The Chennai bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on renting of immovable property to or by religious body before 1.07.2012.
From an intelligence gathered by the Preventive Unit, Thanjavur, it was revealed that the Diocese of Tanjore Society the appellant was engaged in the activity of renting out their commercial building complexes located in and around Thanjavur to various tenants for commercial purposes. It appeared that the appellant being a service provider had not obtained registration from the department and had not paid the appropriate service tax on the taxable services provided by them. The total income received by them was reflected in their profit and loss statements based on which they had filed their income tax returns.
The services of renting of immovable property for use in the course or furtherance of business or commerce is liable to service tax under the category of ‘Renting of Immovable Property service’ with effect from 1.6.2007 in terms of sec. 65(90a) of the Finance Act, 1994. A Show Cause Notice dated 16.9.2013 was issued proposing to demand a service tax of Rs.87,96,460/- along with interest for the period from 1.4.2008 to 31.3.2013 and for imposing penalties. After due process of law, the adjudicating authority confirmed the demand along with interest and imposed equal penalty under sec. 78 besides penalty under section 77 of the Finance Act, 1994.
Shri M.N. Bharathi for the appellant and Shri Harendra Singh Pal, learned Assistant Commissioner (AR) for the Department.
The appellant submitted that the appellant is registered under the Societies Registration Act, 1860 and is under the direct control of the Bishop of Tanjore. As per the Memorandum of the Society, its object is to promote the spiritual, educational, industrial, technical or agricultural and other interests primarily of the members of the Catholic Community but members of the other communities of the said Diocese of Thanjavur society are not excluded.
The Diocese is a religious body that is a part of the Roman Catholic mission headed by the Pope. Further the term “religious body” has not been defined in the Finance Act 1994 and the laws applicable to service tax. The definition of ‘religious body’ is given in section 81 of the Equal Opportunity Act, 2010 as a body established for religious purposes etc. As per section 65(90a) of the Finance Act 1994, ‘renting of immovable property’ does not include renting, letting, leasing etc. by a religious body or to a religious body.
It was stated that a society established for religious purposes can be registered under the Societies Registration Act for charitable purposes. The term ‘charitable purpose’ in Sections 1 and 20 of the Societies Registration Act includes societies formed for religious purposes.
The benefit of a legal definition in tax laws is that it primarily serves as a mechanism for examining the inclusion and exclusion of a subject from levy. Those subjects included in the definition are recognised by law to be subject to levy, though they may be eligible for exemption from tax separately those subjects excluded cannot be taxed.
A two-member bench comprising Shri P. Dinesha, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that revenue has failed to establish that the Diocese is not a religious body and will be covered by the definition under section 65(90a) of the Finance Act 1994. Further viewed that the appellant will be subject to levy under service tax for renting of immovable property only from 01/07/2012 and not before that date. The appellant also agrees that they are liable to pay service tax from 01/07/2012.
The CESTAT set aside all penalties and allowed the appeal.
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