Statutory public authority functions exempt from service tax when charges are compulsory levies collected under law and remitted to treasury.

Statutorily mandated tractor cultivation carried out by a public authority under the Madhya Pradesh Tractor Dwara Kheti (Prabharo Ki Vasuli) Adhiniyam, 1972 was treated as a statutory function, not a taxable service. Because applications were accepted under the statute, charges were fixed by the Rules, collected as a compulsory levy, and deposited in the government treasury, the activity fell within the exemption circular for sovereign or public authority functions. The tax authority erred in classifying it as a non-statutory supply of tangible goods service. Service tax was therefore not leviable, and the demand for tax, interest, and penalty could not be sustained.

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Issues: Whether the appellant's tractor cultivation activities were statutory functions performed under the Madhya Pradesh Tractor Dwara Kheti (Prabharo Ki Vasuli) Adhiniyam, 1972 and the Rules, so as to fall within the circular exempting such statutory public authority functions from service tax.

Analysis: The statutory scheme showed that a cultivator could apply to the Director for tractor cultivation, the application could be accepted or rejected, and on acceptance and execution of the bond the Director was required to carry out the cultivation. The charges were fixed under the Rules, collected in accordance with the statute, and deposited in the treasury. The governing circular exempted activities performed by sovereign or public authorities as statutory obligations when the fee collected was in the nature of a compulsory levy and was deposited into the government treasury. The principal commissioner erred in treating the activity as a non-statutory supply of tangible goods service. The statutory compulsion and treasury deposit brought the activity within the circular.

Conclusion: The appellant's activities were statutory in nature and no service tax was leviable on the charges collected for such functions.

Final Conclusion: The demand of service tax, interest, and penalty could not be sustained, and the appellant obtained complete relief.

Ratio Decidendi: Where a public authority performs a function mandated by statute, collects charges prescribed by law as a compulsory levy, and deposits them into the government treasury, the activity is a statutory function and not a taxable service within the scope of the exemption circular.

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