Customs, Excise and Gold Tribunal - Delhi
Punjab Ex-Servicemen Corporation vs Commissioner Of Central Excise on 6 October, 2006
Equivalent citations: 2006(113)ECC590, 2006ECR590(TRI.-DELHI), 2007[5]S.T.R.214, [2007]6STT246, (2007)5VST375(CESTAT-NEW DELHI)
ORDER T.V. Sairam, Member (T)
1. The appeal is filed by Punjab Ex-Serviceman Corpn. challenging the order of Commissioner (Appeals) made on 25.4.05 endorsing the decision made by the authorities below in his order-in-original dated 29.11.04 holding that the appellant corporation floated by Punjab Government for the welfare of Ex-Serviceman is not a charitable organization but service provider of security services which are taxable under the law.
2. Aggrieved by the orders of authorities below, this appeal has come before us. None represented the appellant inspite of notice. On examining the grounds of appeal, the appellant has heavily relied upon the fact that the Government of Punjab under the Punjab Act No. 33 of 1978 has set up the appellant corporation for rehabilitation of ex-serviceman. In the appeal memorandum, the appellant has contended that they are not the commercial organization and hence, they were not liable to pay the service tax on the security services provided by them for their clients. Further, the valuation arrived at by the authorities below has also been questioned since only the service charges were received by the appellant for providing the services and inclusion of salary/wages paid in actual to the security personnel employed was not justified.
3. The learned authorised representative of the department relies upon the definitions under the Finance Act in respect of security agency, taxable service and valuation of the taxable service, respectively which come under Section 65(40), 65(48)(w) and Section 67(v). All these definitions read as under:
Security Agency "Security Agency" means any commercial concern engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel.
Taxable Service "Taxable Service" means any service provided, to a client, by a security agency in relation to the security of any property or person, by providing security personnel or otherwise and includes the provision of services of investigation, detection or verification of any fact or activity.
Valuation of the Taxable Service "Valuation of the Taxable Service" For the purposes of this Chapter, the value of taxable services in relation to the service provided by a security agency to a client, shall be the gross amount charged by such agency from the client for services rendered in connection with the security of any property or person, and includes services of investigation, detection or verification of any fact or activity including services of providing security personnel'.
4. We have heard the learned authorised representative for the department and perused the record. From the record, it is clear that the appellant corporation, though created under the Punjab Ex-Serviceman Act, 1978, has rendered the services of security agency, which is carried out on commercial terms as evident from their own agreements. For instance, the profit and loss account for the financial year 2001-2002 of the appellant corpn. not only talks of "net profit" earned by them; but also with clear description that the net profit was "derived from commercial activity of their security product". It is also evident from the very Act itself that the appellant corpn. was free to indicate "business, trade or activity as may be approved in this behalf by the Government" - which obviously includes the commercial activities undertaken by them.
5. It is clear that services provided in relation to the security of any property or person becomes a taxable service under the law. As regards the valuation of taxable services for charging service tax, it is also clear that the gross amount charged by the agency, has to be treated as value, which would obviously include the payments etc. made to the security personnel. In this context, we would rather rely upon the circular issued by Central Board of Excise & Customs on 7.10.98 which contains the following clarification relating to the services rendered by the security agencies:
10. Security Agencies 10.1 As per the provisions of Section 65(40), "security agency" means any commercial concern engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of any investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise including the services of providing security personnel. The ambit of the term security agency is wide enough to include not only agencies rendering services of providing security but also detective agencies which are providing confidential services in respect of say, financial credibility of any person, trade mark/copyright infringements, etc. Most of the security agencies are only registered under the Shops and Establishments Act. These agencies may not be required to take a license under any other statutes.
10.2 An issue that has been raised is whether service tax is leviable on the entire amount charged to the clients to whom security guards personnel have been provided as the bulk of the charges represent salary to the employee (at least the minimum wage prescribed under the law), employer's ESI and EPF contribution, income-tax deduction at source, payment towards professional tax and labour welfare fund and other non-statutory charges such as bonus, leave, uniforms, incidental expenses and other administrative and miscellaneous expenses. It is clarified that no such abatement from the amount charged to the client for services rendered is available for purposes of computing the service tax liability. However, abatement in respect of statutory levies and taxes can be granted provided the same has some direct relation with the services rendered to the client and is hence specifically billed to the client and is reimbursable by the client on an actual basis. Statutory levies of the kind mentioned above, such as EPF, ESI, contribution towards labour welfare fund, etc. are required to be borne by all types of employers, and not only security agencies. Such statutory levies have no direct co-relation with the services rendered to the client (in as much as the same arise out of employer-employee relationship) and are not specifically relatable to the services rendered to the client. As such it is clarified that no abatement in respect of such statutory levies is admissible for the purposes of computing the service tax liability.
