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TMI Blog2020 (11) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... ting jurisdictions that were deposited in the Consolidated Fund of India, proposed demand of tax on the fees collected, under the authority of the various Rules and Regulations notified for administration of the financial market in India, and retained in the General Fund of the appellant. The adjudicating authority confirmed the demands in the two notices dated 16th March 2016, pertaining to the period from July 2012 to March 2015 for recovery of Rs. 75,22,81,847, and dated 21st February 2018, pertaining to the period from April 2015 to March 2016 for recovery of Rs. 55,07,78,305, under section 73 of Finance Act, 1994, along with applicable interest under section 75 of Finance Act, 1994, besides imposing penalties under section 76, 77 and 78 of Finance Act, 1994. The penalty under section 78 of Finance Act, 1994 relates to the first notice while the penalty under section 76 of Finance Act, 1994 pertains to the second. 3. The adjudicating authority has rendered the findings in the impugned order by superimposing the functions of the appellant on the statutory definition of service to conclude that the activities engaged in by Securities Exchange Board of India (SEBI) conform to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for imposing penalty under section 78 of Finance Act, 1994, were non-existent. 4. The impugned order concedes that discharge of sovereign function is beyond the scope of levy under Finance Act, 1994 and, from a perusal of the impugned order, it would appear that the adjudicating authority was inclined to consider only government and activities undertaken for governance to be the sum and substance of the sovereign. In the light of the appellants herein having drawn attention of the adjudicating authority to the insertion of '51. Services provided by Securities and Exchange Board of India (SEBI) setup under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interest of investors in securities and to promote the development of, and to regulate, the securities market;' in notification no. 25/2012-ST dated 20th June 2012 vide notification no. 9/2016-ST dated 1st of March 2016, we do not propose to, as elaborated later, render any finding on the impact of that on the demand. However, at this stage, an elucidation of the broad scheme of taxation of services and sovereign immunity may not be a digression. 5. At its most fundamental level, serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as these were, could be identified from description in the statute on occurrence between provider and recipient with consideration as the measure of its value. Even with the enlarging base inevitably leading to necessity of definitions for restricting interpretation of descriptions of newer 'taxable services' within legislative intent, the progress of tax expansion was not impeded. The provider, from the very concept of service, is sine qua non to any transaction. The enumeration of taxable services, typical of classificatory regime, had to include the recipient for completing the definition. The recipient, being the destination of the service and the source of the consideration, made manifest the rendering of service. The description of the levy as 'destination based consumption tax' by the Hon'ble Supreme Court in All India Federation of Tax Practitioners v. Union of India [(2007) 7 SCC 527)] inspired the decision of the Tribunal in Paul Merchants Ltd v. Commissioner of Central Excise, Chandigarh [2012-TIOL-1877-CESTAT-DEL] to place the recipient inextricably within the context of tax on services and with the decision of the Hon'ble Supreme Court in Union of India v. Interconti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1994 or the exemption notifications. As service, conceptually, is the alienation, from oneself, of responsibility for undertaking an activity beneficial to oneself and the tax being leviable on the commercial engagement of a provider, the expression 'for', in contrast with the expression 'to', in section 65B of Finance Act, 1994 brings about alignment of the concept with the object of the tax. The definitional focus is no longer on the recipient but on the transference of responsibility for undertaking an activity that would be taxed for having been performed in the geographical jurisdiction. The default, as well as particular, assignment of location by Place of Provision of Service Rules, 2012 was the natural, and inevitable, adjunct mechanism for enforcing the levy in the new regime. Taxing of the sovereign, in the classificatory regime, was a possibility only if intended by enactment and such controversy did not have opportunity to surface. 10. Sovereignty exists in a restricted sphere within governance. It is of interest to note that, in assigning his own reasons for concurring with the dismissal of the appeal in Bangalore Water-Supply & Sewerage v. R Rajappa & Others [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e burden of tax on services. Though the judgement of the Hon'ble High Court of Allahabad in Commissioner of Income Tax v. Nawab of Rampur [AIR 1966 All 440] did originate in the reference made by the Income Tax Appellate Tribunal on the claim of the respondent therein to be immune from income tax as an international person following the lapse of paramountcy over the princely states under the Indian Independence Act, 1947, it was even so as an assessee without immunity on the date of merger. We are, thus, compelled to traverse through the decisions, that applied tests for determination of the claim of public authorities that the pedestal of sovereignty could not ever be removed from under its feet, for validation of our conclusions on the taxability of sovereign functions. Before we do so, it may be of advantage to tarry awhile on the statutory basis of sovereignty. 12. The prerogative of the sovereign to impose taxes is, inalienably, to be exercised by the constitutionally empowered organ of the State. It is stipulated in Article 265 of the Constitution of India that any levy, to be valid, should have the authority of legislative organ. The universally accepted canon of not subord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equating government with any other person to confer taxing jurisdiction. Within the several taxes, Customs Act, 1962 and the erstwhile Central Excise Act, 1944 categorically subject any goods imported, or manufactured, by the government to the respective duties on the premise that non-sovereign, alienable activities are also undertaken by the government; here, the instrument of the State is deemed to be a separate entity stripped off the privilege of the sovereign. Such definitive acknowledgement of performance of service, even other than as sovereign, is conspicuous by its absence in Finance Act, 1994. 