Statutory police security services to public bodies were held not taxable, as charges collected for sovereign functions.

Armed security services provided by the State police to public sector banks, undertakings and government departments against collected charges were treated as part of statutory and mandatory functions, not as taxable security services. The amounts collected were deposited in the government treasury, and the Board circular clarified that charges collected by a sovereign public authority for statutory functions are not liable to service tax when the prescribed conditions are met. Prior Tribunal rulings also recognised that a police department acting as an agency of the State is not a person engaged in the business of running security services. The activity was therefore held not taxable, and the service tax demand was set aside.

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Issues: Whether armed security services provided by the State police to public sector banks, undertakings, and government departments against collection of charges are liable to service tax as security services.

Analysis: The police force was found to be performing statutory and mandatory duties, and the amounts collected were deposited in the government treasury. The circular issued by the Board clarified that charges collected by a sovereign public authority for carrying out statutory functions are not liable to service tax when the prescribed conditions are met. Earlier Tribunal decisions had also held that a police department acting as an agency of the State is not a person engaged in the business of running security services, and its activities do not fall within the definition of security agency.

Conclusion: The activity was not taxable as security services and the demand of service tax could not be sustained.

Final Conclusion: The impugned demand was set aside and the appeal succeeded.

Ratio Decidendi: Amounts collected by a sovereign public authority for discharge of statutory functions and deposited in the government treasury are not consideration for taxable security services, and a police department performing such functions is not a security agency for service tax purposes.

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