Page 28 - GSTL_27th August 2020_Vol 39_Part 4

J84 GST LAW TIMES [ Vol. 39
Consequently, in Synthetics & Chemicals Ltd. Etc. v. State of U.P. - 1990
AIR 1927, a Seven-Judges Bench of Supreme Court noted that :
“……….. The Indian State, between the Centre and the States, has sovereign
power. The sovereign power is plenary and inherent in every sovereign State
to do all things which promote the health, peace, morals, education and good
order of the people. Sovereignty is difficult to define. This power of sover-
eignty is, however, subject to constitutional limitations. This power, accord-
ing to some constitutional authorities, is to the public what necessity is to the
individual.………….”
In APMC, Karnataka v. Ashok Harikuni [(2000) 8 SCC 61 at 75-76] the Supreme Court
has observed that what is approved to be ‘sovereign’ is defence of the country,
raising armed forces, making peace or war, foreign affairs, power to acquire and
retain territory. Other functions of the State including welfare activity cannot be
construed as ‘sovereign exercise of power’. Hence, every governmental function of
State need not be sovereign.
In State of U.P. v. Jai Bir Singh, Appeal (Civil) No. 897 of 2002, a Five-
Judges Constitution Bench of the Supreme Court revisited the Bangalore Water
Supply and Sewerage Board decision and noted as follows :
“We also wish to enter a caveat on confining ‘sovereign functions’ to the tra-
ditional so described as ‘inalienable functions’ comparable to those per-
formed by a monarch, a ruler or a non-democratic government. The Learned
Judges in the Bangalore Water Supply and Sewerage Board case seem to have
confined only such sovereign functions outside the purview of ‘industry’
which can be termed strictly as constitutional functions of the three wings of
the State i.e. executive, legislature and judiciary. The concept of sovereignty
in a constitutional democracy is different from the traditional concept of sov-
ereignty which is confined to ‘law and order’, ‘defence’, ‘law making’ and
‘justice dispensation’. In a democracy governed by the Constitution the sov-
ereignty vests in the people and the State is obliged to discharge its constitu-
tional obligations contained in the Directive Principles of the State Policy in
Part-IV of the Constitution of India. From that point of view, wherever the
government undertakes public welfare activities in discharge of its constitu-
tional obligations, as provided in part-IV of the Constitution, such activities
should be treated as activities in discharge of sovereign functions falling out-
side the purview of ‘industry’…….”
The matter has been now referred to a Nine-Judges Bench by the Hon’ble Chief
Justice and the final decision is still pending.
The point to be noted here is that sovereign functions performed by the
Government cannot be regarded as a service and hence subjected to tax. In this
context, various Tribunals and High Courts have held the following bodies of
Government to be performing sovereign functions and hence not exigible to Ser-
vice Tax :
In Dy. Director of Mines & Geological Department v. CCE & C, Belgaum -
2007 (7) S.T.R. 285 (Tri. - Bang.), the Tribunal held that Department of Mines and
Geology was performing their sovereign functions in terms of the powers grant-
ed in Constitution of India and Service Tax cannot be levied.
In Electrical Inspectorate, Govt. of Karnataka v. Commissioner, Service Tax -
2008 (9) S.T.R. 494 (Tri. - Bang.), the Tribunal held that is a State Government
Department carrying on sovereign activity of inspection and certification of elec-
trical installations in terms of special legislations.
In CCE, Nashik v. Maharashtra Industrial Development Corporation [2018 (9)
G.S.T.L. 372 (Bom.)], Hon’ble Bombay High Court held that MIDC is a statutory
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