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ST - Quality check of defence stores - appellants are not liable to pay service tax on testing fee paid to them by ordnance factories: CESTAT

By TIOL News Service

NEW DELHI, JULY 10, 2017: THE appellant is a part of Directorate General of Quality Assurance (DGQA), Ministry of Defence, Government of India entrusted with the responsibility of providing quality check of defence stores in respect of armaments meant for Army, Navy and Air Force. They have dual responsibility of providing quality assurance of armaments stores manufactured by Ordnance Factory, Khamaria and also stores manufactured by other Ordnance Factory and dynamic proof of ammunition and weapons manufactured by these Ordnance Factories. The appellant is also providing quality audit for the ammunition manufactured by MHA Units located in different states and Union Territories.

The dispute relates to service tax liability in respect of consideration received under the heading 'Quality Inspection Charges'.

Although the appellants discharged service tax, they refuted the imposition of interest for the delay in discharging such service tax.

Before the CESTAT, the appellant submitted that they are engaged in the activities, which are purely in public interest and are undertaken as mandatory and statutory functions; that in terms of clarification issued by the Board vide Circular No. 96/7/2007-ST dated 23.08.2007 they are not liable to Service Tax; that the amounts collected are not to be treated as consideration for rendering any service but these are actually fees prescribed for conducting the quality checks and hence not liable to Service Tax.

The appellant also relied on the decision of the Jammu & Kashmir High Court in OWP No.1391/2010 filed by various manufacturers of Shot Gun challenging the levy of Service Tax on such charges and wherein it is held that the appellants therein are not liable to Service Tax on the testing fee paid to them by the licensed manufacturers of Guns.

After extracting the relevant portion of the said judgment, the CESTAT held -

"5. In view of the ratio as laid down by the Hon'ble High Court and considering the nature of work attended to by the appellant, we find that there can be no service tax liability on the charges collected by the appellant. Hence, there is no question of interest payable by them…."

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-2345-CESTAT-DEL)


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