TMI Blog2023 (9) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... ort or (b) excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in cl. (2). of that Article. In a majority decision the Hon ble Chief Justice speaking for himself and four other Judges held that the immunity granted to the States in respect of Union taxation, under Art. 289(1) does not extend to duties of customs including export duties or duties of excise. The impugned activities of the appellant are not primary inalienable functions and are liable to be done by a private body. It is also relevant to note the State Government has issued a conditional notification exempting sales tax payable by TNMSCL for the drugs and medicines procured and distributed to the various medical institutions. (G.O.Ms No 431 dated 18/12/96). The exemption is not on account of its sovereign functions. Had the exemption not been granted or if the conditions of the notification are violated TNMSCL would be liable to pay sales tax. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee in the self-assessment regime is much bigger and the non-disclosure of taxable activity in the ST-3 Return and non-payment of duty has to be viewed strictly and can only be held to be an act of suppression of facts with an intention to evade payment of duty. Hence the extended period of limitation has been rightly invoked and the appeal in this regard is without merit. The matter remanded back to the Original Authority to decide the issue of Cargo Handling Services only, afresh - impugned order is otherwise upheld except for the matter remanded - appeal disposed off. - Shri P. Dinesha, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) Shri P.C. Anand, Chartered Accountant for the Appellant Shri R. Rajaraman, AC (AR) for the Respondent ORDER This is an appeal filed by the appellant M/s. Tamil Nadu Medical Services Corporation Ltd. (TNMSCL) against Order in Original No. 2/2013 dated 29.1.2013 passed by the Commissioner of Service Tax, Chennai. 2. Brief facts of the case are that the appellant who is a State Government Public Limited Company are engaged in procurement and distribution of drugs and medicines for Tamil Nadu State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation of the appellant-company was by the Government of Tamil Nadu as per G.O. Ms. No.446 dt.12.4.1993. The sole objective was procurement and distribution of drugs, surgical and medical supplies. The drugs and medicines are to be clearly marked government supplies not for sale . Over a period of time, in addition to drugs and medicines, the role of the TNMSCL has expanded to include procurement and supply of equipment for the use of the Health Department. In addition, TNMSCL is also involved in the provision of diagnostic and other medical services through the maintenance of CT/MRI Scan Centers at various Government Hospitals and payment wards. It is now an ISO 9001: 2008 Certified Organization. As TNMSCL has been nominated as the sole agency of the Government, for procurement and supply of drugs and equipment s to Government Hospitals / Institutions, the Government have decided to levy nomination charges at 7.5% on the total revenue earned (except interest receipt). The company has been directed to open its own warehouses where the medicines are stored prior to distribution. As per G.O.No.431 dt.18.12.1996 exemption has been granted in respect of sales tax payable by TNMSCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of eight judges of the Hon ble Apex Court exercising its advisory jurisdiction decided on whether the provisions of Art. 289 of the Constitution precluded the Union from imposing, or authorising the imposition of (a) Customs duties on the import or export or (b) excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in cl. (2). of that Article. In a majority decision the Hon ble Chief Justice speaking for himself and four other Judges held that the immunity granted to the States in respect of Union taxation, under Art. 289(1) does not extend to duties of customs including export duties or duties of excise. Relevant portions of the judgment are extracted below: 11. It will thus appear that both s. 154 and Art. 285 set out above speak only of property and lay down that property vested in the Unions shall be exempt from all taxes imposed by a State or by any authority within a State, subject to one exception of saving the pre-existing taxes on such property until Parliament may by law otherwise provide. Similarly whereas s. 155 of the Government of India Act exempts from federal taxes the Government of a P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r impost, whether general or local or special , the amplitude of that definition has to be cut down if the context otherwise so requires. The position is that whereas the Union Parliament has been vested with exclusive power to regulate trade and commerce, both foreign and inter-State (Entries 41 and 42) 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 the States, granting them immunity from certain kinds of Union taxation. It, therefore, becomes necessary so to construe the provisions of the Constitution as to give full effect to both, as far as may be. If it is held that the States are exempt from all taxation in respect of their export or imports, it is not difficult to imagine a situation where a State might import or export all varieties of things and thus nullify to a large extent the exclusive power of Parliament to legislate in respect of those matters. The provisions of Art. 289(1) being in the nature of an exception to the exclusive field of legislation reserved to Parliament, the exception has to be stri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was issued post the introduction of the negative list of services when Parliament by the Finance Act, 2012 introduced an altogether new system of taxation of services w.e.f. 1-7-2012 thus making a paradigm shift in the law and is hence not relevant in deciding the facts in issue. The appellant has drawn attention to the educational guide published by the government of India, wherein the activity/ function of a government or a municipality which is also eligible for the benefit has been clarified under question 7.3.2. They have stated that public health is specifically ear marked as one such activity. We find that the said guide is also issued with reference to Notification 25/2012-ST and is not relevant to the present issue. The relevant para from the Education Guide as extracted from their synopsis is reproduced hereunder: 7.3 Services provided to or by a governmental Authority 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 ? No. In terms of its definition in meg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e verification, approval and calibration of weighing and measuring instruments; Regional Transport Officers (RTO) issue fitness certificate to motor vehicles; Directorate of Boilers inspects and issues certificates for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Authorities providing such functions, required to be performed as per law, may collect specific amount or fee and the amount so collected is deposited into government account. Whether such activities of a sovereign / public authority, performed under a statute, can be considered as provision of service for the purpose of levy of service tax and the amount or fee collected, if any, for such purposes can be treated as consideration for the services provided? Activities assigned to and performed by the sovereign / public authorities under the provisions of any law are statutory duties. The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions made by the appellant it is seen that appellant-company was created by a G.O. of the Government of Tamil Nadu and not by an Act of the State Legislature. It is admittedly an autonomous corporation registered and incorporated under the Companies Act, 1956. The company is registered for service tax purposes with the Service Tax Department under the categories of Transport of Goods by Road and Management Consultancy Services which is not under dispute. Further from clause III (A) of the Memorandum of Association of TNMSCL a sample of the various objects of the company are listed below to give a flavour of its activities. Clause III (A) states: (A) Main object to be pursued by the company on its incorporation are:- . 