By TIOL News Service

NEW DELHI, JUNE 21, 2017: THE appellant is an institution created by an Act of Parliament – the Employees Provident Fund and Miscellaneous Provision Act, 1952 (EPMF& MP Act).

The appellant is involved in collection of contribution from the employers covered by the provision of the Act, collection of inspection charges and administrative charges, penal damages, penal interest from defaulters.

They disburse accumulated provident fund to the Members along with interest, pay various kinds of pension benefits to members and to family members and incur expenses in administering the scheme as provided under the abovementioned Act.

The Revenue entertained a view that the appellants are engaged in providing taxable service under the category of “Banking and Other Financial Services (BOFS)”.

A total demand of Rs.688 crores was confirmed against the appellant along with penalties and interest. The CST, Delhi while upholding the charges leveled in the SCNsheld that the appellant provided taxable service as a corporate body/trust by managing funds and the activities carried out are not in the nature of statutory functions but are in the nature of services of social welfare as per the directive principles of state governance; that the appellant is neither a sovereign nor a public authority and is only a body corporate established under law and managed by a Trust.

The matter is before the CESTAT.

While the appellant made submissions at length on the fallacy of the demand notices and the impugned orders, the AR justified the demand and also adverted to the clarification given by the Finance Ministry,CBEC vide letter dated 15/01/2009 that the services provided by the appellant, prima facie , appears to be taxable under BOFS.

The Bench considered the elaborate submissions and after extracting the statutory definition of “BOFS” inter alia observed thus –

Legal Status of appellant:

+ The appellant is a statutory body created for a specified welfare function by an Act of Parliament. [ Regional Provident Fund Commissioner vs. The Hoogly Mils Company Ltd. and ors., reported in (2012) 2 SCC 489 relied upon] .

Whether appellant is discharging a statutory function or providing a taxable service:

++ When the person is an agent or instrument of function of the state, the power is ‘public'. The true test is functional. In general, without any possible dispute, it can be stated that a public authority is one which has a legal mandate to govern, or administer a part of some aspect of public life. ( ShriVenkataramanDevaru vs. State of Mysore - 1958 S.C.R. 895 & SomPrakashRekky vs. Union of India - 1981 (1) SCC 449, BalmerLawrie& Co. Ltd. vs. ParthaSarathiSen Roy (2013) 8 SCC 345 refers.)

++ The appellant is concerned with ‘Public' - namely the employers who are governed by the EPMF& MP Act. The employers are governed by the said Act for delivery of welfare benefits to the employees (members of the Fund). The appellant is an “authority” having vested with statutory powers to enforce the due contribution of fund, administration charges, penal charges etc. The appellant has power to impose penal consequence on employers for violation of any provisions of EPMF& MP Act, and also for coercive recovery of dues.

++ Having examined the scope of ‘public authority' and applying the general principles to the functions and responsibilities of the appellant, we have no hesitation to hold that the appellant is a public authority performing statutory functions as mandated by an Act of Parliament.

++ The ‘administrative charges' received from the employers forms the basis for more than 95% of the demand of service tax, now being contested. These administrative charges are received from the employers at the fixed rate of emoluments in order to meet the administrative expenses of the appellant in terms of Rule 30 readwith Rule 54 of Employees Provident Fund Scheme.

++ The said administrative charges are a mandatory payment to be compulsorily paid by the employers, who are covered by the provisions of EPMF& MP Act. Non-payment of the contribution or administrative charges will invite penal consequences in terms of Section 14 of the said Act. It is clear from the legal provisions that the charges paid by the employers to the appellant are mandated statutory payments and are not towards any consideration for receiving taxable service.

++ The fee and other charges collected by the appellant from the employers in the present dispute are fixed by the law with no discretion or option vested with appellant or the employers. As such these cannot be considered as amounts received for providing any taxable service of BOFS.

Service to whom?

++ For levy of service tax on any transaction, there should be a service provider and a service recipient, apart from identifying a transaction under a specific taxable category. In the present case, the appellant is identified as a service provider. However, the Original Authority did not specifically identify the service recipient. The employers are the only persons who pay the consideration, now sought to be taxed, at the hand of appellants.

++ On close scrutiny, it is plain and clear that they are not in receipt of any service, least of all BOFS, from the appellant. The Original Authority held that the appellants performed the service of fund management. One crucial aspect, missed by the Original Authority, is fund which is managed by the appellant is to the benefit of employees whose welfare is entrusted to the appellant, by law. The employers do not get any benefit out of such fund management. The administrative charges and other charges paid by the employers, therefore, cannot be attributed to any service received by them from the appellant. The employers have no choice and are compulsorily mandated by law to contribute to the fund and also pay the administrative charges/inspection charges etc. in terms of the EPMF& MP Act. The employees who ultimately benefit, have not paid any consideration to the appellant. They only contributed their part of fund, through the employer, to the appellant. … in the absence of a service provider and service recipient relation between the appellant and the employers, no service tax liability can arise in the transaction .

+ Similarly, interest on delayed payment, interest received on investment from pension funds cannot be subjected to service tax as there is no service related activity at all in such income.

Services exempted from 01/03/2016:

+ Exemption now granted vide Notification No. 9/2016-ST to EPFO (appellant) has no relevance to decide their tax liability during the present disputed period which is under pre-negative list based tax regime.

Conclusion:

+ Appellants are not liable to pay service tax on their statutory activities performed in terms of EPMF& MP Act, 1952.

+ The appellants are not providing any taxable service to the employers covered by the said Act. The relationship and transaction between the employers and the appellant is in discharge of statutory and compulsory obligations, coercively enforceable by the law.

+ The considerations sought to be taxed are statutorily fixed, mandated fees and charges. No option exists with the appellant or contributor to vary such ‘Fees' or ‘charges'. As such, there is no taxable element in such transaction.

The impugned orders were set aside and the appeals were allowed.

In passing: Also see 2014-TIOL-1857-CESTAT-DEL & 2014-TIOL-2453-CESTAT-KOL .

(See 2017-TIOL-2111-CESTAT-DEL)