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M/s Employee Provident Fund Organization Versus CST, Delhi

2017 (4) TMI 902 - CESTAT NEW DELHI

Banking and Other Financial Services - taxability of amount collected by the EPFO towards, inspection charges and administrative charges, penal damages, penal interest from defaulters. - appellant is involved in collection of contribution from the employers covered by the provision of the Act, collection of inspection charges and administrative charges, penal damages, penal interest from defaulters and disburse accumulated provident fund to the Members alongwith interest, pay various kinds of pe .....

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der 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 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 vest .....

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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 the subject matter of disputed tax liability. The other charges like administrative charges, inspection charges paid by the employers, are being subjected to service tax. We find that in the absence of a service provider and service re .....

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ative list) was introduced with effect from 01/07/2012. In fact, the Circulars dated 18/12/2006 and 23/08/2007 (code 999.01) issued in the pre-negative list regime are no longer applicable, as clarified by Board vide Circular No. 192/02/2016 – ST dated 13/04/2016. - The appellants are not liable to pay service tax on their statutory activities performed in terms of EPMF & MP Act, 1952 - appeal allowed - decided in favor of appellant. - Service Tax Appeals No. 1414-1415 of 2010 - Final Orde .....

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nt - The Employee s Provident Fund and Miscellaneous Provision Act, 1952 (EPMF & MP Act). The main function of the appellant is to administer three schemes of the Government of India, Ministry of Labour, in terms of EPMF & MP Act, namely (a) Employee s Provident Fund Scheme (Section 5) (b) Employee s Pension Scheme (Section 6A) and (c) Employee s Deposit Link Insurance Scheme (Section 6 C). The appellant is involved in collection of contribution from the employers covered by the provisio .....

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cial 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 i .....

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her penalty of ₹ 5,000/- under Section 77 of the Finance Act, 1994. In respect of second show cause notice dated 23/10/2009 he confirmed a service tax demand of ₹ 226,02,13,066/- and imposed a penalty of equivalent amount under Section 78 and further penalty of ₹ 5,000/- under Section 77 of the Act. The Original Authority, in essence, held that the appellant provided taxable service as a corporate body/trust by managing funds and the activities carried out are not in the nature .....

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behalf of the appellant submitted on the following lines :- (1) first of all various amounts received by the appellant under the name, administrative charges towards incidence of administrative expenses, inspection charges, penal damages, interest on delayed payments/on investments, receipts from pension funds and miscellaneous receipts are not at all attributable to any service rendered by the appellant. It is well settled that interest income cannot be subjected to service tax ; (2) the admin .....

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anaged in the manner stipulated by the Central Government as per the rules and notifications issued from time to time ; (3) banking and other financial services are liable to tax only when the provider is falling in any one of the category mentioned 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 .....

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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 statutory requirement and not as a customer of the appellant. (5) The .....

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is certainly not to the employers who contribute the funds. After the said contribution, the employers are no- way interested/connected in further management of the funds and in any case the funds are ultimately disbursed to the employees or to their families in terms of the schemes, not to the employers. (6) The employers/employees who are covered by the EPMF & MP Act are only complying their statutory obligations and remit funds to the appellant, who invest the funds in specified securiti .....

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ith provisions of Finance Act, 1994 or not paying service tax, if any, payable. The appellant is a Government of India organization and, as such, no malafide motive can be attributed. The demand for extended period as well as penalties are not legally sustainable. The best judgment assessment for the year 2010-2011 is without any basis and is invalid. (8) Reliance is also placed on certain decided case laws, wherever relevant, discussed later in this order. 4. The learned AR defended the finding .....

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terest 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 ar .....

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, cannot automatically become a Government entity subordinate to the President under Article 53 (1) of the Constitution. The appellant, being a statutory body, is a juristic entity separate from the state and cannot be regarded as a Government or part of Government. When a clarification was sought from the Finance Ministry, the CBEC vide letter dated 15/01/2009 clarified that the services provided by the appellant, prima facie, appears to be taxable under BOFS. The learned AR concluded, stating .....

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5 (105) (zm) Taxable service means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services; As per the above definition, a service becomes a taxable service as Banking & Financial (B&F) service, when:- i. the service is provided in respect of Banking and other Financial services and ii. the service .....

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luding a non-banking financial company or any other body corporate [or commercial concern], namely :- (i) financial leasing services including equipment leasing and hire-purchase ; Explanation - For the purposes of this item, financial leasing means a lease transaction where - (a) contract for lease is entered into between two parties for leasing of a specific 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 f .....

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nd 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 tra .....

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izational function of the appellant. The appellant is a statutory body created by an Act of Parliament. They administer three schemes as mentioned hereinabove. The legal status and scope of functions of the appellant are captured in the narrative of the Hon ble Supreme Court in the judgment dated 18/01/2012 in Civil appeal No. 655/2012 in the case of Regional Provident Fund Commissioner vs. The Hoogly Mils Company Ltd. and ors., reported in (2012) 2 SCC 489. The Hon ble Supreme Court examined pr .....

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ry provident fund in industrial undertakings was discussed several times at various tripartite meetings in which representatives of the Central and State Governments and employees and workers took part. Initially a non-official Bill on the subject was introduced in the Central Legislature in 1948 and was withdrawn with the assurance that the Government would consider the introduction of a comprehensive Bill. Finally, the proposed legislation was endorsed by the conference of Provincial Labour Mi .....

