Construction of School or Hospital to Charitable Institution or Trust is Charitable Purpose, entitled to Service Tax Exemption: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), New Delhi Bench held that Construction of school or hospital to charitable institution or Trust is charitable purpose and is entitled to the benefit of service tax exemption as per Sl.No.13 of Notification No.25/2012-ST.

The appellant, M/s. S. Kumar Builders is a provider of service under the head “Works Contract Service” and is registered with the Department. The appellant filed their returns regularly and also deposited the admitted tax. Pursuant to show cause notice service tax has been demanded as short paid/not paid, based on the Income Tax records like Form 26 AS, Income Tax Return, Profit and Loss Account, etc. for the financial year 2014-2015.

The proposed demand of Rs.11,67,226 was confirmed with equal amount of penalty under Section 78. Further, late fee of Rs.21,000 has been imposed under Rule 7C read with Section 70. Further, penalty of Rs.10,000 has been imposed under Section 77(2) for not showing correct gross receipt of services in ST-3 Returns.

Being aggrieved, the appellant preferred appeal before the Commissioner (Appeals), who set aside the demand of Rs.12,047 in respect of debt settlement and upheld the balance demand of Rs.11,55,179 along with equal amount of penalty and also upheld both the penalties under Section 70 and 70 (2). Aggrieved the assessee is in appeal before the Tribunal.

The Counsel for the appellant submitted that the service receiver is a trust, a charitable trust registered under Section 12 A/12 AA of the Income Tax Act, providing service of education and are not involved in any commercial activities. It is further contended that imparting of education is also in the nature of religious-charitable activities and hence, exempted vide Sl.No.13 of Notification No.25/2012-ST. Thus, education and medical services are also in the nature of religious services. The said activities are exempt under clause 2(k) of the Notification.

A Bench consisting of Anil Choudhary, Judicial Member held that “I hold that religious use includes providing of education, and medical aid, which reduces human suffering. Accordingly, I hold that the appellant is entitled to exemption with respect to aforementioned works contract service provided to the Trusts registered under Section 12A/12AA of the Income Tax Act. Thus, the demand of Rs. 4,28,424 is set aside.

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