Madras HC Quashes Service Tax Demand on Chennai Police for Bundobast Services, Holds Sovereign Functions Not Taxable before 1 June 2012 [Read Order]

In a recent ruling, the Madras High Court quashed the service tax demand raised on the Greater Chennai Police Commissionerate for providing Bundobast and security services, holding that such services are sovereign functions and that the Government was not liable to service tax for the period prior to 1 June 2012.

The Greater Chennai Police Commissionerate, the petitioner, challenged a service tax demand confirmed by the Principal Commissioner of Service Tax for charges collected under various Government Orders for deployment of police personnel. The petitioner argued that the services were statutory duties performed under police enactments and that the collections were only reimbursements without any profit element.

The revenue argued that the services were taxable as “security agency” services and that the charges collected amounted to consideration.

The Division Bench comprising Justice Anita Sumanth and Justice Mummaneni Sudheer Kumar observed that the services rendered by the Greater Chennai Police Commissionerate were Bundobast services forming part of official police duties. The court observed that there was no factual difference between services rendered to the general public and those rendered to specific service recipients.

The court explained that merely because the services were provided to private or governmental entities, their nature did not change and they continued to remain public services forming part of sovereign functions.

The court further observed that for the period from May 2006 to December 2011, the

definition of “person” under the Finance Act, 1994 did not include the Government. The court pointed out that the Government was brought within the definition of “person” only with effect from 1 June 2012.

On this basis, the court held that the assumption of jurisdiction to levy service tax on the police department for the period in question was unsustainable. The court clarified that it was not deciding the issue of taxability for the period after 1 June 2012.

The court allowed all the writ petitions, quashed the Order-in-Original dated 14 October 2015, and held that the petitioner was not liable to service tax for the period under dispute. The connected miscellaneous petitions were closed, and no costs were awarded.

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