The Kerala High Court stated that services by charitable society who look after socio-economic and welfare matters of ex-serviceman and their families is liable to service tax. Since educational institutions are not considered to be commercial entities by definition or by the activities they are supposed to carry out, the assessee cannot be regarded on an equal basis with them.
The appellant is the Kerala State Ex-services League, which is a Charitable Society registered under the Travancore Cochin Society Registration Act, 1955 and is affiliated to the Indian Ex-Service League, New Delhi. It has its registered office at Trivandrum and the League has District Committees in all the Districts in the State of Kerala. The primary object of the League is stated to be to look after the socio-economic and welfare matters of ex-servicemen and their families.
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Bye-law of the League is also produced to show that the Society is incorporated for the purposes of
coordinating the welfare measures for the benefit of the ex-servicemen and their family members.
The issue in these appeals arises from the notices issued to the appellant in 1998 asking it to register itself as a service provider under the head of “security agency service” as defined under Section 65(40) of the Finance Act, 1994 prior to 2006 and under Section 65(94) of the said Act after the 2006 amendment.
The appeal aroses from the proceedings that commenced with the challenge to the notice requiring the appellant to take out registration as a service provider under the head of “security agency service”. The original authority once again found that the activities of the appellant would attract the definition of “security agency service” for the purposes of payment of service tax under the Finance Act, 1994, as amended.
The appellant preferred appeals before the First Appellate Authority which confirmed the demand of service tax and penalty on the appellant. In the further appeals preferred by the appellant before the Appellate Tribunal, the Appellate Tribunal also found that the services provided by the appellant would attract the definition of “taxable service” under the head of “security agency service” and therefore dismissed the appeals preferred by the appellant and confirmed the demand of service tax and penalty on the appellant.
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The appellant counsel argued that the services rendered by the appellant cannot attract the definition of “taxable service” as applicable under the head of “security agency service”. The appellant consequently provides opportunities to its members by guiding them for better placements on no profit no loss basis and hence, its functioning is purely on a non-commercial basis which fact has been recognized by the Governmental authorities.
The Circular relied on by the appellant also mandates that on requests being received from Government Offices or private or public sector undertakings for security cover, the appellant would furnish a panel of names for selection by the undertaking concerned. On its part, the appellant would take the full responsibility of executing the security contract and making the payment to the ex-servicemen so employed on contract basis by the establishment concerned.
Per contra, the Standing counsel for the respondent stated that the impugned order of the Appellate Tribunal has considered the submissions of the appellant on merits, and has taken note of the statutory provisions and the judgments rendered by various High Courts and Tribunal to come to the conclusion that the services rendered by the appellant attract the liability to tax under the Finance Act, 1994, as amended, in its application to security agency service.
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“For an association like the assessee, the embarking on a transaction that is designed to earn income for its members would have to be seen as a commercial venture and the assessee who embarks on such a venture, a ‘commercial conern’,” noted the Division Bench, which was composed of Justices A.K. Jayasankaran Nambiar and Easwaran S.
The bench dismissed the plea, ruling that even if it may be true that the assessee did not turn a profit from its commercial activities in a given year or years, it is nonetheless true that the assessee entered into the enterprise with the intention of turning a profit. Since educational institutions are not considered to be commercial entities by definition or by the activities they are supposed to carry out, the assessee cannot be regarded on an equal basis with them.
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