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2017 DIGILAW 196 (JK)

Standard Gun Works v. Union of India

2017-04-17

RAMALINGAM SUDHAKAR

body2017
JUDGMENT : 1. The petition is of the year 2010. 2. The issue raised in the writ petition is whether the respondent-Department is entitled to charge service tax in relation to services said to be rendered by Gun testing conducted by Quality Assurance Establishes (SA) Kanpur for the purposes of quality assurance. 3. Impugned communication dated 27th July, 2010 reads as under:- “M/s Standard Gun Works, Industrial Estate Extension Area, JAMMU CANTT-180003 (J&K) DETAILS OF SERVICE TAX ON QA CHARGES FOR THE PERIOD W.E.F. 01 JULY2003 to 31MARCH 2010 Ref: (i) HQ DQA (A) New Delhi letter No. 94297/QA Charges & ST/DGQA/DQA (A) TC/OFB dated 04 June 10 (copy enclosed) (ii) This Estt letter of even no. dated 13 Nov 2009 Dear Sir, In the light of HQ DQA (A) New Delhi letter quoted under reference (i) above, you are requested to deposit the Service Tax w.e.f 01 July 2003 to 31 March 2010 with interest at the earliest. The Service Tax arrears in respect of your firm is Rs.627708.00. This procedure of depositing the Service Tax will be followed in future yers also. Sd/- (Nand Ram) Jr. Technical Officer For Sr. Quality Assurance officer” 4. The above said communication is challenged by stating that in the State of Jammu and Kashmir service tax is not leviable in terms of Section 64 of the Finance Act, 1994. Learned counsel for the petitioner also states that quality testing conducting by the Quality Assurance Establishes (SA) Kanpur does not fall within the definition of service. 5. Learned counsel for the petitioner relies upon the decision of the Division Bench of this Court in the case of M/S Bumrah Gun Works and ors vs. Union of India and ors, OWP No. 1391/2010 decided on 22.11.2016, where a batch of writ petitions on the similar claim was considered by the Division Bench of this Court and disposed of by holding that in terms of Section 64 of the Finance Act, 1994, service tax is not applicable to the State of Jammu and Kashmir. It was also held that the quality testing of guns does not attract the service tax. 6. Operative part of the judgment rendered in OWP No. 1391 of 2010 and connected petitions reads as follows:- 9. It was also held that the quality testing of guns does not attract the service tax. 6. Operative part of the judgment rendered in OWP No. 1391 of 2010 and connected petitions reads as follows:- 9. It is not in dispute that Units of the writ petitioners are granted licence to manufacture shot guns under Section 5 of the Arms Act, 1959 by Government of India , Ministry of Home, New Delhi and the promoters of the petitioners’ units are residents of J&K State. Section 64 (Chapter V) of the Finance Act, 1994 is not applicable to the J&K State. It is also not in dispute that source to demand service tax is as per Chapter V of the Finance Act 1994. The learned counsel appearing for the respondents is relying on Rule 4 of the Place of Provisions of Services Rules, 2012 which states that the place where the services are actually performed the service tax is leviable to justify the demand of service tax. We need not go into the said issue in view of the other grounds which is raised and emphasised. The Government of India, Ministry of Finance, Department of Revenue Tax Resource Unit by Circular No. 96/7/2007-ST, New Delhi dated 23rd August, 2007 issued clarifications to various services as to whether Services Tax is leviable to different kinds of services. In No. 999.01/23.08.07 it is clarified as follows:- 999.01/23.08.07 Sovereign/public authorities perform functions assigned to them under the law in force, known as “statutory functions”. For example, Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; Regional Transport Officers (RTO) issue fitness certificate to motor vehicles; Director of Boilers inspects and issue 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. 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. Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. Therefore, such activities assigned to and performed by a sovereign public authority under the provisions of any law, do not constitute taxable services. Any amount/fee collected in such cases are not to be treated as consideration for the purpose of levy of service tax. However, 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. On facts the Senior Quality Assurance Officer is a Government of India establishment assigned with the job of proof testing of fire arms. The proof testing is required as per the statute to manufacture of fire arms for public safety. Under Rule 22 of the Arms Rule, 1962 testing fee alone is collected. The said clarification issued by the Revenue will bind the subordinate assessing authorities and one cannot expect a different order from respondents 6 and 7. A similar issue was already considered by Commissioner of Central Excise Bhopal against CESTAT final order No. ST/26/2010 (PB) in Appeal No. ST/346/2007 dated 26.04.2010 by holding that periodical testing of gas cylinder is a statutory requirement under Indian Explosives Act 1884 and therefore, it is not an activity covered for service tax either under maintenance and repair services or technical inspection and certification services and having aggrieved about the said order, Civil appeal filed before Hon’ble Supreme Court was dismissed on 05.01.2011. 10 Based on the said order, the office of Commissioner of Customs, Central Excise and Service Tax, Bhopal issued circular on 21.02.2012 by providing as under:- “......... Activities assigned to and performed by the sovereign/public authorities under the provisions of any law are statutory duties. 10 Based on the said order, the office of Commissioner of Customs, Central Excise and Service Tax, Bhopal issued circular on 21.02.2012 by providing as under:- “......... 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. The testing of shot guns is similar to testing of gas cylinders, boilers and certificate given is similar to those given by RTO and electrical inspectorate. Hence on the same lines, I hold that the activity carried out by the notice pertaining to safety and health of the public which is mandated by the statutory requirement under the Indian Law. Therefore, such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. As it involves the safety of the public and it is bounden duty of the State to protect its citizens. Therefore, such activities assigned to and performed by a sovereign/ public authority under the provisions of any law, do not constitute taxable services. Any amount/ fee collected in such cases is not to be treated as consideration for the purpose of levy of service tax.......” 11. From the above order of CESTAT, affirmed by Hon’ble the Supreme Court, and Circular No. 96 issued by Government of India, Ministry of Finance, Department of Revenue, Tax Resource Unit, New Delhi in Circular No. 96/7/2007-ST dated 23.08.2007 as well as the clarification issued by Commissioner of Customs, Central Excise & Service Tax, Bhopal dated 21.02.2012, the operative portions of which are extracted above, and having regard to the fact that the Senior Quality Assurance Officer, being authorised office for testing, and the petitioners having paid only testing fee for fire arms, which is a statutory requirement under Rule 22 of the Arms Rules, 1962, no service tax can be levied on the petitioners who are granted license under Section 5 of the Arms Act, 1959 even if the service provider i.e. the Senior Quality Assurance Officer is in Kanpur where Section 64 of the Finance Act, 1994 is applicable. 12. 12. In fine the impugned demand notices issued against the petitioners, which are challenged in prayer (A) are quashed and the respondents are directed not to levy/ charge or recover service tax from the petitioners towards testing fee paid to the Senior Quality Assurance Officer, Government of India, Ministry of Defence (DGQA), Kanpur. 13. The writ petitions are partly allowed. No costs. 7. In view of the above said decision rendered by Division Bench of this Court, impugned demand notice dated 27th July, 2010 is set aside. The writ petition is, accordingly, allowed.