TMI Blog2017 (4) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 6D. Section 7A talks about determination of moneys due from employers. Such determination, in case of dispute, will be resolved by the officers mentioned therein. The appellant is concerned with ‘Public’ – namely the employers who are governed by the EPMF & MP Act. The employers are governed by the said Act for delivery of welfare benefits to the employees (members of the Fund). The appellant is an “authority” having vested with statutory powers to enforce the due contribution of fund, administration charges, penal charges etc. The appellant has power to impose penal consequence on employers for violation of any provisions of EPMF & MP Act, and also for coercive recovery of dues. The fee and other charges collected by the appellant from the employers in the present dispute are fixed by the law with no discretion or option vested with appellant or the employers. As such these cannot be considered as amounts received for providing any taxable service of BOFS. The employees who ultimately benefit, have not paid any consideration to the appellant. They only contributed their part of fund, through the employer, to the appellant. The contribution to the fund is not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t fund to the Members alongwith interest, pay various kinds of pension benefits to members and to family members and incur expenses in administering the scheme as provided under the above- mentioned Act. 2. The Revenue entertained a view that the appellants are engaged in providing taxable service under the category of Banking and Other Financial Services (BOFS) in terms of Section 65 (105) (zm) readwith Section 65 (12) of the Finance Act, 1994. Considerations received under 7 headings were sought to be subjected to service tax. These are (1) administrative charges received from employers (2) inspection charges received from employers (3) penal damages (4) interest on delayed payments (5) interest on investments (6) receipts from pension fund and (7) miscellaneous receipts. The proceedings initiated against the appellant by way of issue of two show cause notices dated 18/05/2009 and 23/10/2009, were completed by adjudication by the Original Authority, vide the impugned orders dated 01/07/2010. The first show cause notice covered period from 01/04/2004 to 31/03/2008 and the second notice covered the period 01/04/2008 to 31/03/2009. The Original Authority confirmed service tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned therein. The Revenue asserted that the appellants are a body corporate and, hence, can be considered as provider of service under BOFS. The appellant, per-se, is not a body corporate. In terms of Section 5C of the Act it is the Board of Trustees who are considered to be body corporate not the appellant as an institution. The funds belong to the appellant and not trustees who are entrusted to manage it. The financial statements and annual accounts are signed by the Central Provident Fund Commissioner and Financial Advisor who are employees of the appellant. It will show that the appellant as an organization is distinct from the Board of Trustees who are managing the funds and supervising the functions of the appellant. Even if the appellant is considered as a body corporate, during the period 01/04/2004 to 09/09/2004 the term body corporate was not included in the tax entry for BOFS. (4) During the disputed period from 01/04/2004 to 15/05/2008 the tax entry states as services provided to a customer . The employers/employees contributing to various funds and paying charges in connection thereto cannot be considered as customer of the appellant. They only fulfill a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax entry BOFS. The learned AR submitted that under BOFS, specific exemptions are available in respect of services provided to Central or State Governments, interest or discount, interest on financial leasing and a few other services. From the provisons of relevant tax entry for BOFS, it is evident that the appellant is providing service in relation to management of various funds as a trustee or a body corporate, and as such liable to service tax. Even though the appellant is an organization that provides services for the welfare of the people of the country, this by itself does not mean they are not providing taxable service. They are not sovereign/public authority and are not discharging such function. The fee or amount collected for managing funds cannot be considered as a fee for statutory activity. In terms of Section 3 (23) of General Clauses Act, 1897 Government includes both Central Government and any State Government. The Central Government means the President and the officers subordinate to him, while exercising the executive powers of the Union vested in the President or in the name of the President of India. The appellant, though a statutory authority, cannot automatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c asset ; (b) such contract is for use and occupation of the asset by the lessee ; (c) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges ; and (d) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment ; (ii) * * * * (iii) merchant banking services ; (iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing ; (v) asset management including portfolio management, all forms of fund management, pension fund management, [custodial, depository and trust services]; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy ; (vii) provision and transfer of information and data processing ; and (viii) banker to an issue services ; and (ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act envisages the imposition of damages for delayed payment (paragraph 10 at page 244 of the report). This Court also held that the Act is a beneficial social legislation to ensure health and other benefits of the employees and the employer under the Act is under a statutory obligation to make the deposit. In paragraph 11, it has also been held that in the event of any default committed in this behalf Section 14B steps in and calls upon the employer to pay damages. 23. If we look at the modern legislative trend we will discern that there is a large volume of legislation enacted with the purpose of introducing social reform by improving the conditions of certain class of persons who might not have been fairly treated in the past. These statutes are normally called remedial statutes or social welfare legislation, whereas penal statutes are sometime enacted providing for penalties for disobedience of laws making those who disobey, liable to imprisonment, fine, forfeiture or other penalty. 24. The normal canon of interpretation is that a remedial statute receives liberal construction whereas a penal statute calls for strict construction. In the cases of remedial statutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reasons and one of the objects of such amendment is as follows:- (viii) the existing legal and penal provisions, as applicable to un-exempted establishments, are being made applicable to exempted establishments, so as to check the defaults on their part; . 