected for providing security, and the demand was unsustainable.

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