Zila Sainik Board Vs Commissioner of Central Excise and ST (CESTAT Chandigarh)
Summary: The present appeals arise from different impugned orders concerning the taxability of services provided by M/s Zila Sainik Board, Amritsar. Since the issue involved was identical, Appeal No. ST/50239/2015 was taken as the lead case. In the lead appeal, the Commissioner (Appeals) had confirmed the service tax demand with interest but dropped penalties under Sections 76, 77 and 78 of the Finance Act on the ground that the appellant was under a bona fide belief that it was performing a statutory function and was not liable to service tax, extending the benefit of Section 80.
The dispute arose during audit of M/s. Punjab and Sind Bank, Zonal Office (Urban), Hall Bazar, Amritsar. The bank had taken security services from the appellant during 2006-07 to 2010-11 and paid Rs. 1,37,95,615/- for the services, involving service tax of Rs. 15,47,643/-. The appellant had neither obtained service tax registration nor paid service tax. The show cause notice dated 20.10.2011 proposed recovery of Rs. 15,47,643/- with interest under Sections 73(1) and 75, along with penalties under Sections 76, 77 and 78. The adjudicating authority confirmed the demand with interest and imposed the penalties. The Commissioner (Appeals) partly allowed the appeal by dropping the penalties.
Before the Tribunal, the appellant submitted that it forms part of the Zila Sainik Board, Punjab, is akin to a State Government department and has been established for the welfare of ex-servicemen. It provides ex-servicemen as security guards to banks on a ‘no profit, no loss’ basis. According to the appellant, payments are routed through the Board merely for administrative control and the amounts received from banks represent reimbursement of salaries paid to ex-servicemen deployed as security guards. The appellant relied upon the statutory character and objectives of the Board and submitted that it was not engaged in commercial business.
The appellant further relied upon Circular No. 89/7/2006-Service Tax dated 18.12.2006 and Circular No. 96/7/2007-ST dated 23.08.2007 to contend that fees collected by public authorities while performing statutory functions are not exigible to service tax. It was also argued that the appellant did not fall within the taxable service defined under Section 65(105)(w), and that the definition of ‘security agency’ under Section 65(94) did not cover the Board because it was not engaged in commercial business.
On limitation, the appellant contended that although the extended period had been upheld by the Commissioner (Appeals), the penalty under Section 78 had been dropped after recording a bona fide belief and absence of intention to evade service tax. It was submitted that the circumstances relevant to the extended period under Section 73 and penalty under Section 78 substantially overlapped. Reliance was placed on Steel Authority of India Ltd. Vs. Commissioner of Central Excise, Raipur; Agarwal Trading Co. Vs. Commissioner of Central Excise; and Commissioner of Customs and Central Excise Vs. Indian Institute of Chemical Technology. The appellant also relied on M/s Indian Red Cross Society Vs. Commissioner of CE & ST, Chandigarh, Superintendent of Police (Rural) Vs. Commissioner of Central Excise, and Superintendent of Police Vs. Union of India for the proposition that service tax was not applicable to services performed by statutory corporations or authorities in the circumstances considered in those cases.
The Tribunal found that the appellant is a Board constituted under a statute and performs statutory functions. It further found that the Board was not engaged in the business of providing the taxable service of a ‘security agency’. The appellant’s uncontroverted position was that it undertook welfare activities for ex-servicemen, provided security guards to banks and collected remuneration solely to pass it on to the guards. The Board did not earn any profit and was not engaged in the commercial business of rendering security services.
The Tribunal examined the main objectives of the Board and found that the activities did not fall within the scope of ‘security agency service’ under Section 65(105)(w), nor did they satisfy the definition of ‘security agency’ under Section 65(94) of the Finance Act. The Tribunal also considered the letter written by the Board to a security guard sponsored/facilitated to a bank and referred to the decision in M/s Indian Red Cross Society Vs. Commissioner of CE & ST, Chandigarh, where the appeal had been allowed with consequential relief.
