ST - Security service - All expenses & salaries of Security Guards Board are not charged to Consolidated Fund - services are not statutory function & charges collected are not statutory levy - appellant liable to pay tax: CESTAT
By TIOL News Service
MUMBAI, JAN 09, 2017: THE Appellant is a statutory authority constituted u/s 6 of the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Act, 1981.
The Act has been enacted by the State legislature for regulating the employment of private security guards employed in factories and establishments in the State of Maharashtra and for making better provisions for their terms and conditions of employment and welfare, through the establishment of a Board.
In pursuance of the provisions of the Act, the State Government has made a scheme called the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Scheme, 2002.
The Security Guards Board, constituted under Section 6, is responsible for administering the scheme and is statutorily required to exercise such powers and to perform and discharge such duties and functions as may be conferred on it by the Scheme.
Under the scheme, the wages and allowances payable to the security guards by the Principal employer have been prescribed. Both, the Principal employers and the Security Guards are registered with the Board. The establishments are liable to remit to the Board the stipulated amounts every month for the payment of wages and allowances to the Security Guards besides which a levy is recovered to meet the expenses of administering the scheme.
Prior to 1 May, 2006 the expression "Security Agency" was defined by the FA, 1994 as follows:
65(94) Security Agency means any commercial concern engaged in the business of rendering services, relating to the security of any property, movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any facts of activity, whether of personal nature of otherwise, including services of providing security personnel.
The Finance Act, 2006 amended the definition to read:
65(94) Security Agency means any person engaged in the business of rendering services, relating to the security of any property, movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any facts or activity, whether of personal nature or otherwise, including services of providing security personnel.
Prior to the amendment, the Service Tax Department called upon the Board to pay service tax of Rs. 17,91,27,953/- for the period from 16 October 1998 to 31 March 2003. The Commissioner (Appeals) by his order dated 20 March 2006 held that the Board was not engaged in providing any security service and was not a commercial concern, and hence was not covered by the definition of Security Agency. A similar view was taken by the Commissioner (ADJ) in the matter of demand related to the period between December 2003 to June 2004.
After the definition of the expression 'Security Agency' was amended by FA, 2006,SCN was issued on 18 October 2007 for the recovery of service tax of Rs.12,90,54,553/- for the period from 1 May 2006 to 31 March 2007.
The CCE, Thane-II confirmed the demand along with imposition of penalties under sections 76,77 and 78 of the FA, 1994 and in the matter of stay application filed, the CESTAT directed the Appellant to make a pre-deposit of an amount representing 50% of Rs. 9,76,97,740/-.This, being the service tax on the taxable value of Rs.79,81,84,153/- which are towards wages & allowances under clause 31 of the scheme and excludes the value of Rs.25,61,83,111/- towards levy under clause 40 of the scheme.
See - 2011-TIOL-1428-CESTAT-MUM.
In appeal, the Bombay High Court inter alia observed -
"… The fee collected by them (Board) is for performing such activities and is deposited in the Government Treasury. Such activity is purely in public interest and it is undertaken as a mandatory and statutory function, and is not in the nature of a service provided to any particular individual for consideration. In view of these circumstances, the Tribunal was not justified in imposing a requirement of deposit of an amount of Rs.4,88,48,874/-. The Appellant is a statutory body. But apart from that, the question as to whether the Appellant carries on the business of rendering services relating to the security of any property including the business of providing security personnel is a serious triable question. Consequently an order for pre-deposit was not warranted in the circumstances of the case."
See - 2011-TIOL-653-HC-MUM-ST.
The appeal was recently heard by the CESTAT.
The appellant submitted that the appellants are a statutory body established by the Government of Maharashtra for regulating the employees of Security Guards employed in the State of Maharashtra; that the function of the Board is to ensure better provisions for the terms and conditions of the employment and welfare of the security guards; that these functions are statutory in nature and cannot be treated as business to qualify under the definition of Security Agency. [Hussain Mithu Mhasvadkar Vs. Bombay Iron & Steel Labour Board and others - (1991) 93 BOMLR 805 = 1991 (62) FLR 199 upheld by Supreme Court in Civil Appeal No. 11189 of 1995; Vizagapatnam Dock Labour Board Vs. Stevedores Association Vishakhapatnam - AIR 1970 SC 1626; CBE&C Circular No. 89/7/2006-Service Tax dated 18.12.2006, all relied upon .] Moreover, the Bombay High Court had granted stay and in these circumstances, imposition of penalty is not warranted.
The AR reiterated the findings of the original authority.
After considering the submissions made by both sides, the Bench extracted the provisions of section 6 of the Maharashtra Private Security Guards (Regulation of Employment & Welfare) Act, 1981, clause 40 of the Maharashtra Private Security Guards (Regulation of Employment & Welfare) Scheme, 2002and observed -
Merits:
++ It can be seen that no Director is paid by the Government of Maharashtra, the levy is collected and is determined by the Board in terms of clause 40. All the expenses and salaries of the said Board are not charged to the Consolidated Fund but are charged to the amount recovered under the said Scheme. In view of the above , it cannot be said that the Board is a Public Authority or Statutory Authority . Thus the service provided by them is not a statutory function and charges collected by them are not statutory levy. In view of above, they are chargeable to Service Tax as a regular service provider.
++ From the above clause [Clause 31 of the Maharashtra Private Security Guards (Regulation of Employment & Welfare) Scheme, 2002], it is apparent that the wages and allowances are collected by the Board as an Agency for payment to the concerned persons/authorities. Therefore, the wages and allowances are excludible from the value of service tax. Thus, the taxable value for the purpose of levy needs to exclude these charges. The demand is modified to that extent.
Penalty:
++ The Board has been created for welfare of the working class. One of the purposes of the board is to ensure that working people are treated well and not exploited. In these circumstances, invoking Section 80 of the Finance Act, 1994, we set aside penalties under Sections 76 and 78 of the Finance Act, 1994.
The appeal was allowed partially on above terms.
In passing: The CESTAT had while ordering pre-deposit - 2011-TIOL-1428-CESTAT-MUM observed thus -
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14. Before parting with this matter, In any case, the gross taxable value determined by the Commissioner does not provide any break-up between ‘Manpower Recruitment Agency' service and "Security Agency" service we should also go on record that we are not impressed with the demand of service tax under the head "Manpower Recruitment Agency" service in this case. Neither in the show-cause notice nor in the impugned order nor in the submissions of the JCDR is anything to indicate that this appellant rendered ‘Manpower Recruitment Agency' service at any time during the period of dispute. The Revenue has no case that any consideration was collected by the Board for having provided ‘Manpower Recruitment Agency' service to the private establishments registered with it. In any case, the gross taxable value determined by the Commissioner does not provide any break-up between ‘Manpower Recruitment Agency' service and "Security Agency" service. What is indicated in the annexure to the Show-cause notice is a total taxable value of Rs.1,05,43,67,264/- including two components as follows:
Rs.25,61,83,111/- towards levy under clause 40 of the scheme;
Rs.79,81,84,153/- towards wages & allowances under clause 31 of the scheme.
There is no place for any taxable value in respect of "Manpower Recruitment Agency" service in the above structure of the gross taxable value determined by the Commissioner. Hence, in the area of determination of taxable value for the purpose of levy of service tax under the aforesaid two heads, there is ambiguity in the impugned order. Considering this aspect, we are inclined to exclude the "levy" element of the gross taxable value from our scheme of directing pre-deposit…
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(See 2017-TIOL-69-CESTAT-MUM)
