Unique identification project (Aadhaar Card) was initially conceived by the Planning Commission as an initiative that would provide identification for each resident across the country and would be used primarily as the basis for efficient delivery of welfare services. It would also act as a tool for effective monitoring of various programs and schemes of the Government.
In effective implementation of the above scheme, the government has outsourced the work like collection of data, printing of Aadhaar cards etc. to many interested people (enrollment agencies) for which a amount is paid against providing such services.
Now, the question arises herewith whether the service tax would be applicable on such services provided to the government or not?
In order to form an opinion, the activities being carried out needs to be analyzed individually ie. Work carried out by Enrollment Agencies and second, the work of printing of Aadhaar cards.
ST Leviablity on services provided by Enrollment Agencies :
The objective of enrolment is to collect the demographic data after due verification as prescribed by the UIDAI (Unique identification Authority of India) and thereafter collect the biometric data from the enrolees. The data thus collected would be transmitted to the UIDAI for a process of de-duplication and allotment of the UID Number.
Such activity is being carried by agencies which are authorized by government and for carrying out such activity the government is paying an amount for each application. Now, the question arises herewith that, whether the activities carried out by the enrollment agencies would classify under the definition of services. If yes, then whether they are liable to pay service tax as per the provisions contained in Chapter V of the Finance Act, 1994 as amended thereafter.
The Finance Act, 2012 has ushered a new system of taxation of services; popularly known as Negative List regime. The new changes are a paradigm shift from the existing system where only services of specified descriptions were subjected to tax. In the new system, all services except those specified in the negative list, will be subject to taxation and provisions relating to positive list approach, namely, sections 65, 65A, 66, and 66A will cease to operate. Under new system called as “Taxation of Services”, Section 66B specifies the charge of service tax which is essentially that service tax shall be levied on: -
a. all services;
b. provided or agreed to be provided in a taxable territory,
c. other than services specified in the Negative List.
Meaning of ‘Service’
As mentioned above, the first condition of charging Section provides that in order to attract the taxability transaction must fall within the scope of what is called “service”. At the outset ‘service’ has been defined in clause (44) of section 65B of the Act. Accordingly, it means –
a. Any activity;
b. for consideration;
c. carried out by a person for another;
d. and includes a declared service.
In the instance case, the enrollment agencies are carrying out an activity in the nature of collecting the data for consideration and are which is being paid by the other person ie. government. Now, it can be said that, the activity carried out by the enrollement agencies would fall under the definition of service, but question arises herewith, whether such service would be chargeable to service tax as per charging section 66B of the Ibid Act.
On careful reading of all the clauses under negative list and mega exemption list, service in relation to data collection to government is not covered anywhere. Hence, prime facie, it can be concluded that the activity carried out by the enrollment agencies for the government shall be leviable to service tax.
However, if we analyze the activity of enrollment agencies on a broader sense, it is to consider here that the activity of providing Aadhaar card is a sovereign function carried out by the government in terms of Constitution of India. Accordingly, the services provided by the implementation agencies for the same should not be chargeable to Service Tax.
There is no specific provision in the Constitution about the sovereign power. However, Article 265 of the Constitution says that no tax shall be levied or collected except by the authority of law. The law is given in the Seventh Schedule List-1 - Union List at serial No.92C which authorizes tax on services but the Constitution does not say anything about taxing the services provided by the sovereign. The expression sovereign denotes that the State has power to legislate on any subject in conformity with Constitutional limitations; (Synthetics & Chemicals Ltd. vs. State of Uttar Pradesh AIR 1990 SC 1480).
Some recent judgments at the Tribunal level have thrown light on the use of sovereign power in regard to tax collection, reliance can be placed on Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II v. C.S. Software Enterprises Ltd. [2008] 16 STT 187 (BANG. - CESTAT), wherein the Hon’ble Tribunal held that : -
“if a service is rendered in relation to a sovereign function, such activity cannot be brought under the category of a taxable service and no service tax is leviable on such activities “
Similar view was also taken in the following matters: -
CCE v. Ankit Consultancy Ltd. [2007] 8 STT 84 (New Delhi - CESTAT)
UTI TECHNOLOGY SERVICES LTD. v COMMR. OF SERVICE TAX, MUMBAI [2012 (26) S.T.R. 147 (Tri. - Mumbai)]
Further also, CBEC has also made clarifications on this issue, vide Circular No. 89/7/2006-S.T., dated 18-12-2006 where in it has been stated that: -
‘activity which is undertaken as mandatory and statutory function and is purely in public interest are not in the nature of service to any particular individual for any consideration’.
In light of above case laws and explanations, it can be said that, the activity being carried out by the enrollment agencies is a sovereign function and hence shall not be liable to service tax.
Now, whether activity of printing of UID card and delivering it to customer can be covered under purview of service tax. It is pertinent to note, act “printing” amounts to manufacture as per section 2(f) of Central Excise Act, (Note:- Printed cards are covered under Chapter 49 of CETA, 1985). Further, on perusal of Negative list, it can be conclude that, the same is outside the purview of Service Tax by virtue of clause (f) of Negative List of Services, which can be read as: -
(f) any process amounting to manufacture or production of goods;
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