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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 .....

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eas a penal statute calls for strict construction. In the cases of remedial statutes, if there is any doubt, the same is resolved in favour of the class of persons for whose benefit the statute is enacted, but in cases of penal statutes if there is any doubt the same is normally resolved in favour of the alleged offender. 25. It is no doubt true that the said Act effectuates the economic message of the Constitution as articulated in the Directive Principles of State Policy. 26. Under the Directi .....

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, if we look at the Objects and Reasons in respect of the relevant Section it will be easier for this court to appreciate the statutory intent. The opening words of Section 14B are, "where an employer makes a default in the payment of contribution to the fund". This was incorporated by way of an amendment, vide Amending Act 37 of 1953. In this connection, the excerpts from the Statement of Objects and Reasons of Act 37 of 1953 are very pertinent. Relevant excerpts are:- "There are .....

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; 28. Similarly, in respect of Section 17(1A), clause (a) which makes Section 14B applicable to an exempted establishment also came by way of an amendment, namely, by Act 33 of 1988. Here also if we look at the relevant portion of the Statement of Objects and Reasons of Act 33 of 1988 we will find that they are based on certain recommendations of the High level committee to review the working of the Act. Various recommendations were incorporated in the Objects and Reasons and one of the objects .....

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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 veste .....

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scharging a mandatory, statutory function as stipulated by an Act of Parliament or can be considered as providing a taxable service. 10. The Original Authority based his conclusion on tax liability of the appellant, mainly on the ground that the appellant is not a sovereign/public authority providing services. The services being provided by the appellant as a body corporate/trust by way of managing funds is not in the nature of statutory activity, but are in the nature of service of social welfa .....

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are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. Therefore, such activities assigned to and performed by a sovereign/public authority under the provisions of any law, do not constitute taxable service. Any amount/fee collected in such cases are not to be treated as consideration for the purpose of levy of service tax. The Original Authority relied on the clarification of the Board, where .....

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ity in terms of law. The term public authority has to be examined and understood. 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); aut .....

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tional. 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 service (c) the state regulates, supervises and controls us performance (d) it is subject to judicial review or is publicly accountable for its action (e) performs charitable objectives (f) vested with statutory powers, with powers to .....

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cle 12 of the Constitution. The observations of the Apex Court are : 21. A public authority is a body which has public or statutory duties to perform, and which performs such duties and carries out its transactions for the benefit of the public, and not for private profit. Article 298 of the Constitution provides that the executive power of the Union and the State extends to the carrying on of any business or trade. A public authority is not restricted to the Government and the legislature alone .....

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, but is equally applicable to a company, or to a society. In a given case, the court must decide, whether such a company or society is an instrumentality or agency of the Government, so as to determine whether the same falls within the meaning of the expression authority , as mentioned in Article 12 of the Constitution, upon consideration of all relevant factors. ………………….. 24. When we discuss pervasive control , the term control is taken to mean .....

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ers 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 mandate .....

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by himself (in this scheme referred to as the employer s contribution) and also, on behalf of the members employed by him directly or through a contractor, the contribution payable by such member (in the scheme referred to as the member s contribution). Sub-rule (3) stipulates that apart from the said contribution the employer is also responsible for payment of administrative charges. The explanation appended thereto defines administrative charges . The same shall be percentage of pay as fixed b .....

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y extend upto one year or with fine of ₹ 5,000/- or with both. The said section provides for penal consequences in respect of various violations of the provisions of the Act. It is clear from the legal provisions, as narrated above, that the charges paid by the employers to the appellant are mandated statutory payments and are not towards any consideration for receiving taxable service. 15. The Hon ble Kerala High Court examined a similar dispute regarding service tax liability, in Union o .....

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shall continue to subscribe till he ceases to be in Government service. The period of one year has now been reduced to one month by G.O(P). 229/12/Fin, dated 19-4-2012. Rule 22B also provides that such employee shall enroll as a member of General Insurance Scheme. Though, at 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 .....

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hicles; 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 provision of service for the purpose .....

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and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities. 3. However, if such authority performs a service, which is not in the nature of statutory activity and the same is undertaken for .....

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y functions and are not in the nature of service to any particular individual for any consideration. On this basis, it is clarified that such activities performed under the provisions of law do not constitute taxable service and that no Service Tax is leviable on such activities. 6. As we have already seen, the respondent department is providing personal insurance and group insurance in pursuance of the statutory mandate as contained in Rules 22A and 22B of Part-I KSR. In other words, the insura .....

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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 enforce .....

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. 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. 17. One more aspect can be examined to decide the tax liability of the appellant. For levy of service tax on any transaction, there should be a service provider and a service recipient, apart from identifying a tran .....

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, from the appellant. The Original Authority held that the appellants performed the service of fund management. One crucial aspect, missed by the Original Authority, is fund which is managed by the appellant is to the benefit of employees whose welfare is entrusted to the appellant, by law. The employers do not get any benefit out of such fund management. The administrative charges and other charges paid by the employers, therefore cannot be attributed to any service received by them from the ap .....

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trative charges, inspection charges paid by the employers, are being subjected to service tax. We find that in the absence of a service provider and service recipient relation between the appellant and the employers, no service tax liability can arise in the transaction. 18. The appellants also contested the findings of the Original Authority on the service tax liability of penal charges, interest and delayed payments, interest on investment, receipts from pension fund and other miscellaneous re .....

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d 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 d .....

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