Sovereign police deployment charges are not security agency services and statutory fees for mandatory duties fall outside service tax.

Charges recovered by a State police department for deploying additional force for public security and maintenance of law and order were held to arise from sovereign statutory functions under the Rajasthan Police Act, 2007. Because the amount was fixed by statutory notifications, collected for mandatory police duties, and deposited in the Government treasury, the activity was not a commercial security agency service rendered in the course of business. The circular on sovereign/public authorities was applied to treat such statutory fees for compulsory functions as outside the service tax net, and the demand was held unsustainable.

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Issues: Whether the State police department, while recovering charges for deploying additional police force for security and law and order purposes, could be treated as a security agency engaged in business and be subjected to service tax.

Analysis: The charge collected by the police department arose from deployment of additional police personnel for public security and maintenance of public peace and order, which was traced to the statutory scheme under Section 46 of the Rajasthan Police Act, 2007. The amount recovered was fixed by statutory notifications and was deposited into the Government treasury. The activity was held to be an extension of the police department's sovereign and statutory functions and not a commercial service rendered in the course of business. The circular on sovereign/public authorities was also applied to hold that statutory fees collected for mandatory functions are outside the service tax net.

Conclusion: The police department was not a person engaged in the business of rendering security agency services, and the charges recovered for such statutory police deployment were not liable to service tax. The demand was unsustainable and the assessee succeeded.

Ratio Decidendi: Where a State police authority recovers charges prescribed by law for deploying additional force in discharge of sovereign statutory duties, the activity is not security agency service and the statutory fee is not taxable as service tax.

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