Please find enclosed herewith the judgment of Calcutta High Court dated 20-11-2014 in respect of levy of Service Tax under Reverse Charge Mechanism on Business Support Services received by tea plantation owner from Assam State Government Force. Facts of the Case – Mcloed Russel India Limited is engaged in the business of tea plantations in the State of Assam. Along with this company there are others who own tea plantations in that state. The area is disturbed and is highly volatile. There is a constant threat of damage to the tea gardens, the establishments connected with them and their owners and staff from miscreants. This government realised that this threat from miscreants could not only cause immense financial loss to the tea plantation owners but could also be detrimental to the economy of the State. A force was created and deployed by the Assam Government called the Assam Tea Plantation Security Force (ATPSF). By a letter dated 20th November, 2013 the Superintendent of Service Tax Range 18 and 19 Division-I Kolkata wrote to the writ petitioner 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 hand of service receiver. Defence of the Assessee -This service rendered by the AISF is part of the sovereign functions of the State and cannot be called support service. The State has an obligation to guard the frontiers of the country, ensure internal security, enact laws, enforce them and so on. The state has obligations with regard to maintenance of law and order, peace, prevention of crime in the tea growing and manufacturing area of the state [see list II entry1 of the 7th schedule to the Constitution of India. This part of maintenance of internal security obligations of the State in the tea plantation areas have been delegated by it to the AISF. Discharging sovereign functions by the state cannot be equated with providing support services by it. A State can never charge any tax for discharge of a sovereign function. Hence it cannot levy any tax for rendering of services by the AISF. Order of High Court - The department has the jurisdiction and obligation to determine whether the writ petitioner is receiving support services from the government. Therefore, before it could demand or even show cause under Section 73 of the Finance Act, 1995, for Service Tax, it was incumbent upon the department to make the determination whether the subject service could be classified as a support service and the writ petitioner exigible to service tax. If the departments answer was in the affirmative, only then, a show cause notice and thereafter a demand for service tax could have been issued. In those circumstances, the notice dated 201h November, 2013 is quashed and set aside. It will be open for the department to make an adjudication following an appropriate procedure as to whether the service rendered by the government of Assam to the writ petitioner in its tea plantation is support service or not and exigible to tax by a reasoned order, upon hearing the writ petitioner or its advocate.
Posted on: Fri, 28 Nov 2014 06:15:13 +0000
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