Charitable Society Looking After Socio-Economic And Welfare Matters Of Ex-Servicemen, Their Families Can Levy Service Tax: Kerala HC

The Division Bench of Justices A.K. Jayasankaran Nambiar and Easwaran S. observed that “for an association like the assessee, the embarking on a transaction that is designed to earn income for its members, would have to be seen as a commercial venture and the assessee who embarks on such a venture, a 'commercial conern'.”

In this case, the assessee/appellant is the Kerala State Ex-services League, which is a Charitable Society. The primary object of the League is to look after the socio-economic and welfare matters of ex-servicemen and their families.

The issue in these appeals arises from the notices issued to the assessee in 1998 asking it to register itself as a service provider under the head of “security agency service” as defined under Section 65(40) of the Finance Act, 1994 prior to 2006 and under Section 65(94) of the said Act after the 2006 amendment.

The original authority found that the activities of the assessee would attract the definition of “security agency service” for the purposes of payment of service tax under the Finance Act, 1994, as amended.

Aggrieved by the order of the original authority, the assessee preferred appeals before the First Appellate Authority which confirmed the demand of service tax and penalty on the assessee.

The assessee filed an appeal before the Appellate Tribunal which dismissed the appeal stating that the services provided by the assessee would attract the definition of “taxable service” under the head of “security agency service”.

The assessee submitted that the services rendered by the assessee cannot attract the definition of “taxable service” as applicable under the head of “security agency service”.

It was further submitted that as per the Circular dated 10.06.1985 issued by the Directorate of Sainik Welfare, Trivandrum, the assessee came into being for the purpose of looking after the socio-economic and welfare matters of Ex-servicemen and their families. The assessee consequently provides opportunities to its members by guiding them for better placements on no profit no loss basis and hence, its functioning is purely on a non-commercial basis which fact has been recognized by the Governmental authorities.

The bench clarified that “The Circular No.86/4/2006-ST dated 01.11.2006 issued in this connection goes on to clarify that it is not one/few isolated activities which determine whether or not an institution is a commercial concern but it is the totality of its activity and the objective of its existence that determines the commercial nature of an institution as an entity or a concern. The said Circular which basically considers the applicability of service tax to educational institutes like IITs and IIMs, goes on to clarify that the principal activity of institutes like IITs and IIMs being the imparting of education without the objective of making profit, the said institutes cannot be seen as commercial concerns, even if for some of their activities they charged a fee.”

Further, the bench opined that for an association like the assessee, the embarking on a transaction that is designed to earn income for its members, would have to be seen as a commercial venture and the assessee who embarks on such a venture, a 'commercial conern'.

Although it may be a fact that in any particular year(s), the assessee did not make any profit from its commercial activities, the fact remains that it had embarked upon the venture with an objective of making profit. The assessee cannot be treated at par with educational institutions, which by their very nature and going by the activities intended to be performed by them, cannot be seen as commercial concerns, added the bench.

In view of the above, the bench dismissed the appeal.

Case Title: The Kerala State -Ex-Services League State Committee, Thiruvanthapuram v. Commissioner of Central Excise Customs and Service Tax, Trivandrum

Citation: 2024 LiveLaw (Ker) 827

Case Number: C.E. APPEAL. NO. 16 OF 2018

Counsel for Petitioner/ Assessee: Dr. K.P. Pradeep

Counsel for Respondent/ Department: Sreelal N. Warrier

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