In a major setback to Kerala State Ex-services League, the Kerala High Court has held that service tax is payable on activity of looking after socio-economic and welfare matters of ex-servicemen and their families.

The bench of Justice A.K. Jayasankaran Nambiar has observed that although it may be a fact that in any particular year(s), the appellant 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 appellant 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. 

The appellant/assessee in all the appeals is the Kerala State Ex-services League, which is a Charitable Society registered under the Travancore Cochin Society Registration Act, 1955 and is affiliated to the Indian Ex-Service League, New Delhi. It has its registered office at Trivandrum and the League has District Committees in all the Districts in the State of Kerala. 

The primary object of the League is stated to be to look after the socio-economic and welfare matters of ex-servicemen and their families. As per the Bye-law of the League, the Society is incorporated for the purposes of coordinating the welfare measures for the benefit of the ex-servicemen and their family members.

The issue in these appeals arises from the notices issued to the appellant 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.

After an initial round of litigation which culminated in an order of the Appellate Tribunal remanding the matter to the original authority for consideration as to whether or not the appellant would satisfy the definition of “a 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”, the original authority once again found that the activities of the appellant would attract the definition of “security agency service” for the purposes of payment of service tax under the Finance Act, 1994, as amended.

The appellant preferred appeals before the First Appellate Authority which confirmed the demand of service tax and penalty on the appellant. In the further appeals preferred by the appellant before the Appellate Tribunal, the Appellate Tribunal also found that the services provided by the appellant would attract the definition of “taxable service” under the head of “security agency service” and therefore dismissed the appeals preferred by the appellant and confirmed the demand of service tax and penalty on the appellant. 

The assessee contended that the services rendered by the appellant cannot attract the definition of “taxable service” as applicable under the head of “security agency service”. The assessee referred to Circular dated 10.06.1985 issued by the Directorate of Sainik Welfare, Trivandrum, to point out that the appellant came into being for the purpose of looking after the socio-economic and welfare matters of Ex-servicemen and their families. The appellant 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 court stated that the 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 institutes cannot be seen as commercial concerns, even if for some of their activities they charged a fee. 

The court held that for an association like the appellant, 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 appellant who embarks on such a venture, a ‘commercial concern’.

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Case Details

Case Title: The Kerala State-Ex-Services League Versus Commissioner Of Central Excise Customs And Service Tax

Case No.:  C.E.APPEAL.NO.16 OF 2018

Date: 17/12/2024

Counsel For Appellant: Dr.K.P.Pradeep

Counsel For Respondent: Sreelal N. Warrier