By Puloma Dalal, Jayesh Gogri, Mandar telang Chartered Accountants
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Security services provided by ASIF to tea
plantation estate owner whether amounts to “support services” liable
under RCM – High Court quashed the notice of demand but did not answer
the issue – leaves it for adjudication to decide following the
adjudication procedure u/s. 71 of the Act.
Facts:
The
Petitioners had tea plantation estates in the State of Assam located in
a disturbed and highly volatile area at which there was a constant
threat of damage to the estate. The consortium of owners of tea gardens
approached the Government of Assam for protection. A force-ASIF was
created by the Assam Government comprising of policemen as well as home
guards. The administrative control rested with the Director General of
Police and Commandant General of Home Guards, Assam. As per the MOU
signed with the Government, the force was deployed in the area to
protect planters and their property. The members of the force are
servants of the State of Assam. Their appointment, management,
discipline and pay are controlled by that State. It does not have power
to carry out any investigation. In case they detect the commission of
any cognisable offence they have to report it to the nearest police
station. For providing the service, the Assam Government charged a fee.
In other words, they ask the tea plantation owners to reimburse them of
the salary they have to disburse to the force. The Superintendent of
Service Tax wrote that the above service provided by the Assam
Government to the writ petitioner would be considered as a security
service and to be more specific a support service exigible to service
tax “in the hands of service receiver” and issued notice of demand.
Aggrieved by the same, Petitioners filed writ
Held
The
department contended that these personnel private security guards
provided by the State to the tea plantation owners for protection of
their persons and property and their functions were limited and
personalised. They had no police power or power of investigation. Hence,
it was “support services” provided by Government to business entity
liable under reverse charge in hands of the assessee. According to
petitioners, the service rendered are a part of the sovereign functions
of the State covered under list II entry1 of the 7th schedule to the
Constitution of India as the State has obligations to maintain law and
order, peace, prevention of crime in the tea growing and manufacturing
area of the State. Thus, discharging sovereign functions by the State
cannot be equated with providing support services by it. The High Court
observed that the basic foundation of the case that the force employed
by the State in the tea plantations discharges the sovereign function of
the State of maintaining peace and security in the region has not been
specifically denied in the affidavit-in-opposition filed by the
department and therefore the Court did not take into account any
statement made from the bar. On that basis, the Court held that, the
statement of the writ petitioner that the appointments to this force,
its management, control, finance, discipline etc., are regulated by the
Government is uncontroverted. That the nature of its function is to
protect the plantations and the personnel working therein against
unlawful acts is also uncontroverted. Therefore, prima facie there is
every indication that the service rendered by this force is sovereign
and hence not a “support service”.
The Court held that the value
of sovereign functions of a State is not taxable in the hands of the
citizens. Support services rendered by the Government are taxable.
Whether the service in question is taxable or not is a question of fact.
Leaving the matter to the judgment of the department to determine
whether the petitioner received support services or otherwise, the
notice was quashed and set aside. However, it was left open to the
department to adjudicate following an appropriate procedure as to the
matter being exigible to tax.
