United Telecoms Ltd. Vs Commissioner of Service Tax (CESTAT Bangalore)
The dispute before the CESTAT Bangalore concerned the service-tax liability of United Telecoms Ltd. on activities undertaken pursuant to a contract awarded by the Government of Maharashtra for setting up computerized facilities in its Road Transport offices for issuing Smart Car Driving Licences and paper learning licences. The work was performed using the Sarathi Web platform made available by the Central Government. The appellants captured applicants’ data and photographs, prepared smart card and paper licences and submitted them to the Road Transport Office for further issuance to the applicants. The appellants were permitted to collect consideration for these activities.
The Revenue took the view that the activities constituted ‘Business Auxiliary Services’ under Section 65 (19) (vi) of the Finance Act, 1994 and issued a show-cause notice demanding service tax of Rs. 5,70,02,726/-. The demand was confirmed by Order-in-Original No. 102/2012 dated 08/08/2012.
On behalf of the appellants, it was submitted that the issue was covered by the decision of the Delhi Tribunal in Smart Chip Ltd. V. CCE – 2013 (31) STR 727 (Tri.-Del.), which was stated to have been upheld by the Madhya Pradesh High Court in 2015 (39) S.T.R. 197 (M.P.) and by the Apex Court in 2015 (39) STR J243 (S.C.). Reliance was also placed on CBEC Circular No. 89/7/2006-ST dated 18/12/2006.
The Tribunal considered the Board’s clarification that activities performed by sovereign/public authorities under statutory provisions constitute statutory obligations, with fees collected in such circumstances being compulsory levies rather than consideration for taxable services. The circular further distinguishes activities that are not statutory in nature and are undertaken for consideration other than statutory fees or levies.
The Tribunal also considered the reasoning in Smart Chip Limited, particularly its conclusion that merely characterising an activity as auxiliary does not establish that the service was auxiliary to the business of the client. The Tribunal reproduced observations concerning the nature of service tax and the requirement to examine the actual activity undertaken in a transaction. The reproduced discussion also referred to the decision of the Delhi High Court in Home Solutions Retails (India) Ltd. Vs Union of India, reported as 2011 (24) S.T.R. 129 (Del.), and reproduced principles concerning service tax, including that service tax is a levy on the event of service.
On examination of the facts, the Tribunal found that the appellants were only assisting a statutory authority in discharging statutory functions. The Road Transport Authority had outsourced part of its work to the appellants, and the appellants had thereby assisted the statutory functions of the authority rather than supported any business activity. Applying the judicial reasoning referred to in the order, the Tribunal held that the activities could not be treated as Business Auxiliary Service.
The appeal was accordingly allowed with consequential relief, if any, as per law.
FULL TEXT OF THE CESTAT BANGALORE ORDER
Heard both sides.
2. Brief facts of the case are that the appellants have been awarded a contract by Government of Maharashtra for setting up of computerized facilities in their Road Transport office for issue of Smart Car Driving Licence and also paper learning licences. The said work has been performed by the appellant based on Sarathi Web platform which was made available by the Central Government. The activity undertaken by the appellants was to capture the data and photograph of applicants for the driving licences as well as learning licences and to prepare a smart card/paper licence and to submit to the RTO for further issuance to the applicant. The appellants are allowed to collect a consideration for the same. Revenue opining that the services undertaken by the appellant fall under the category of ‘Business Auxiliary Services’ as defined underSection 65 (19) (vi) of Finance Act, 1994,issued a show-cause notice demanding service tax of Rs. 5,70,02,726/- (Rupees Five Crore Seventy Lakhs Two Thousand Seven Hundred and Twenty Six only), the same was confirmed by the impugned order 102/2012 dated 08/08/2012.
3. Learned counsel for the appellant submits that the issue is squarely covered by the decision of the Delhi Tribunal in the case of Smart Chip Ltd. V. CCE – 2013 (31) STR 727 (Tri.-Del.) which was upheld by the Madhya Pradesh High Court in 2015 (39) S.T.R. 197 (M.P) as well as the Apex Court in 2015 (39) STR J243 (S.C). Learned counsel for the appellant also relies upon the clarification issued by CBEC videCircular No. 89/7/2006-ST dated 18/12/2006.
4. Learned AR for the Department reiterated the findings of the Order-in-Original.
5. Heard both sides and perused the records of the case. We find that CBEC by the Circular cited above has clarified as under:
“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.”
5.1. Tribunal in the case of Smart Chip Limited (supra) has gone into the issue has also observed as under:
“8. Added to above observations made, we are also unable to find how Section 65(19)(iv) of Finance Act, 1994 comes to rescue of Revenue. The object was not procurement of goods or services. Object of the contract as that was spelt out in agreement dated 9- 10-2001 is to build a system. Revenue also fails to get help by piecemeal reading of the law without proving that the services provided by the appellant was auxiliary in nature to serve the purpose of business of client. By no stretch of imagination, building a system can be conceived to be “Business Auxiliary Service”. We have occasion to go through para 52 of the judgment of Hon‟ble High Court of Delhi in the case of Home Solutions reported in 2011
(33) STT 95/13 Taxman 188 (Del.) = 2011 (24) S.T.R. 129 (Del.) where the service tax jurisprudence has been laid down by the Hon‟ble Court on consideration of rulings of Apex Court on the subject. The same is re-produced for the reading:
52. From the above pronouncements in the field, the following principles regarding service tax can be fruitfully culled out:
(i) The measure of taxation does not affect the nature of taxation and, therefore, the manner of quantification of the levy of service tax has no bearing on the factum of legislative competence.
(ii) Taxable services can include providing of premises on a temporary basis for organizing any official, social or business function but also other facilities supplied in relation thereto,
(iii) Levy of service tax on a particular kind of service cannot be struck down on the ground that it does not conform to a common understanding of the word „service‟ as long as it does not transgress any specific restriction embodies in the Constitution.
(iv) Service tax is a levy on the event of service.
(v) The concept of service tax is an economic concept.
(vi) „Consumption of service‟ as in case of „consumption of goods‟ satisfies human needs.
(vii) Service tax is a value added tax which in turn is a general tax applicable to all commercial activities involving provision of service.
(viii) Value added tax is a general tax as well as destination based consumption tax leviable on services provided within the country.
(ix) The principle of equivalence is in-built into the concept of service tax.
(x) The activity undertaken in a transaction can have two components, namely, activity undertaken by a person pertaining to his performance and skill and secondly the person who avails the benefit of the said performance and skill. In the said context, the two concepts namely activity and the service provider and service recipient gain significance.”
6. In view of the above, we find that the appellants are only assisting a statutory authority in the discharge of statutory functions and by no stretch of imagination they are rendering any Business Auxiliary Service to the Road Transport Authorities. From the facts of the case, it is apparent that the Road Transport Authority has outsourced part of their work to the appellant and thereby the appellants have in fact assisted the statutory functions of the authorities and have not in any case supported any business activity. In view of the same and in view of the judicial pronouncement as above, appeal is allowed with consequential relief, if any as per law.
(Order was pronounced and dictated in Open Court on 26/02/2020)