On merits, the Tribunal held that services rendered by the appellant as a statutory board could not be subjected to service tax under the category of security agency service and that the appellant did not fall within the statutory definition of security agency. The impugned orders were therefore held unsustainable and set aside on merits.
On limitation, the Tribunal noted the Commissioner (Appeals)’s finding that non-payment of service tax was due to legal interpretation of the relevant provisions of the Finance Act and that the appellant had bona fide assumed that it was not liable to pay service tax. The Tribunal further relied upon the decisions cited by the appellant and held that where there was no suppression for purposes of penalty, the longer period of limitation could not be invoked. It found that the Revenue had not established fraud, collusion, wilful mis-statement, suppression of facts or contravention of the Act/rules required for invoking the extended period. The invocation of the extended period was accordingly held bad in law.
The Tribunal concluded that the impugned orders were not sustainable both on merit and on limitation. It therefore set aside the impugned orders and allowed all three appeals of the appellant with consequential relief, if any, as per law.
Cases Discussed
- [2016] 69 taxmann.com 264 (New Delhi-CESTAT) – CESTAT, New Delhi Bench – Steel Authority of India Ltd. Vs. Commissioner of Central Excise, Raipur
- [2014] 52 taxmann.com 460 (new Delhi-CESTAT) – CESTAT, New Delhi Bench – Agarwal Trading Co. Vs. Commissioner of Central Excise.
- [2012] 25 taxmann.com 291 (AP) – High Court of Andhra Pradesh- Commissioner of Customs and Central Excise Vs. Indian Institute of Chemical Technology.
- M/s Indian Red Cross Society Vs. Commissioner of CE & ST, Chandigarh Vide Final Order No. 60361/2025 (CESTAT, Chandigarh).
- [2021] 131 taxmann.com 275 (Mumbai-CESTAT) – CESTAT, Mumbai Bench- Superintendent of Police (Rural) Vs. Commissioner of Central Excise.
- [2024] 164 taxman.com 731 (Madras) High Court of Madras, Superintendent of Police vs. Union of India.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeals are directed against different impugned orders. Since the issue involved is identical, Appeal No. ST/50239/2015 is taken as the lead case for discussion and disposal. Vide the impugned order dated 25.09.2014, the learned Commissioner (Appeals) has confirmed the demand of service tax along with interest. However, the penalty imposed under Sections 76, 77, and 78 of the Finance Act has been dropped on the ground that the appellant was under the bona fide belief that they were performing a statutory function and do not fall under the tax net and this assumption was found to be correct and the learned Commissioner extended the benefit of Section 80 to drop the penalties.”
2. Brief facts of the present case are that during the course of audit of M/s. Punjab and Sind Bank, Zonal office (urban), Hall Bazar, Amritsar (hereinafter referred to as the “party”) it was observed that the party has taken the services of the security from the appellant during the period 2006-07 to 2010-11 and paid an amount of Rs. 1,37,95,615/ on the said services involving service tax of Rs. 15,47,643-, but the appellant did not pay the said amount of service tax on the services provided under the category of security agency as defined under Section 65(105) (w) of the Finance Act, 1994 (hereinafter referred to as the “FA, 1994”) However the appellant neither got themselves registered with the Department nor paid any service tax to the Govt. As per the Board’s instructions DOR UO F.No. 345/1/2007-TRU dated 19.08.2008, the appellant being service provider, have to deposit the service tax on the taxable service instead of asking the recipient to deposit the service tax. Further Board’s Circular F.No. B-11/3/98-TRU dated 7.10.98 prescribes that salaries/wages etc paid to the security personnel are also part of the taxable value and no such abatement in respect of levies such as EPF, ESI, contribution towards labour welfare fund etc is admissible for the purpose of computing the service tax liability. Accordingly show cause notice dated 20.10.11 was issued to the appellant proposing therein recovery of service tax along with interest amounting to Rs. 15,47,643/ under Section 73(1) and 75 of the Act. Penalty under Section 76, 77 and 78 of the act was also proposed.
