Service tax demand quashed for Bundobast Services on Chennai Police holding sovereign functions not taxable prior to 1 June 2012

Greater Chennai Police Commissionerate Vs Union of India (Madras High Court)

Conclusion: Service tax demand raised on the Greater Chennai Police Commissionerate for providing Bundobast and security services, holding that such services were sovereign functions and that the Government was not liable to service tax for the period prior to 1 June 2012.

Held: Greater Chennai Police Commissionerate, assessee, challenged a service tax demand confirmed by the Principal Commissioner of Service Tax for charges collected under various Government Orders for deployment of police personnel. Assessee argued that the services were statutory duties performed under police enactments and that the collections were only reimbursements without any profit element. Revenue argued that the services were taxable as “security agency” services and that the charges collected amounted to consideration. It was held that services rendered by the Greater Chennai Police Commissionerate were Bundobast services forming part of official police duties. The court observed that there was no factual difference between services rendered to the general public and those rendered to specific service recipients. The court explained that merely because the services were provided to private or governmental entities, their nature did not change, and they continued to remain public services forming part of sovereign functions. The court further observed that for the period from May 2006 to December 2011, the definition of “person” under the Finance Act, 1994 did not include the Government. The court pointed out that the Government was brought within the definition of “person” only with effect from 1 June 2012. Therefore, the assumption of jurisdiction to levy service tax on the police department for the period in question was unsustainable.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

A common order is passed in these three writ petitions as the issue that arises for decision is the same across all the matters.

2. The prayer in W.P.No. 6280 of 2016 is for a Declaration that the activities of the petitioner rendered under the Tamil Nadu District Police Act, 1859, the Chennai Police Act, 1888 (formerly the Madras City Police Act, 1888) (referred to hereinafter as ‘enactments’/’relevant enactments’) and Government Orders issued by the State of Tamil Nadu, are outside the scope of Chapter V and VA of Finance Act, 1994 in terms of which Service tax is levied.

3. W.P.No. 6281 of 2016 challenges Order-in-Original dated 14.10.2015 passed by the Principal Commissioner of Service Tax – I, Chennai – 600 040 / third respondent, and W.P.No. 6282 of 2016 is for a mandamus directing the respondent no.1 to issue suitable instructions to the subordinate officers not to propose demand /or levy service tax on the petitioner for statutory services rendered under the provisions of the Tamil Nadu District Police Act, 1859, the Chennai Police Act, 1888 (formerly the Madras City Police Act, 1888) and the relevant Government Orders issued by the State of Tamil Nadu.

4. The prayer, in common, is for an exemption from the levy of tax under the provisions of the Finance Act, 1994 (Service Tax/Service Tax Act) in respect of the services rendered by the petitioner, the Greater Chennai Police Commissionerate in the exercise of its sovereign functions under the aforesaid enactments.

5. We have heard detailed submissions advanced by Mr.Anishkumar, for the petitioner and Mr.Mohana Murali, for the respondents.

6. Mr. Mohana Murali has filed memo dated 09.12.2025 seeking an amendment to the array of respondents in light of the introduction of the Goods and Services Tax Act, 2017 with effect from 01.07.2017. The memo states that post introduction of the Goods and Service Tax Act, 2017, R3 – R5 as originally arrayed have merged. Memo dated 09.12.2025 is ordered and the Registry is directed to make corresponding changes to the array of respondents.

7. The submissions of the petitioner are to the effect that the Order-in-Original dated 14.10.2015 is bad in law as there is no liability that could be fastened on the police authorities qua the provision of security/bundobast services to various entities, both State as well as private.

8. Learned counsel for petitioner would submit that the duties of the police authorities rendered in terms of the relevant enactments constitute sovereign functions. Under various Government Orders, the State has permitted the authorities to collect certain amounts from the service recipients.

9. These receipts are nothing but a reimbursement of the costs to be defrayed by the petitioner in respect of those police officials deputed to render the security services. Hence, and being a measure of reimbursement, there is no profit that is earned by the petitioner and the receipts would hence not fall within the ambit of the Service Tax Act. He relies in specific on G.O. No. 949 dated 06.11.2009.

10. Learned counsel for petitioner would also argue that there could be no liability fastened under the Service Tax Act as far as governmental agencies are concerned. In fact, the Commissionerate had approached the Secretary to Government, Ministry of Home Affairs, New Delhi, as early as on 11.10.2012 seeking an exemption from the levy of service tax. That petition is still pending.

11. He relies on the judgment of the Supreme Court in Commissioner v Dy. Commissioner of Police, Jodhpur¹ confirming an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of Dy. Commissioner of Police, Jodhpur v Commissioner of C.Ex & ST, Jaipur². In light of the aforesaid submissions, he would pray that the order impugned in W.P.No.6281 of 2016 be quashed and all writ petitions be allowed.

12. Mr. Mohana Murali, learned Senior Panel Counsel, would on the contrary, defend the order of the Commissioner of the Income Tax, submitting that the functions rendered by the petitioner, in respect of which the amounts have been received, are not in the nature of statutory duties. The duties are rendered in events catering to both private individuals as well as statutory and governmental agencies and hence would not come within the ambit of the enactments relied upon by the petitioner.

