Mcleod Russel (India) Ltd., Kolkata
Vs. Union of India & Anr. (Calcutta High Court),
W.P. No. 48 of 2014, Judgement On: ‐ 20.11.2014
Whether security provided by government to Tea
Plantation owners in Assam in order to protect from terrorists liable to
SERVICE TAX?
Mcleod Russel (India) Limited having its registered office at 4,
Mangoe Lane, Kolkata has tea plantations in the state of Assam and the area is
highly volatile and acts of vandalism being carried out by terrorists. The
consortium of tea plantation owners approached government for protection as it was causing financial loss and was
detrimental to the interest of the revenue.
A special task force consisting of police officers and home guard was created and the cost of salary was reimbursed by the tea plantation owners to the government. The task force (AISF) was not having power to carry out any investigation and in case they detect any commission of cognizable offence, they have to report the same to the nearest police station.
A special task force consisting of police officers and home guard was created and the cost of salary was reimbursed by the tea plantation owners to the government. The task force (AISF) was not having power to carry out any investigation and in case they detect any commission of cognizable offence, they have to report the same to the nearest police station.
The Revenue issued SCN
to Mcleod in apropos of the aforesaid service and opined that the said service
is support service provided by the government and thus squarely covered under
the ambit of service tax.
It is pertinent to
note that -
“Support services have been defined in section 65B of the Act as
infrastructural, operational, administrative, logistic marketing or any other
support of any kind comprising functions that entities carry out in ordinary
course of operations themselves but may obtain as services by outsourcing from
other for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property,
security, testing and analysis.
Thus services which are provided by government in terms of their
sovereign right to business entities, and which are not substitutable in any manner by any private
entity, are not support services e.g. grants of mining or licensing rights or
audit of government entities established by a special law, which are required
to be audited by CAG under section 18 of the Comptroller and Auditor-
General’s (Duties,
Powers and Conditions of Service) Act, 1971 (such services are performed by CAG
under the statue and cannot be performed by the business entity themselves and
thus do not constitute support services.)”
Mcleod filed a writ petition before the Hon’ble Calcutta High
Court and pleaded that the aforesaid service is apropos of the sovereign
functions of the government and thus out of the purview of service tax. 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.
The Revenue argued that the AISF was rendering security of a
private guard or a watchman as the services were personalized. The Hon’ble HC declined the
revenue’s plea and stated that prima facie it appears that it is a sovereign
function of the government. The Hon’ble HC quashed the SCN and directed the
revenue to make an adjudication following an appropriate procedure as to
whether
Should have made some changes atleast.. its a complete copy of my article published at taxguru, caclub and my blog
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