[2015] 53 taxmann.com 24 (Calcutta)- McleodRussel (India) Ltd. vs. Union of India
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 a 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 personalized. 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
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