13. Though the dispute in re Bangalore Water Supply & Sewerage Board arose from the inclusion of the appellant therein within the expression 'industry', for applicability of the provisions of Industrial Disputes Act, 1947, the Hon'ble Supreme Court was called upon to examine the limits on the 'sovereign' aspect that elevated the government to rarefied heights of non-accountability and disdain for procedure laid down by law. The scope of this expression had been interpreted by the Hon'ble Supreme Court in DN Banerji v. PR Mukherjee and Others [1953 AIR 58] as all activities 'analogo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Crown...... ....For instance, sovereign functions of the State cannot be included although what such functions are has been aptly termed 'the primary and in a liberal functions of constitutional government.' may be inferred from the decision in The Corporation of the City of Nagpur v. Its Employees [1960 SCR (2) 942] and we would be better enlightened by referring to the elaboration there, in the words of Hon'ble Justice K Subbarao, writing for the bench, that 'Lord Watson, in Coomber v. Justices of Berks, describes the functions such as administration of justice, maintenance of order and repression of crime, as among the primary inalienable functions of a constitutional Government....' and after adverting to the dissenting judgement of Isaacs, J in which regal functions, described as inescapable and inalienable, including the legislative power, the administration of laws, the exercise of judicial power, is distinguished from non-regal functions assumed by means of the legislative power, went on to clarify that 'These words clearly mark out the ambit of the regal functions as distinguished from the other powers of State. It could not have been, therefore, in the contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coverage by exclusion, exception and exemption. That is our mandate here. 16. Even in the absence of the definitive intent of taxability in the statute, the eager, and ever observant, eye of service tax authorities on sovereign functioning, intangible and invisible as these are, could not have been warded off for long. That was not so much of a problem in the classificatory regime of defined 'taxable services' as only a few were couched in general phraseology. The generalized definition of 'services' in the 'negative list' regime appears to have been the clarion call for tax intrusion into activities of government. Much of these, not being individual-specific deliveries and, moreover, without perceptible consideration could not have held the attention of tax authorities for long but others, in which government bodies were empowered to receive fees, did. Thus, it, probably, was that the focus of the adjudicating authority rested upon the autonomy of Securities and Exchange Board of India (SEBI), the participants in the financial markets and the fees charged from them as 'provider', 'recipient' and 'consideration' respectively. Clearly, the concept of 'service' and, particularly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulatory institution as well as the Securities and Exchange Board of India Act, 1992 to demonstrate that the registration, a necessary procedure for fulfilment of its regulatory assignment, and monitoring were conducted under the control of the Central Government. According to him, the establishment of Securities and Exchange Board of India (SEBI) under the enactment was preceded by its operation as a creature of a Resolution of the Government of India in the Department of Economic Affairs from 12th April 1988 to take over the regulatory function hitherto exercised by that department. He argued that this ordered succession, coupled with the clarification in circular no. 29/7/2006-ST dated 18th December 2006 of Central Board of Excise & Customs (as it then was), sufficed to exclude the appellant from the ambit of tax as surrogate of a government department. Referring to section 15 of the enactment establishing the appellant as a statutory regulator, Mr Shroff submitted that substantive compliance of conformity with Article 150 of the Constitution of India encompassed the appellant within the scope of exemption from tax. 20. To sustain his contentions, reliance is placed in the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us; we are also not convinced that an institution functioning under, and entirely within, the executive branch of government and, that too, for according comfort within a nascent law can serve to persuade us. The decision of the Tribunal in Delhi International Airport Ltd v. Commissioner of GST, Delhi-III [final order no. 50064/2019 dated 18th January 2019 disposing of appeal no. ST/52815/2016] is not a precedent in as much as appellant therein, though claiming to be the successor of a department of the Government of India, acquired the authority therein from a commercial activity of the government that bears remote kinship with sovereign power. Likewise, the decision of the Tribunal in Rajdhani Krishi Upaj Mandi Samiti v. Commissioner of Central Excise & Service Tax, Jaipur-I [2019 (24) GSTL 623 (Tri-Del)] is also not applicable dealing, as it does, with tax on commercial usage of property. 23. We must confess that we find ourselves in a quandary on the disposal of this appeal owing to certain limitations of jurisdiction and competence. Having drawn attention to the shortcoming in the impugned order, and considering the plea of delegated sovereign authority made by Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial markets by the appellant, notwithstanding duly acknowledged succession, through creation under an executive order, from a department exercising that authority, from sovereign power. This abnegation, coupled as it is, with the renunciation of future tax liability arising therefrom, is cleansed of the stain of vested interest. We cannot but withhold our ascertainment of the legality of the claim made by the appellant before us. 26. We now turn to the plea of the appellant that the demand is barred by limitation and that section 78 of Finance Act, 1994 should not have been invoked for imposition of penalty. Admittedly, Securities and Exchange Board of India (SEBI) is the exclusive regulator of financial markets in the country and among the trendsetting establishments created for separation of policy-making from enforcing of best practices - both, doubtlessly, being two sides of the governance disc. The composition of the Board is determined by the Government of India and the organization is staffed in accordance with rules framed under the governing statute. The receipts accruing to the appellant, in accordance with procedures laid down by law, are retained in a designated fun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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