Custom, Excise & Service Tax Tribunal
M/S Semi Conductor Laboratory vs Chandigarh-Ii on 17 October, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 52295 of 2015
[Arising out of Order-in-Original No. 13/ST/CHD-II/2015 dated 19.03.2015 passed
by the Commissioner, Central Excise Commissionerate, Chandigarh-II]
Semi Conductor Laboratory ......Appellant
Sector 72, Mohali, S.A.S. Nagar,
Punjab 160071
VERSUS
Commissioner of Central Excise and ......Respondent
Service Tax, Chandigarh-II Central Revenue Building, Plot No. 19, Sector 17-C, Chandigarh 160017 APPEARANCE:
Dr. A. S. Gill, Advocate for the Appellant Mr. Anurag Kumar, Authorized Representative for the Respondent CORAM: HON'BLE MR. S. S. GARG, MEMBER (JUDICIAL) HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER NO. 61599/2025 DATE OF HEARING: 02.07.2025 DATE OF DECISION: 17.10.2025 S. S. GARG :
The present appeal is directed against impugned order dated 19.03.2015 passed by the Commissioner, Chandigarh-II, whereby the learned Commissioner has confirmed the demand of service tax amounting to Rs.83,81,616/- under Section 73 of the Finance Act, 1994 along with interest under Section 75 of the Act; an equal
2 ST/52295/2015 penalty under Section 78 of the Act and a penalty of Rs.10,000/- under Section 77 of the Act were also imposed on the appellant.
2. Briefly stated facts of the present case are that the appellant M/s Semi Conductor Laboratory (in short 'SCL') is an autonomous body of the Govt of India. Since 2006 till 2022, it was fully owned and controlled by the Dept of Space, Govt of India. The appellant is wholly funded through grant in aid from the budget of Dept of Space, Govt of India. Since 2022, the appellant has taken over by the Ministry of Electronics & Information Technology, Govt of India. Before it was taken over by the ISRO, Dept of Space, it was known as Semi Conductor Complex Ltd, a PSU under the control of Dept of Information Technology. At present, the appellant is no longer a PSU and is only an autonomous body of Govt of India and all its members are Govt of India employees by designation. The appellant SCL is primarily engaged in research and development in the area of Semi-conductors and Micro-electronics exclusively for certain strategic strictly confidential projects of Dept of Space, Govt of India. All other centres, autonomous bodies and societies under control of Dept of Space are not covered under the Factories Act, 1948 and the appellant SCL is also not covered under the Factories Act as per the communication received from the Punjab Govt vide letter dated 05.12.2006. The department entertained the view that the appellant SCL being a 'business entity' is required to pay service tax under the category of 'Security Agency Service' as the appellant has taken the security from CISF which is also a fully government 3 ST/52295/2015 owned/controlled body under the Ministry of Home Affairs, Govt of India. A show cause notice dated 07.10.2014 demanding service tax was issued to the appellant on the allegation that CISF, a fully government owned/controlled body, was providing security service to the appellant SCL who appeared to be duly covered by the term 'business entity' as defined under Section 66D(a)(iv) read with Section 65B(17) of the Finance Act and thus liable to pay service tax. Further, the allegation in the show cause notice is that the appellant suppressed the fact of being a 'business entity' and thus violated the provisions of Sections 68, 69 & 70 of the Act read with Rule 6, Rule 4 and Rule 7 of the Rules, respectively. After following the due process, the learned Commissioner confirmed the demand of service tax amounting to Rs.83,81,616/- under Section 73 of the Finance Act, 1994 along with interest under Section 75 of the Act; an equal penalty under Section 78 of the Act and a penalty of Rs.10,000/- under Section 77 of the Act were also imposed. Hence, the present appeal.
3. Heard both the parties and perused the material on record.
4. The learned Counsel for the appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. 4.1 He further submits that the very object of creation of Semi- Conductor Laboratory was to establish a Centre of Excellence in micro-electronics in the country to meet the strategic requirement of 4 ST/52295/2015 the country without any commercial considerations and the administrative control of SCL was transferred to Dept of Space w.e.f. 01.03.2005.
4.2 He further submits that the appellant is squarely covered in the definition of 'State' as defined in Article 12 of the Constitution. For this, he relies on the decision of Hon'ble Andhra Pradesh High Court in the matter of Prof. Dr. V. Ganeshan vs. Central Institute of English & Foreign Languages, Hyderabad - Law Finder Doc Id 504753 = 2000 (2) Andh LD 233, wherein the Hon'ble High Court observed that "The Supreme Court broadly indicated six tests and factors which may convert a Corporation, a Government Company, a Co-operative Society and other registered society or body into a 'State' within the meaning of Article 12 of the Constitution". As per the appellant, they fulfilled all the six parameters and therefore, they fall within the definition of 'State' within the meaning of Article 12 of the Constitution.