4. To establish modern Warehouse and Engineering workshops to manufacture, assemble, repair or otherwise maintain various medical equipments, surgical instruments, diagnostic equipment, fire-fighting equipment, furniture and fittings including hospital furniture and also to undertake civil and other general maintenance of hospitals. 5. To buy, sell, supply, distribute, store, stock, maintain and otherwise handle, deal in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id or gaseous form. 7. To carry on the business of manufacture and dealing in toilet preparations, colours, dyes, glue paper of all kinds plastics rexines, woven and non-woven fabrics, cellophane, paper, adhesive-tapes and other articles. 8. To undertake, transact and execute all kinds of agency business and also trusts of all kinds. 9. To carry on the business of transportation of goods and commodities either directly or through others. 10. To act as advertising agents either directly or through others. 11. To carry on the business of packing and forwarding agents. Again, from the Articles of Association of TNMSCL it is seen that the Company is a Public Limited Company. Clause 7 of the Article allows the Board of Directors to allot or otherwise dispose of the Company s shares to such persons on such terms and conditions as they think fit. Clause 99 states that profits made on the sale, or a part of the undertaking shall be made available for dividend. These make it clear that the Corporation is a separate legal entity which is not Governmental in nature and is like any other private company. The objective of the company is multifarious an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt should examine the statute to severe one from the other by comprehensively examining various provisions of that statute. Para 33 of the judgment further amplifies this point; 33. So, sovereign function in the new sense may have very wide ramification but essentially sovereign functions are primary inalienable functions which only State could exercise . Thus, various functions of the State, may be ramifications of 'sovereignty' but they all cannot be construed as primary inalienable functions. Broadly it is taxation, eminent domain and police power which covers its field. It may cover its legislative functions, administration of law, eminent domain, maintenance of law and order, internal and external security, grant of pardon. So, the dichotomy between sovereign and non-sovereign function could be found by finding which of the functions of the State could be undertaken by any private person or body. The one which could be undertaken cannot be sovereign function. In a given case even in subject on which the State has the monopoly may also be non-sovereign in nature. Mere dealing in subject of monopoly of the State would not make any such enterprise sovereign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next issue is whether the services rendered by TNMSCL to the Government of Tamil Nadu is classifiable under the category of Storage and Warehouse Services in terms of Section 65(102) read with section 65(105)(zza) of the Finance Act 1994. The relevant provisions of Finance Act, 1994, relating to storage warehousing service which came into effect from 16.08.2002 are reproduced below for ease of reference: Section 65(102): storage and warehousing includes storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage Section 65(105) 'taxable service' means any service provided or to be provided to any person, by a storage or warehouse keeper in relation to storage and warehousing of goods Further, the Board explained the scope of storage and warehousing service in F.No.B11/1/2002-TRU dated 01.08.2002 as follows: 3. Storage and warehousing service for all kinds of goods are provided by public warehouses, private warehouses, by agencies such as the Central Ware Housing Corporation, Air Port Authorities, Rallways, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or unpacking of cargo and includes,- (a) cargo handling services provided for freight in special containers or for non containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and (b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking, but does not include, handling of export cargo or passenger baggage or mere transportation of goods As per provisions of Section 65(105)(z) of the Act. taxable service means any service provided or to be provided to any person, by a cargo handling agency in relation to cargo handling services It is seen from the facts of the case that the impugned goods are received and stored in the warehouses. Subsequently samples are sent for testing and on completion of the testing process, the goods are dispatched to respective destinations as per the requirements. This being the factual position, the essential activities undertaken by the assessee like packing, repacking, loading, unloading etc. are a part of cargo handli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of Transport of Goods by Road and Management Consultancy Services and they have not disputed the same on grounds of sovereign function . Further the appellant has stated that per G.O.No.431 dt.18.12.1996 exemption has been granted in respect of sales tax payable by TNMSCL for the drugs and medicines procured and distributed to the various medical institutions. This in itself shows that TNMSCL is not a sovereign/ governmental authority even by the State Governments own understanding as discussed above. This being so, there should not have been any confusion in the interpretation of law especially in the light of the Apex Courts advisory In re. The Bill to Amend the Sea Customs Act in the early 1960 s. The declaratory responsibility of an assessee in the self-assessment regime is much bigger and the non-disclosure of taxable activity in the ST-3 Return and non-payment of duty has to be viewed strictly and can only be held to be an act of suppression of facts with an intention to evade payment of duty. Hence the extended period of limitation has been rightly invoked and the appeal in this regard is without merit. 8. We have examined the case laws cited by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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