Applicability of service tax on fee collected by Public Authorities while performing statutory functions /duties.

 The Board of Central Excise and Customs (CBEC) has issued a circular no. 89 / 7 /2006- Service Tax dated 18-12-2006 clarifying the issue related to Applicability of service tax on fee collected by Public Authorities while performing statutory functions /duties under the provisions of a law.

 The Board has expressed its view as:

 "2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function.    These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities." 

 "3. However, if such authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, service tax would be leviable, if the activity undertaken falls within the ambit of a taxable service."

 As we know, the Board has power to issue circular under section 37B of the Central Excise Act, 1944 for the purpose of uniformity in the classification of excisable goods (Service Tax) or with respect to levy of duties of excise on such goods (Service Tax on such services), issue such orders, instructions and directions to the Central Excise Officers as it may deem fit.

 This section no where grants any power to the Board for exempting any taxable service.

 To remove the ambiguity and widening the scope of service tax, the words "Any Person" was incorporated by replacing other controversial words (terms) at many places in the definition part (Section 65 Chapter V of Finance Act, 1994). Therefore, if a service tax is taxable as provided by any person to any person, can he claim exemption by virtue of this circular.

 If the legislature intend to not to levy service tax on statutory bodies, the best way is to issue a notification under section 93 of the Finance Act, 1994. Similar notification had been issued earlier also, e.g., notification no. 22/2006 St dated 31-5-2006 issued for exempted RBI from payment of service tax u/s 68(1), 68(2) and 66A.

 Therefore, to avoid the future disputes and controversies and make the intention more clear, it would have been better to issue a general exemption notification exempting statutory body from levy of service tax on the fees collected while discharging statutory duties.

Service tax on statutory fees: compulsory levies by public authorities not taxable, but non statutory services remain taxable. Activities performed by sovereign or public authorities under statutory provisions are statutory obligations; fees charged for those duties are compulsory levies deposited into the government treasury and do not constitute taxable services, so service tax is not leviable. If an authority provides non statutory services for consideration that is not a statutory levy, such services may be taxable. The Board's circulars guide classification but do not substitute for legislative exemption; a general exemption notification is the appropriate mechanism to exempt statutory fees.