4.3 He further submits that the appellant SCL is not a business entity and is barred from carrying commercial activities. He further submits that ISRO, of which SCL was a part and parcel, does not come under the definition of 'business entity' which was clarified by ISRO Satellite Centre vide letter dated 06.09.2012. 4.4 He further submits that it is the sovereign duty of CISF, a statutory body created by an Act of the Parliament and one of the Central Armed Police Forces, to protect and safeguard the industrial 5 ST/52295/2015 undertaking owned by the Central Government. He also submits that just as the police forces of the State which also provide security to persons and institutions on payment of cost recovery, the CISF also does so and therefore the CISF has also been held to be not liable to pay service tax. In this regard, he relies on the following cases:
Dy. Commissioner of Police Jodhpur vs. CCE & ST, Jaipur - 2017 (48) STR 275 (Tri. Delhi) CCE & ST, Jaipur vs. Dy. Commissioner of Police Jodhpur - 2018 (11) GSTL J133 (SC) Dy. Inspector General of Police vs. CCE, Bhopal -
2017 (3) GSTL 159 (Tri. Delhi) 4.5 He further submits that the show cause notice has been issued without proper application of mind and scrutiny of service tax returns because the appellant did pay the service tax on Security Service amounting to Rs.5,01,290/- on 27.08.2012 and Rs.15,54,894/- during the months of September, October, November & December, 2012 for 2012-13 and reflected in returns also.
4.6 He further submits that the impugned service is being provided by the Union Government to itself in as much as the CISF is a part of Union Government and so is the appellant SCL, being a department of Union of India, i.e. Dept of Space, Govt of India.
There are no service receivers other than the Union Government itself and therefore, the SCL is not a service recipient of the CISF within the meaning of Rule 2(1)(d)(i)E. 6 ST/52295/2015 4.7 He further submits that the Dept of Space, which is running the SCL, is not a 'business entity' as the SCL is ordinarily engaged in research and development without any profit motive, whereas in a business, profit motive is a main concern. He also submits that the adjudicating authority has itself noted in the impugned order that the appellant receives various grants for specific purpose and is under the control of Dept of Space.
4.8 He further submits that service tax, which was initially paid on the Security Service, was discontinued because of some internal correspondence to the effect that other similar divisions of Dept of Space were not paying service tax on Security Services provided by the CISF.
4.9 He further submits that the issue pertains to domain of interpretation and therefore, extended period cannot be invoked. He also submits that no suppression can be alleged against a Government department. For this, he relies on the following cases:
Karnataka Industrial Areas Dev. Board vs. Commr of Central Tax, Bengaluru North - 2020 (40) GSTL 33 (Tri. Bang.) Maulana Azad National Institute of Technology vs. CCE, Bhopal - 2019 (27) GSTL 383 (Tri. Delhi)
5. On the other hand, the learned Authorized Representative for the Revenue reiterates the findings of the impugned order.
6. After considering the submissions made by both the parties and examining the material on record, we find that the main issue involved in the present case is whether the service provided by one 7 ST/52295/2015 department of the Government to another department of the Government is taxable or not? We find that the appellant is an autonomous body of the Union Government and is wholly owned and controlled by Dept of Space, Govt of India and is funded through grant in aid from the budget of Government; all its members are the government employees by designation and they are engaged in the research and development in the area of semi-conductors and micro-electronics exclusively for certain strategic strictly confidential projects of Dept of Space, Govt of India. Further, we find that the appellant being a sensitive organization of Govt of India, its security was handed over to the CISF which is also a body of Union Government and comes under the Ministry of Home Affairs.
7. We further find that the appellant being a unit of Dept of Space, cannot be considered as a 'business entity' because they are barred from doing any commercial activity as clarified by ISRO vide its letter dated 06.09.2012. We also find that as defined in Section 65B(17) of the Finance Act, a person to be called 'business entity' who is ordinarily carrying out any activity relating to industry, commerce or any other business or profession, whereas the very purpose of establishing the SCL was to establish a centre of excellence in micro-electronics in the country to meet the strategic requirement of country without any commercial considerations. We also find that it is the sovereign duty of the CISF, a statutory body of the Union Government, to protect certain installations as specified by the Government to be vital.
8 ST/52295/2015
8. We also find that the Tribunal in the case of Dy. Commissioner of Police Jodhpur (supra) has held that the activity of State Police represented by the Superintendents of Police of various districts providing security personnel to various organizations and for character verifications of candidates selected for various jobs on payment of charges, is not leviable to service tax under the category of 'Security Agency Service' under Section 64(94) of the Finance Act, 1994. We also find that the said decision of the Tribunal has been upheld by the Hon'ble Apex Court as reported in 2018 (11) GSTL J133 (SC).
9. We also find that initially the appellant did pay the service tax on Security Service, amounting to Rs.5,01,290/- on 27.08.2012 and Rs.15,54,894/- during the months of September, October, November and December, 2012 for 2012-13 and reflected in returns also, but subsequently, the appellant discontinued the same because of some internal correspondence to the fact that other similar divisions of Dept of Space were not paying service tax on Security Service provided by the CISF.
10. We further observe that the appellant SCL is not running any industry and as such is not registered under the Factories Act, 1948 and therefore, the Security Service by the CISF, a body of Union Government, is being provided to the SCL, a wholly owned and controlled by Union of India, is not taxable.
9 ST/52295/2015
11. Keeping in view the above facts and circumstances, we are not inclined to accept that fact that the appellant is a 'business entity' and is working for profit. We find that finding of the learned Commissioner, that the appellant is engaged in commercial activity and thus is business entity, is not sustainable in law and accordingly, we set aside the same on merits.
12. In result, the impugned order is set aside and the appeal of the appellant is allowed.
(Order pronounced in the open court on 17.10.2025) (S. S. GARG) MEMBER (JUDICIAL) (P. ANJANI KUMAR) MEMBER (TECHNICAL) RA_Saifi