Extended limitation and "commercial concern" test defeat service tax demand on security agency services for ex-servicemen society

Service tax demand for security agency services was held unsustainable because the extended limitation period could not be invoked where bona fide doubt about tax liability had already been recorded. The levy under the relevant law applied only to a commercial concern, and a co-operative society registered for the welfare of ex-servicemen did not answer that description. On both limitation and merits, the demand failed, the confirmation order was set aside, and consequential relief followed.

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Issues: (i) Whether the demand of service tax was sustainable when the extended period had been invoked despite the finding of bona fide doubt regarding tax liability. (ii) Whether a co-operative society registered for the welfare of ex-servicemen could be treated as a commercial concern for levy of service tax on security agency services.

Issue (i): Whether the demand of service tax was sustainable when the extended period had been invoked despite the finding of bona fide doubt regarding tax liability.

Analysis: The period of dispute was substantially earlier than the notice date, and the revenue had invoked the longer limitation period. The first appellate authority had already recorded a bona fide doubt on liability and on that basis set aside the penalties. In such circumstances, the invocation of the extended period was not justified.

Conclusion: The demand was not sustainable on limitation.

Issue (ii): Whether a co-operative society registered for the welfare of ex-servicemen could be treated as a commercial concern for levy of service tax on security agency services.

Analysis: Under the relevant law applicable during the dispute period, liability in respect of security agency services attached only where the provider was a commercial concern. The appellant was a co-operative society registered under the Karnataka Co-operative Society Act, 1954 for the welfare of ex-servicemen. The statutory framework also indicated that a commercial concern could not be registered as a co-operative society, which supported the conclusion that the appellant was not a commercial concern.

Conclusion: The demand was not sustainable on merits.

Final Conclusion: The impugned order confirming the service tax demand was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where the assessee's bona fide doubt negatives the basis for extended limitation, and the statutory levy is confined to a commercial concern, a co-operative society not answering that description cannot be fastened with service tax liability.

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