58. We hold that in a case of default by the employer by an exempted establishment, in making its contribution to the Provident Fund Section 14B of the Act will be applicable . 8. It is clear from the above, that the appellant is a statutory authority created for a specified welfare function. Section 1 (3) of EPMF MP Act stipulates that it applies to establishments of specified categories, mainly employing 20 or more persons. The schemes framed under the Act are to be laid in the Parliament as mentioned in Section 6D. Section 7A talks about determination of moneys due from employers. Such determination, in case of dispute, will be resolved by the officers mentioned therein. The officers conducting enquiry are vested with same powers of a court under Code of Civil Procedure 1908. The proceedings of the officers are judicial proceedings within the meaning of Sections 193, 228 and 196 of IPC. Section 8 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Public includes a section of the public (Shri Venkataraman Devaru vs. State of Mysore 1958 S.C.R. 895). The word public is ordinarily used with reference to a joint body of citizens. The term authority is defined as a public administrative agency or corporation having quasi governmental powers and authorized to administer a revenue producing public enterprise , (Webseter s Third New International Dictionary); authority is a body having jurisdiction in certain matters of public nature . Therefore, the ability conferred upon a person by the law to alter, by his own will directed to that end, the rights, duties, liabilities or other legal relations either of himself or of other persons must be present ab-extra to make a person authority . (Som Prakash Rekky vs. Union of India 1981 (1) SCC 449). When the person is an agent or instrument of function of the state, the power is public . The true test is functional. Not how the legal person is born, but why it is created. There are various factors which will suggest a body could be a public authority these are (a) it is linked to the Government or its function could be described as governmental (b) it provides a public s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to governing principles. The appellant is concerned with Public namely the employers who are governed by the EPMF MP Act. The employers are governed by the said Act for delivery of welfare benefits to the employees (members of the Fund). The appellant is an authority having vested with statutory powers to enforce the due contribution of fund, administration charges, penal charges etc. The appellant has power to impose penal consequence on employers for violation of any provisions of EPMF MP Act, and also for coercive recovery of dues. 13. Having examined the scope of public authority and applying the general principles to the functions and responsibilities of the appellant we have no hesitation to hold that the appellant is a public authority performing statutory functions as mandated by an Act of Parliament. 14. The administrative charges received from the employers forms the basis for more than 95% of the demand of service tax, now being contested. These administrative charges are received from the employers at the fixed rate of emoluments in order to meet the administrative expenses of the appellant in terms of Rule 30 readwith Rule 54 of Employees Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant point of time, taxable service included insurance service as well, the Central Board of Customs and Excise issued Circular No. 89/7/2006-Service Tax, dated 18-12-2006 and the relevant part of this circular reads thus : A number of sovereign/public authorities (i.e., an agency constituted/set up by government) Perform certain functions/duties, which are statutory in nature. These functions are performed in terms of specific responsibility assigned to them under the law in force. For examples, the Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; the Regional Transport Officer (RTO) issues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Fee as prescribed is charged and the same is ultimately deposited into the Government Treasury. A doubt has arisen whether such activities provided by a sovereign/public authority required to be provided under a statute can be considered as provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interference . 16. The Hon ble Supreme Court in Calcutta Municipal Corporation vs. Shrey Mercantile (P) Ltd. reported in (2005) 4 SCC 245 examined the meaning and scope of terms Fee and tax . It was held that :- 14. According to Words and Phrases, Permanent Edn., Vol. 41, p. 230, a charge or fee, if levied for the purpose of raising revenue under the taxing power is a tax . Similarly, imposition of fees for the primary purpose of regulation and control may be classified as fees as it is in the exercise of police power , but if revenue is the primary purpose and regulation is merely incidental, then the imposition is a tax . A tax is an enforced contribution expected pursuant to a legislative authority for the purpose of raising revenue to be used for public or governmental purposes and not as payment for a special privilege or service rendered by a public officer, in which case it is a fee . Generally speaking, taxes are burdens of a pecuniary nature imposed for defraying the cost of governmental functions, whereas charges are fees where they are imposed upon a person to defray the cost of particular services rendered to his account . The fee and other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, interest on investment, receipts from pension fund and other miscellaneous receipts. It is clear that penal damages received in terms of Section 14 of EPMF MP Act, 1952 cannot be considered as a consideration for a taxable service. Similarly, interest on delayed payment, interest received on investment, from pension funds cannot be subjected to service tax as there is no service related activity at all in such income. We are in agreement with the appellant on these issues. 19. Our attention is also drawn to Notification No. 09/2016-ST dated 01/03/2016 which inserted Sl. No. 49 in the Notification No. 25/2012-ST dated 20/06/2012. The said entry covers services provided by Employees Provident Fund Organization (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 service tax exemption is granted by the parent Notification No. 25/2012-ST to different services/service providers. We find, the exemption now granted vide Notification No. 9/2010-ST to EPFO (appellant) has no relevance to decide their tax liability during the present disputed period which is under pre-negative list based tax regime. We note that the service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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