Service tax on export inspection certification upheld; limitation rejected and penalty aligned to the applicable statutory regime.

Technical inspection and certification services rendered by an autonomous export inspection body were held taxable because the activity was carried out for consideration, the fee was retained by the body rather than remitted to the Government Treasury, and the governing statute used enabling rather than compulsory language. The plea that the services were sovereign or mandatory statutory functions therefore failed. The limitation objection was also rejected, as the liability had been clarified earlier and the assessee continued without registration or payment, justifying the extended period. Penalty was adjusted to reflect the pre-amendment and amended statutory regimes, while tax and interest were sustained.

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Issues: (i) Whether technical inspection and certification services rendered by the Export Inspection Agency were sovereign or mandatory statutory functions and therefore not exigible to service tax. (ii) Whether the demand for the earlier period was barred by limitation and whether penalty under Section 78 of the Finance Act, 1994 was leviable and/or required modification.

Issue (i): Whether technical inspection and certification services rendered by the Export Inspection Agency were sovereign or mandatory statutory functions and therefore not exigible to service tax.

Analysis: The activity was examined in the light of the statutory scheme under the Export (Quality Control and Inspection) Act, 1963, the relevant rules, and the Board circulars on sovereign/public authorities. The decisive factors were that the agency was an autonomous body providing technical inspection and certification for consideration, the fee collected was not deposited in the Government Treasury, and the governing provision used enabling language rather than casting an inescapable statutory duty. The function therefore did not answer the description of a sovereign function or a compulsory statutory levy exempt from service tax.

Conclusion: The service was held to be taxable and the assessee's challenge on this ground failed.

Issue (ii): Whether the demand for the earlier period was barred by limitation and whether penalty under Section 78 of the Finance Act, 1994 was leviable and/or required modification.

Analysis: The claim of limitation was rejected because the record showed that the liability was clarified by 2009 and the assessee continued without registration or payment thereafter, which negatived bona fide ignorance for invoking the extended period. On penalty, the pre-amendment regime required penalty equal to the tax evaded, whereas the amended provision granted a lesser penalty for the subsequent period. The demand and interest were therefore sustained, but the penalty was required to be aligned with the applicable period-wise statutory regime.

Conclusion: The plea of limitation was rejected, and the penalty was modified by restoring full penalty for the pre-amendment period while extending the benefit of the amended provision for the later period.

Final Conclusion: The tax demand and interest were upheld, the assessee's appeal was dismissed, and the departmental appeal succeeded to the extent of correction of the penalty regime.

Ratio Decidendi: A statutory body's activity is not exempt from service tax merely because it is authorised by statute; where the fee is retained as consideration and not remitted to the Government Treasury, and the activity is not a mandatory sovereign duty, service tax is leviable.

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