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2023 (9) TMI 651
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....es". On the basis of intelligence that the appellants are not paying service tax on storage and warehousing and cargo handling service, the officers of DGCEI, Chennai Zonal Unit undertook investigation. During the course of investigation, it was noticed that the appellants are engaged in providing storage and warehousing services to the Government of Tamil Nadu; that for the storage and warehousing services the appellants are receiving 'administrative charges' from Tamil Nadu State Government; further that the appellant deducted 'Handling and Testing' Charges @ 1.5% of the value of drugs as per the terms agreed in the tender towards handling activities like loading, unloading and transportation to the various Government hospitals. It appeared from the investigation that the appellant is liable to pay service tax on the above activities. However, the appellant neither obtained service tax registration nor paid service tax for the said services. Hence a Show Cause Notice dated 28.12.2011 was issued to the appellant proposing demand of service tax of Rs.7,12,45,295/- for the period from 1.10.2006 to 31.3.2011 along with interest besides proposing penalties under various sections of th....
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.... Charges was changed to Administrative Charges. Vide G.O.No.461 dt.31.12.2007 Administrative Charges, amounting to a maximum of 5% of the total turnover or at the rate as approved by the Board of Directors of the company may be utilized towards payment of any liquidated damages transport fines, penalties, forfeiture of EMD, as also writing off expired drugs, etc. He prayed that considering the services done by an extended limb of the Government of Tamil Nadu, viz. the company, and the service is with reference to the public health; such service finds a place in the Central Government Publication on Service Tax as being a service done to the Sovereign State, the Hon'ble Bench may dispose off the matter accordingly. 4.2. Shri R. Rajaraman, Assistant Commissioner (AR) stated on behalf of Revenue that TNMSCL was created by a G.O. and not by an Act of Parliament or State Legislature. He stated that as per mega Notification 25/2012-ST dated 20/06/2012 to be eligible for exemption as a governmental authority TNMSCL should have primarily been set up by an Act of Parliament or the State Legislature. The appellant company was providing services of warehousing, unloading, stacking and inde....
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....trade or business of any kind carried on by or on behalf of the Government of a Province, and (b) which is not relevant, relating to a Ruler. It will be seen that "income" is repeated in both the provisions, but what was "lands" or "buildings" has become simply "property" in Art. 289(1). . 12. The question naturally arises why "income" was at all mentioned when it is common ground that "income" would be included in the generic term "property". It was suggested on behalf of the Union that the juxta-position of the terms "property" and "income" of a State which have been declared to be exempt from Union taxation would indicate that the tax from which they were to be immune was tax on "property" and on "Income", i.e., in both cases a direct tax, and not a indirect tax, which may be levied in relation to the property of a State, namely, excise duty, which is a tax on the manufacture or production of goods and customs duty which is a tax on the event of importation or exportation of goods. . . . 33. Similarly in the case of duties of customs including export duties though they are levied with reference to goods, the taxable event is either the import of goods ....
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....cise have reference to goods and commodities, they are not taxes on property directly and are not within the exemption in Art. 289(1). (emphasis added) The ratio of this judgment would also be applicable to an indirect tax like service tax which is a much later levy. The salient points of the judgment are: (1) Though the expression "taxation", as defined in Art. 366 (28), "includes the imposition of any tax or impost, whether general or local or special", the amplitude of that definition has to be cut down if the context otherwise so requires. (2) Whereas the Union Parliament has been vested with the exclusive power to regulate trade and commerce and with the sole responsibility of imposing export and import duties and duties of excise, with a view to regulating trade and commerce and raising revenue, an exception has been engrafted in Art. 289 (1) in favour of States granting them immunity from certain kinds of Union taxation and it is necessary that the general words of the exemption in that Article should be limited in their scope so as not to come in conflict with the power of the Union to regulate trade and commerce. (3) Though the Constitution of India does not....
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....ablished with 90% or more participation by way of equity or control by Government; and • carries out any of the functions entrusted to a municipality under article 243W of the Constitution. 7.3.2 What are the functions entrusted to a municipality under article 243W of the Constitution? Article 243W of the Constitution is as under: 'Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to- (i) the preparation of plans for economic development and social justice; (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule; (b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon ....
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.... under the provisions of any law, do not constitute taxable services. Any amount / fee collected in such cases are not to be treated as consideration for the purpose of levy of service tax. However, if a sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. The clarification does not come to the help of the appellant as the clarification relates to provisions of service where a fee is prescribed and it clearly states that , if a sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. 6. Having laid out the legal context, we now examine the issues involved: (A) Whether Tamil Nadu Medical Services Corporation Ltd. is an instrumentality of the Sovereign State and is exempted....
