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McleodRussel (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.

The Revenue issued SCN to Mcleod in apropos of the afore-said 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 afore-said service is apropos of the sovereign functions of the government and thus out of the perview 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 the service rendered by the government of Assam to the writ petitioner in its tea plantation is support service or not and exigible to tax by a reasoned order, upon hearing the writ petitioner or its advocate.

Author – Aditya Singhania Nischal Agarwal & Deepak Bansal


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