After due process of adjudication, adjudicating authority confirmed the demand of Rs. 15,47,643 along with interest under proviso to Section 73(1) and 75 of the Act. Penalty under Section 76, 77 and 78 of the Act was also imposed. Aggrieved by the said order, the appellant field before the Commissioner (Appeals), who partly allowed the appeal of the appellant and dropped the penalties under Section 76,77 and 78 of the Act.
3. Heard both the parties and perused the material on record.
4. The learned Consultant for the appellant submits that the impugned order is not sustainable in law and is liable to be set aside, as the same has been passed without properly appreciating the facts, the law, and binding judicial precedents. He further submits that the appellant is a part of the Zila Sainik Board, Punjab, which is akin to a State Government department and has been established for the welfare of ex-servicemen in the State. He contends that the appellant provides ex-servicemen as security guards to banks on a ‘no profit, no loss’ basis. The payments are routed through the appellant Board to the security guards merely to maintain better administrative control, without earning any profit or engaging in the commercial business of providing security agency services taxable under the Act. Referencing the objective and organizational structure of the appellant Board, the learned Consultant demonstrates that the appellant is a statutory body with no commercial motive. The Board is regulated by the Governor of Punjab, the Chief Minister of Punjab, and the Finance Minister of Punjab. Consequently, the consideration received from the banks for providing security personnel is merely a reimbursement of the salary disbursed to the ex-servicemen deployed as security guards.
4.1 The learned Consultant further refers to Circular No. 89/7/2006-Service Tax dated 18.12.2006 and Circular No. 96/7/2007-ST (F.No. 354/28/2007-TRU dated 23.08.2007) to contend that the fees collected by public authorities while performing statutory functions are not exigible to service tax under the provisions of law. He further submits that the appellant does not fall within the ambit of the taxable service defined under Section 65(105)(w), as the appellant is not a ‘security agency’. In this regard, he refers to Section 65(94) to show that a ‘security agency’ means ‘any commercial concern engaged in the business of providing security personnel’. He submits that the words ‘any person’ appearing in the definition were later substituted for the words ‘any commercial concern’. He further argues that the appellant Board cannot be deemed as security agency since it is not engaged in any commercial business. On the aspect of limitation, he submits that although the original authority confirmed the demand by invoking the extended period of limitation, the learned Commissioner (Appeals), while upholding the invocation of the extended period, dropped the penalty under Section 78 of the Act. He stresses that the penalties were dropped upon a finding that the appellant operated under a bona fide belief and harbored no intention to evade the payment of service tax. He concludes that the provisions regarding the invocation of the extended period under Section 73, as well as the levy of penalty under Section 78 of the Act, describe identical circumstances involving fraud, collusion, willful misstatement, suppression of facts, or contravention of the provisions of the Act/rules with intent to evade.
4.2 He further submits that the submission of the board regarding no suppression of facts to evade payment of tax, though accepted in case of non-levy of penalty under Section 78, however, the same has been ignored in the matter of invoking of extended period. He also submits that it is settled law that if penalty under Section 78 is vacated, it clearly shows that ingredients required for invoking extended period were not present in the case. For this submission, he relied upon the following decisions:
- [2016] 69 taxmann.com 264 (New Delhi-CESTAT) – CESTAT, New Delhi Bench – Steel Authority of India Ltd. Vs. Commissioner of Central Excise, Raipur
- [2014] 52 taxmann.com 460 (new Delhi-CESTAT) – CESTAT, New Delhi Bench – Agarwal Trading Co. Vs. Commissioner of Central Excise.
- [2012] 25 taxmann.com 291 (AP) – High Court of Andhra Pradesh- Commissioner of Customs and Central Excise Vs. Indian Institute of Chemical Technology.
