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What will be the taxability of business auxiliary services or technical testing services provided by government departments or public authorities to the public or users of such services?

R. Srinivasan

On applicability of service tax on fee collected by public authorities while performing statutory functions or duties under the provisions of law, Central Board of Excise and Customs (CBEC) has clarified vide Circular No. 89/07/2006-ST of December 18, 2006, that a number of sovereign/public authorities (that is, an agency constituted/set up by government) perform certain functions/duties, which are statutory in nature.

These functions are performed in terms of specific responsibility assigned to them under the law in force. For examples, the Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; the Regional Transport Officer (RTO) issues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or the Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws.

The fee as prescribed is charged and the same is ultimately deposited into the government treasury. A doubt has arisen whether such activities provided by a sovereign/public authority required to be provided under a statute can be considered as ‘provision of service’ for the purpose of levy of service tax.

The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the government treasury.

Such activity is purely in public interest and is undertaken as mandatory and statutory function.

These are not in the nature of service to any particular individual for any consideration. Therefore, such activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities.

However, if such authority performs a service which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then, in such cases, service tax would be leviable, if the activity undertaken falls within the ambit of a taxable service.

SANJIV AGARWAL

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