13. He draws attention to the amounts that are payable under the Government Orders by the service recipients and submits that those amounts are not in the nature of pure reimbursements, but contain an element of profit as well. In fine, he would pray that the impugned order be sustained and the prayer for a direction to the authorities be dismissed, as being devoid of merit.

14. We have heard both learned counsel and have considered the material papers as well as the cases relied upon.

15. The petitioner is the Greater Chennai Police Commissionerate. The services rendered by the officers are in the nature of bundobast services, admittedly falling under the sweep of their official duties. Factually therefore, there is no difference in the nature of services rendered by the officers of the Commissionerate to the service recipients, when compared with those rendered in exercise of general public duty. Hence the subject services also stand encompassed within, and are in the nature of sovereign functions.

16. We hence do not agree with Revenue that merely because the service recipients are governmental and private entities, there is any difference in the nature of services rendered by the petitioner to those entities. The services, in our view, continue to be in the nature of a public service, and part of sovereign functions.

17. The Principal Bench of the CESTAT, New Delhi, had had occasion to consider a similar issue as arising before us in the case of Commissioner of Police, Jodhpur³. Ultimately, the CESTAT took the view that the police department has a statutory and mandatory duty to maintain public peace and order and hence for the exercise of such sovereign functions, no charges would be recoverable from the citizens. They took note of the position that these charges go into the coffers of the State and hence concluded that the police department, an agency of the State cannot be considered to be a ‘person engaged in the business of running security services’.

18. The contention of the Department that the police department would come within the definition of security agency ‘services’ under Section 64(94) of the Act was hence negatived, and referring to some circulars issued by the CBIC, the appeal came to be allowed.

19. As against that order, the Commissioner of Customs and Central Excise approached the Supreme Court, that dismissed the appeal in Commissioner of Police, Jodhpur v. Commissioner⁴ in the following terms:-

“1. Heard Shri Ranjit Kumar, Learned Solicitor General appearing for the appellant and perused the relevant material.

2. Delay condoned.

3. In the facts of the case, we are not inclined to interfere with the impugned order(s). The civil appeal(s) are accordingly dismissed.”

20. In the present case too, liability is fastened under the provisions of Section (105) (w) of Finance Act 1994, defining a ‘security agency’ as follows:-

‘security agency” means any person engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel’;

(w) (to any person), by a security agency in relation to the security of any property or person, by providing security personnel or otherwise and includes the provision of services of investigation, detection or verification of any fact or activity;

21. The services rendered admittedly fall with the ambit of the above definition. The State has been issuing Government Orders over the years (i) GO No.3022 dated 10.12.1979, (ii) GO No.215 dated 31.01.1986, (iii) GO No.299 dated 11.02.1987, (iv) GO No.919 dated 11.08.2008, (v) GO No. 949 dated 06.11.2009 and GO No. 249 dated 21.03.2017). The G.O.s., provide for the collection of charges from service recipients and the tariff set out under GO No.949 dated 06.11.2009 reads as follows:-

(i) Rate of Guard Charges

* 10% Additional Amount on total pay per month may be added on 1st January, every year towards increase in dearness allowance component and other allowances / any other eligible allowance will be charged extra.

(ii) Standard Charges for Escort Duty

(Full day = Guard Charges Per Month / 30. Below 12 Hrs = 50% of full day charge and Above 12 Hrs = 75% of full day charge).

22. We are told that the rates fixed as per the above tariff constitute a reimbursement of the amounts payable to the police personnel for their regular services. However, no computation is available in support of the same. The above tariff indicates that the quantum of payment for the deputation of the officer is specific, and includes various components of pay.

23. We are unaware as to whether the amounts contain some amount of profit over and above the charges payable to the officers for regular duties. Being a question of fact, and moreover, as it does not impact the decision in this case, we are not inclined to render a finding in this regard.

24. However, we find that the definition of ‘person’ upon whom liability of service tax was to be fastened, as it stood for the period in question, being May, 2006 to December, 2011, did not include the Government. Hence, one would adopt the definition of ‘person’ under the General Clauses Act, which as per Section 6(42), reads thus:-

“person ” shall include any company or association or body of individuals, whether incorporated or not;

25. It is only under the Finance Act, 1994 on and with effect from 01.06.2012 that a definition of ‘person’ was inserted in Service tax law, reading as follows:-

“person ’ includes,-

i. an individual,

ii. a Hindu undivided family,

iii. a company,

iv. a society,

v. a limited liability partnership,

vi. a firm,

vii. an association of persons or body of individuals, whether incorporated or not,

viii. Government,

ix. a local authority, or

x. every artificial juridical person, not falling within any of the preceding sub-clauses;”

26. Hence, at the relevant point in time and for the period in question therefore, the Government was not an entity liable to tax. On this short ground, the petitioner succeeds.

27. As far as the period post 01.06.2012 is concerned, we leave the question of taxability open. We have decided the present writ petitions only on the question of assumption of jurisdiction and have not decided any of the other points that have been agitated by the petitioners. Hence the liability of the petitioner for service tax for the period subsequent to 01.07.2012 is not a subject matter of decision in these writ petitions.

28. In light of aforesaid discussion, all writ petitions are allowed and order dated 14.10.2015 is quashed. No costs. Connected miscellaneous petitions are closed.

Notes:

¹ 2018 (11) GSTL J113 (SC)

² 2017 (48) STR 275

³ Foot note supra 1

⁴ 2017 (48) STR 275