2006 (10) TMI 12 - AT - Service Tax

Service tax upheld on security services despite charitable aims, labor costs included in taxable valuation

PUNJAB EX-. SERVICEMEN CORPN. Versus COMMISSIONER OF C. EX., CHANDIGARH

PUNJAB EX-. SERVICEMEN CORPN. Versus COMMISSIONER OF C. EX., CHANDIGARH - 2007 (5) S.T.R. 214 (Tri - Del.) , 2006 (77) RLT 712 (CESTAT - Del.) , [2007] 5 ... Issues:1. Whether the appellant corporation is a charitable organization or a service provider of security services.2. Valuation of taxable services provided by the appellant.3. Applicability of service tax on the gross amount charged by the appellant for security services.Analysis:Issue 1: The appeal challenged the decision that the appellant corporation, established for the welfare of ex-servicemen, is not a charitable organization but a service provider of security services taxable under the law. The appellant argued they are not a commercial organization and thus not liable to pay service tax. However, it was found that the corporation engaged in commercial activities, evident from agreements and financial records, indicating a profit from security services. The Act allowed for commercial activities, leading to the conclusion that the corporation was not solely charitable.Issue 2: The definitions under the Finance Act regarding security agency, taxable service, and valuation were crucial. The definition of taxable service included services related to security, and the valuation of taxable services was based on the gross amount charged, which included payments to security personnel. Circulars clarified that statutory levies were not deductible for service tax purposes. Trade notices and court judgments supported the taxation of the gross amount paid for services, emphasizing the integral role of labor costs in service valuation.Issue 3: The appellant's agreements with clients and the responsibility for employing security personnel highlighted their role as service providers. Legal provisions mandated the collection of service tax based on the gross amount charged, with the burden on the service provider to pass on the tax to users. The commercial nature of the appellant corporation's business activities, as permitted by the Punjab Ex-serviceman Act, further supported the imposition of service tax on the gross amount charged. The dismissal of the appeal was based on these findings, affirming the taxation of the appellant's security services at the gross value.In conclusion, the judgment upheld the imposition of service tax on the gross amount charged by the appellant corporation for security services, considering their commercial activities and legal provisions governing service taxation. The detailed analysis covered the issues of the appellant's organizational nature, valuation of taxable services, and the applicability of service tax on the gross service charges, providing a comprehensive overview of the legal reasoning behind the decision.