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TMI Blog2023 (9) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants are not paying service tax on storage and warehousing and cargo handling service, the officers of DGCEI, Chennai Zonal Unit undertook investigation. During the course of investigation, it was noticed that the appellants are engaged in providing storage and warehousing services to the Government of Tamil Nadu; that for the storage and warehousing services the appellants are receiving 'administrative charges' from Tamil Nadu State Government; further that the appellant deducted 'Handling and Testing' Charges @ 1.5% of the value of drugs as per the terms agreed in the tender towards handling activities like loading, unloading and transportation to the various Government hospitals. It appeared from the investigation that the appellant is liable to pay service tax on the above activities. However, the appellant neither obtained service tax registration nor paid service tax for the said services. Hence a Show Cause Notice dated 28.12.2011 was issued to the appellant proposing demand of service tax of Rs.7,12,45,295/- for the period from 1.10.2006 to 31.3.2011 along with interest besides proposing penalties under various sections of the Finance Act, 1994. After due process of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vide G.O.No.461 dt.31.12.2007 Administrative Charges, amounting to a maximum of 5% of the total turnover or at the rate as approved by the Board of Directors of the company may be utilized towards payment of any liquidated damages transport fines, penalties, forfeiture of EMD, as also writing off expired drugs, etc. He prayed that considering the services done by an extended limb of the Government of Tamil Nadu, viz. the company, and the service is with reference to the public health; such service finds a place in the Central Government Publication on Service Tax as being a service done to the Sovereign State, the Hon'ble Bench may dispose off the matter accordingly. 4.2. Shri R. Rajaraman, Assistant Commissioner (AR) stated on behalf of Revenue that TNMSCL was created by a G.O. and not by an Act of Parliament or State Legislature. He stated that as per mega Notification 25/2012-ST dated 20/06/2012 to be eligible for exemption as a governmental authority TNMSCL should have primarily been set up by an Act of Parliament or the State Legislature. The appellant company was providing services of warehousing, unloading, stacking and indenting of goods belonging to the government of Tam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of a Province, and (b) which is not relevant, relating to a Ruler. It will be seen that "income" is repeated in both the provisions, but what was "lands" or "buildings" has become simply "property" in Art. 289(1). . 12. The question naturally arises why "income" was at all mentioned when it is common ground that "income" would be included in the generic term "property". It was suggested on behalf of the Union that the juxta-position of the terms "property" and "income" of a State which have been declared to be exempt from Union taxation would indicate that the tax from which they were to be immune was tax on "property" and on "Income", i.e., in both cases a direct tax, and not a indirect tax, which may be levied in relation to the property of a State, namely, excise duty, which is a tax on the manufacture or production of goods and customs duty which is a tax on the event of importation or exportation of goods. . . . 33. Similarly in the case of duties of customs including export duties though they are levied with reference to goods, the taxable event is either the import of goods within the customs barriers or their export outside the customs barriers. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly and are not within the exemption in Art. 289(1). (emphasis added) The ratio of this judgment would also be applicable to an indirect tax like service tax which is a much later levy. The salient points of the judgment are: (1) Though the expression "taxation", as defined in Art. 366 (28), "includes the imposition of any tax or impost, whether general or local or special", the amplitude of that definition has to be cut down if the context otherwise so requires. (2) Whereas the Union Parliament has been vested with the exclusive power to regulate trade and commerce and with the sole responsibility of imposing export and import duties and duties of excise, with a view to regulating trade and commerce and raising revenue, an exception has been engrafted in Art. 289 (1) in favour of States granting them immunity from certain kinds of Union taxation and it is necessary that the general words of the exemption in that Article should be limited in their scope so as not to come in conflict with the power of the Union to regulate trade and commerce. (3) Though the Constitution of India does not make a clear distinction between direct and indirect taxes, the exemption provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder article 243W of the Constitution. 7.3.2 What are the functions entrusted to a municipality under article 243W of the Constitution? Article 243W of the Constitution is as under: 'Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to- (i) the preparation of plans for economic development and social justice; (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule; (b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.' Matters listed in twelfth schedule are: .................. 6. Public health, sanitation conservancy and solid waste management. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. The clarification does not come to the help of the appellant as the clarification relates to provisions of service where a fee is prescribed and it clearly states that , if a sovereign / public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. 6. Having laid out the legal context, we now examine the issues involved: (A) Whether Tamil Nadu Medical Services Corporation Ltd. is an instrumentality of the Sovereign State and is exempted for its activities from Service tax. (B) Whether the services rendered by TNMSCL to the Government of Tamil Nadu in warehousing and related activities for drugs and medicines is classifiable under the category of 'Storage and Warehouse Services' in terms of Section 65(102) read with section 65(105)(zza) of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To establish warehouses, storage rooms, godowns and cold storage facilities in various districts in Tamil Nadu for providing safe and convenient places for storage of medicines, surgical products and other medical and para-medical products of all kinds and description. ....... 9. To accept advance payment, deposits and / or to lend money to any department, institution, person, firm association, society, corporation or company on such terms and on such security as may be seen expedient and to give guarantees and indemnities. 