He further relied upon the following decisions, Wherein, it has been held that service tax is not applicable on the services performed by statutory corporation:
- M/s Indian Red Cross Society Vs. Commissioner of CE & ST, Chandigarh Vide Final Order No. 60361/2025 (CESTAT, Chandigarh).
- [2021] 131 taxmann.com 275 (Mumbai-CESTAT) – CESTAT, Mumbai Bench- Superintendent of Police (Rural) Vs. Commissioner of Central Excise.
- [2024] 164 taxman.com 731 (Madras) High Court of Madras, Superintendent of Police vs. Union of India.
5. On the other hand, learned Authorized Representative for the Department, reiterated the findings of the impugned order.
6. We have considered the submissions made by both parties and perused the material on record. We find that the appellant is a Board constituted under a statute and is performing statutory functions. We further find that the appellant Board is not engaged in the business of providing the taxable service of a ‘security agency’. The uncontroverted stand of the appellant is that they are engaged in welfare activities for ex-servicemen, whereby they provide security guards to various banks and collect the remuneration solely to pass it on to the said guards. The appellant Board does not earn any profit, nor it is engaged in the commercial business of rendering security services so as to attract taxability under the Finance Act.”
7. We have also examined the main objectives of the Board, which have been elaborately stated by the appellant in their written submissions. We note that the appellant has referred to various circulars wherein it has been held that any fee collected by a public authority while performing statutory functions or duties under the provisions of law is not subject to service tax. We further find that the activities performed by the appellant Board do not fall within the scope of the definition of ‘security agency service’ as defined under Section 65(105)(w), nor do they satisfy the definition of ‘security agency’ as provided under Section 65(94) of the Finance Act.
8. After seeing the nature of the activities performed by the appellant board, which is in the nature of facilitator for the welfare of Ex-serviceman of the state and not engaged in the business of providing of security agency service also substantiated from the contents of the letter written by it to the security guard so sponsored/facilitated to the bank and one of the copy of such letter is enclosed as annexure to the written submissions and the perusal of the contents of the same is self-explanatory. We also find that this Tribunal in the case of M/s Indian Red Cross Society Vs. Commissioner of CE & ST, Chandigarh (cited supra), wherein the Tribunal has held in para 9 as reproduced below:
“In view of our discussions above, the impugned order is not sustainable in law and thereafter, we set aside the same by allowing the appeal of the appellant with consequential relief if any, as per law.”
9. In view of the above facts and circumstances, we are of the considered view that the services rendered by the appellant as statutory board cannot be subject to service tax under the category of security agency service and they do not fall in the definition of security agency as prescribed under law, therefore, on merit, we are of the considered view that the impugned orders are not sustainable and are liable to be set aside and we do so.
10. As regards the invocation of extended period, we find that the learned Commissioner (Appeals) while dropping the penalty has observed in para 7 of the impugned order that non-payment of service tax was due to legal interpretation of the relevant provisions of Finance Act. The learned Commissioner (Appeals) has also observed that the appellant has bonafidely assumed that they are not liable to the pay service tax and therefore, extended period cannot be invoked in the appellant’s case and the learned Commissioner (Appeals) has dropped the penalty by giving the benefit of under Section 80.
11. Further, we find that in view of the the decisions relied upon by the appellant (cited supra), wherein, it has been held that if there is no suppression for the purpose of levy of penalty, longer period of limitation cannot be invoked, therefore, invocation of extended period in the present case is also bad in law. Further, we find that the Revenue has not been able to establish any of the ingredients which are required to invoke the extended period of limitation, namely, fraud, collusion, wilful mis-statement, suppression of facts and contravention of provisions of the Act/rules therefore, on limitation, we hold that the invoking the extended period of limitation is bad in law.
12. In view of our discussion above and by following the ratio of the decisions cited by the appellant above, we are of the considered opinion that the impugned orders are not sustainable in law on merit as well as on limitation, therefore we set aside the same by allowing all the three appeals of the appellant with consequential relief, if any, as per law.
(Order pronounced in the open court on 24.08.2026)