6. In yet another Trade notice issued by Madurai Commissionerate on 13.10.05, it has been made clear that service tax has to be levied on the gross amount paid by the recipient of service and the cost of labour is an integral part of the value of service provided. The ratio adopted by the Hon'ble Madras High Court in its judgment in GDA Security Pvt. Ltd. v. Union of India, may also be relevant here. Para 10 of the said judgment reads as under:
10. Similarly, we are also not impressed by the contention raised that in case of some other agencies while being taxed under the service tax, the "expenditure" incurred while offering the services are excluded and in case of security agencies that expenditure is not excluded and the gross amount received by the security agencies is made taxable. We have dealt with this question in paragraph 22 of the aforesaid judgment of the advertising agencies. We had compared the case of manpower agencies covered under Section 65(24) and we had pointed out that on this ground the challenge cannot be made particularly relying on Article 14 of the Constitution. In paragraph 23 we have recorded a finding that no fault can be found with the taxing provision with reference to the measure of the tax. We had accepted the contention raised on behalf of the Respondent that as to which would be and what would be deductible amount would essentially depend upon the words of the statute and that it would be open for the tax payer to prove on the basis of the evidence that the amount charged would not come within the gross amount charged or any amount charged would be actually separate and independent of gross amount charged and not in relation to services provided. We also held there that it would be the discretion of the concerned authority to decide as to whether a taxing statute is constitutional or otherwise on the basis of the way the calculations are to be made by the taxing authorities. Indeed a nature of the tax cannot be ascertained on the basis of its measure and this proposition is well settled. Even otherwise, the question raised regarding the calculation of the tax would not be apposite to decide the constitutional validity of the provisions much less under Article 14 of the Constitution of India. All the challenges related to the calculations and more particularly in comparison to the other services would have to be rejected on this ground alone.
7. We also rely upon the agreement entered into by the appellant with their client relating to the security services provided to them, more particularly, the clauses reproduced below, which indicate the role and functions of the appellant in a lucid manner:
Whereas RSD is desirous of entrusting the security relating to pilferage of project material and other undesirable activities i.e. absenteeism, unpunctuality, non-wearing of badges identity discs and other indiscipline among the workers.
And whereas PESCO agrees to undertake the responsible to prevent the pilferage of project material and other activities relating to manpower i.e. absenteeism, unpunctuality and bearing of badges/identity discs and other indiscipline amongst the workers.
8. It is also noticed here that it is the appellant who employs the security personnel. While forming an opinion here, we are also largely guided by the Hon'ble Madras High Court judgment in All India Tax Payers Welfare Association v. Union of India reported in 2006 (4) STR 14 (Mad), para 9 of which reads as follows:
9. The provider of service is an assessee under Section 65 of the Finance Act and he has to collect service tax from the users of service as contemplated under Section 12-A and 12-B of the Central Excise Act. In this context, it is necessary to refer that Section 12-A of the Central Excise Act contemplates that notwithstanding anything contained in this Act or any other law for the time being in force, every person who is liable to pay duty of excise on any goods shall, at the time of clearance of the goods, prominently indicate in all the documents relating assessment, sales invoice, and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold. Section 12-B of the Central Excise Act contemplates that every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. Thus, the provider of service only assessee according to Section 65 of Finance Act is to collect service tax from the users of service as contemplated under Sections 12A and 12B of Central Excise Act, 1944. The second Respondent rightly mentioned in all bills the details including service tax which is payable by the users.
9. A perusal of Section 15 of the Punjab Ex-serviceman Act, 1978, clearly spells out the commercial nature of business that the corporation could engage in.
10. As regards the question of valuation, it is abundantly clear from the definition as forthcoming from the Act that the gross amount charged by the appellant from their clients becomes taxable value. In no unclear terms the Central Board of Excise & Customs has clarified this aspect stating that the gross amount charged by such agency from their clients has to be taken as the value for the purpose of levy on service tax. For the foregoing reasons, we do not find any merit in appeal and, therefore, the same is dismissed.
(Pronounced and Dictated in the Court)