Security agency providing ex-servicemen services held liable for service tax despite non-profit claims

Kerala HC dismissed an appeal challenging service tax levy on security agency services. The appellant, providing security personnel through ex-servicemen members, argued it was not a commercial concern under the definition requiring profit motive. The court held that unlike educational institutions which primarily serve non-commercial purposes, the appellant's activities constituted commercial operations subject to service tax. The court emphasized that commercial concern status depends on totality of activities and organizational objectives rather than isolated transactions. The HC confirmed the tax authority's position that the appellant qualified as a commercial concern engaged in security services business, upholding the service tax liability.

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Issues:
Appeals against a common order dated 12.12.2017 of the Customs, Excise and Service Tax Appellate Tribunal, Bangalore involving the registration of a charitable society under the head of "security agency service" as per the Finance Act, 1994.

Detailed Analysis:

1. Background and Facts:
The appellant, a Charitable Society registered under the Travancore Cochin Society Registration Act, 1955, affiliated to the Indian Ex-Service League, was asked to register as a service provider under "security agency service" by the Customs Department. The issue arose from notices issued in 1998, and subsequent proceedings led to appeals before the Appellate Tribunal.

2. Appellant's Arguments:
The appellant contended that its services were non-commercial, focusing on welfare matters of ex-servicemen and their families. It argued that the Circular dated 10.06.1985 recognized its non-commercial basis, providing opportunities to members without profit motives. The appellant highlighted its role in guiding members for placements and taking responsibility for security contracts without intending to make a profit.

3. Respondent's Submission:
The respondent argued that the Appellate Tribunal considered the appellant's submissions, statutory provisions, and judgments to conclude that the services provided fell under the tax liability as per the Finance Act, 1994, related to security agency services.

4. Judgment and Analysis:
The Court analyzed the definitions of "Security Agency" and "Taxable Service" under the Finance Act, 1994. It noted that for tax levy on security agency services, the service must be provided by a commercial concern engaged in security-related services. The Court clarified that a commercial concern engages primarily in profit-oriented commercial activities. Referring to Circular No. 86/4/2006-ST, the Court emphasized that the totality of activities and objectives determines the commercial nature of an entity.

5. Conclusion:
The Court held that the appellant, despite not making profits in certain years, embarked on commercial activities with a profit objective, making it a commercial concern liable for service tax. It distinguished the appellant from educational institutes, stating that the appellant's income-earning transactions classified it as a commercial venture. Consequently, the Court dismissed the appeals, upholding the Appellate Tribunal's order.

In summary, the Court upheld the tax liability on the appellant as a commercial concern engaged in security agency services, emphasizing the profit motive and totality of activities to determine commercial nature.

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