A government-established entity with over 90% government control providing training in local governance qualifies as a 'governmental authority' under Notification No. 25/2012-ST and is exempt from service tax for activities related to functions entrusted to municipalities under Article 243W of the Constitution.

PER: P.A. AUGUSTIAN

The issue in the present appeal is whether the Appellant being a Government of Kerala entity is liable to pay service tax and whether demand confirmed by Adjudication authority by invoking the extended period of limitation is sustainable.

2. Alleging that the appellant short paid service tax for the services provided by them, proceedings were initiated and show cause notice was issued on 29.09.2016 demanding service tax for the period from 2011-12 to 2014-15. Thereafter, adjudication authority as per the impugned order dated 22.03.2018 confirmed the demand with interest and imposed penalty also. Aggrieved by said order, present appeal is filed.

3. When the appeal came up for hearing, learned Counsel submits that Appellant being an entity established by Government of Kerala for training in the field of local governance and there is no service tax liability for the education service provided by the appellant which is a function to be discharged by Municipalities under article 243 W of the Indian Constitution. The issue regarding service tax liability on the grants-in-aid received by the appellant from Central/State Government is covered as per the CBEC Circular F. No. 354/35/2010 TRU dated 30/7/2010, it is clarified as follows.

“Implicit in this service tax demand is an assumption that the relationship between Central Government and the State Government is an equivalent of a relationship between principal and the agent. This assumption is questionable as under administrative arrangement, State Governments are bound to implement the centrally sponsored schemes on receipt of a grant. The fact that State Governments are implementing agencies for the Central Government within the framework of CSS does not make them service providers. Consequently, Central Government cannot be taken as service receiver. Grant released by the Central Government under a centrally sponsored scheme cannot be presumed as consideration for providing a taxable service."

b) In the state sponsored scheme here, the state government is giving grant to the appellant and the appellant is the implementing agency of government of Kerala. The appellant is bound to implement the state sponsored scheme on receipt of grant. It is clarified by CBEC in the said circular that central government is not service recipient and state government is not service provider. Exactly same logic is applicable to state sponsored scheme. The state government shall not be treated as service recipient and the appellant shall not be treated as service provider. As clarified by CBEC, there is no consideration in such a situation. Hence it is not a service at all and the question of service tax does not arise.”

4. Learned Counsel further draws our attention to the impugned order and submits that though the Adjudication Authority accepted that no service tax liability in respect of activities under centrally sponsored schemes and it is covered by Circular No. 354/35/2010-TRU dated 30.07.2010 for the period from 01.07.2012, denied the same on the ground that the Circular is not applicable to State sponsored schemers. In this regard , learned Counsel for the appellant submits that the issue regarding service tax liability on the grants-in-aid received from Central/State Government is settled as per the decision of this Tribunal in Final Order No. 20645-20646/2021 dated 26/07/2021 in Appeal No. ST/26639/2013 filed by M/s. Electronics Technology