10. To invest and deal with the money of the corporation which is not immediate required in such manner and upon such security as the company may from time to time think fit. ......... 13. To enter into partnership or any arrangements for sharing of or pooling of profits, including amalgamation, joint ventures, reciprocal concessions or otherwise with any person, firm, association or body corporate, carrying on or engaged in or about to carry on or engage in any business or transaction which may seem capable of being carried on or conducted. 15. To enter into any arrangement with any Government, local authority or Corporation or Boards etc. which m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Services Charges' to 'Administrative Charges'. However, this may not come to their help as it is an accepted legal principle that the nomenclature of a service, is not decisive of the nature of the service provided. Even as per the educational Guide cited by the appellant, they are not covered under the definition of 'governmental authority'. The relevant portion is cited below. "7.3.1 Are various corporations formed under Central Acts or State Acts or various government companies registered under the Companies Act, 1956 or autonomous institutions set up by special acts covered under the definition of 'governmental authority'? Answer: No. As stated earlier the appellant company is also not set up by an Act of the State Legislature. They further claim that they are established with 90% or more participation by way of equity or control by Government and they carry out functions entrusted to a municipality under article 243W of the Constitution with respect to Public health. From the Memorandum and Articles of Association of TNMSCL listed above, it is clear that the Corporation is a separate legal entity which is not 'Governmental' in nature and is like any other private compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re violated TNMSCL would be liable to pay sales tax. The said notification is reproduced below: NOTIFICATION "In exercise of the powers conferred by sub-section (1) of section 17 of the Tamil Nadu General Sales Tax Act, 1950 (Tamil Nadu Act 1 of 1950), the Government of Tamil Nadu hereby makes an exemption in respect of the tax payable by Thiruvalar Tamil Nadu Medical Services Corporation Limited, Chennai - 14 under the said Act on the drugs and medicines procured and distributed to the Medical institutions of the Government of Tamil Nadu, subject to the following conditions, namely:- i) Such drugs and medicines shall be clearly marked as "Government supply - Not for Sale" ii) The Corporation shall not sell the said drugs and medicines in the open market 2. This notification shall be deemed to have come into force on the 12th April 1993. (emphasis added) The notification states exemption in respect of "tax payable", this shows that had the notification not been issued TNMSCL would have to pay sales tax and the benefit of 'sovereign function' has not been recognized by the State Government itself in the appellant's case. Further as held in 'In re. The Bill to Amend the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be leviable in such cases. It is clarified that mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods. Essential test is whether the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area." The appellant has not contested that they are operating their own warehouses where medicines procured by them are stored prior to distribution to various Government Hospitals in the state of Tamil Nadu. Their main averments are based on the Boards Circular and Education Guide extracted at para 5.2 above. We have found that the Boards Education Guide and Master Circular do not come to their help for reasons discussed above. The appellant has stated that they discharge a statutory function and collect only a basic cost of the drugs and deposit the same in the account of government. There is no consideration received. Therefore, it would not be correct to charge Service Tax in relation to storage and warehousing services. This legal issue has been examined at para 6.1 above and for the reasons discussed we have found no merits in their claim for exemption from tax citing the 'sovereign f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. But the method of execution was changed, and it has become standard policy for TNMSC to withhold the amount from the suppliers and to get the testing done at the suppliers' cost, as per the tender document. However, the fact remains that these charges are not statutory fees and hence are a consideration for their service. The amounts are also accounted for under 'income from operations' in their profit and loss account. If any part of this payment is also paid as statutory fees for testing to Government Authorities on behalf of their suppliers, it is for the appellant to bifurcate the said amount received from the total receipts separately towards cargo 'handling' and for 'testing'. They should have disclosed the factual information within their exclusive knowledge. We feel that the matter needs to be considered afresh by the Original Authority after giving the appellant sufficient opportunity to put forward his submissions both on law and fact before deciding the matter. 7. The appellant has averred that the extended time limit for issue of SCN is not valid as there is no evidence that TNMSCL had attempted to evade Service Tax liability, nor is there evidence of fraud or suppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a coordinate Bench of this Tribunal in UTI Technologies Services Ltd Vs CST, Mumbai [2012 (26) STR 147 (TRI-MUM)] relates to the issue of PAN cards on behalf of the Income Tax Department. Collection of taxes has been recognized as a core activity of government. A taxation department of the Union cannot be equated with a corporation and hence the facts are not similar. We have above, discussed the reasons why TNMSCL cannot be considered as having discharged sovereign functions based on facts that are peculiar to the appellant's case. We have also discussed relevant case laws pertaining to taxation matters, in this regard. Hence, we find that the decisions cited by the appellant are distinguished and do not come to their help. 9. Having regard to the discussions above, we modify the impugned order to the extent that we remand the matter back to the Original Authority to decide the issue of 'Cargo Handling Services' only, afresh. The lower authority shall follow the principles of natural justice and afford a reasonable and time bound opportunity to the appellant to state their case both orally and in writing if they so wish, before issuing a speaking order in the matter. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X
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