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....nd materials, sterilized injections, vaccines, immunogens, chemical and surgical dressings relating to all kinds of animal husbandry i.e. live-stock, veterinary, aquatic living poultry, equine, canine etc. whether domestic or otherwise. Clause III (B) states: (B) The objects incidental or ancillary to the attainment of the above main objects are:- ..... 3. To establish warehouses, storage rooms, godowns and cold storage facilities in various districts in Tamil Nadu for providing safe and convenient places for storage of medicines, surgical products and other medical and para-medical products of all kinds and description. ....... 9. To accept advance payment, deposits and / or to lend money to any department, institution, person, firm association, society, corporation or company on such terms and on such security as may be seen expedient and to give guarantees and indemnities. 10. To invest and deal with the money of the corporation which is not immediate required in such manner and upon such security as the company may from time to time think fit. ......... 13. To enter into partnership or any arrangem....
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.... not discharging mandatory and statutory functions and are receiving a consideration for their services. The adequacy or otherwise of the consideration received is not a relevant issue. The income derived by the appellant from its trading activities is not income of the State, but its own to be spent by the Company. As per G.O. dt.2.6.2006, after the introduction of the Finance Act, 1994, the Government of Tamil Nadu changed the nomenclature of the 5% element - monies collected from the government from 'Services Charges' to 'Administrative Charges'. However, this may not come to their help as it is an accepted legal principle that the nomenclature of a service, is not decisive of the nature of the service provided. Even as per the educational Guide cited by the appellant, they are not covered under the definition of 'governmental authority'. The relevant portion is cited below. "7.3.1 Are various corporations formed under Central Acts or State Acts or various government companies registered under the Companies Act, 1956 or autonomous institutions set up by special acts covered under the definition of 'governmental authority'? Answer: No. As stated earlier the a....
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....ry" ......" (emphasis added) The impugned activities of the appellant are not primary inalienable functions and are liable to be done by a private body. It is also relevant to note the State Government has issued a conditional notification exempting sales tax payable by TNMSCL for the drugs and medicines procured and distributed to the various medical institutions. (G.O.Ms No 431 dated 18/12/96). The exemption is not on account of its sovereign functions. Had the exemption not been granted or if the conditions of the notification are violated TNMSCL would be liable to pay sales tax. The said notification is reproduced below: NOTIFICATION "In exercise of the powers conferred by sub-section (1) of section 17 of the Tamil Nadu General Sales Tax Act, 1950 (Tamil Nadu Act 1 of 1950), the Government of Tamil Nadu hereby makes an exemption in respect of the tax payable by Thiruvalar Tamil Nadu Medical Services Corporation Limited, Chennai - 14 under the said Act on the drugs and medicines procured and distributed to the Medical institutions of the Government of Tamil Nadu, subject to the following conditions, namely:- i) Such drugs and medicines shall be clearly....
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....wn and tankers operated by private individuals etc. The storage and warehousing service provider normally make arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, makes security arrangements and provide insurance cover etc. Service provided in ports has already been covered under the category of port service. ............ 5. It has been stated that in some case a storage owner only rents the storage premises. He does not provide any service such as loading/unloading, stocking security etc. A point has been raised as to whether service tax would be leviable in such cases. It is clarified that mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods. Essential test is whether the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area." The appellant has not contested that they are operating their own warehouses where medicines procured by them are stored prior to distribution to various Government Hospitals in the state of Tamil Nadu. Their main averments are based on the Boards Circu....
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....ub clause 11 of clause III (C) of the 'Memorandum of Association of TNMSCL' dealing with other objects for which the company is established, states 'To carry on the business of packing and forwarding agents.' The appellant has not mainly contested the classification they are aggrieved that the amount received by them cannot be considered as 'consideration', hence the taxability and valuation adopted is not correct. They are receiving 1.5% deduction towards 'handling and testing' charges from the suppliers. It is the appellants case that TNMSCL had a policy whereby each individual supplier was responsible for providing a certificate as to the quality of the drugs supplied. But the method of execution was changed, and it has become standard policy for TNMSC to withhold the amount from the suppliers and to get the testing done at the suppliers' cost, as per the tender document. However, the fact remains that these charges are not statutory fees and hence are a consideration for their service. The amounts are also accounted for under 'income from operations' in their profit and loss account. If any part of this payment is also paid as statutory fees for testing to Government Authoritie....