2025 (3) TMI 502 - AT - Service Tax

Non/short-payment of service tax to the Government - Appellant had received amounts on account of provisions of services but failed to pay service tax - exemption of service tax under Charitable purpose - recovery of service tax with interest and penalty - HELD THAT - Section 12 AA read with section 12 A of the Income Tax Act provides for process of registration of a trust or institution where income derived from the property etc. held under trust is wholly meant for charitable or religious purposes wherein exemption from income tax is available subject to certain conditions - Further charitable purpose is defined under Section 2 (15) of the Income Tax Act Charitable purpose includes relief of the poor education yoga medical relief preservation of environment etc. and the advancement of any other object of general public utility. Further in the facts of the case it is admitted that the service tax has been provided for civil construction of school building or hospital building to a charitable institutions or Trust registered under Section 12 AA of the Income Tax Act and the said activities are covered under the definition of Charitable Purpose under the Income Tax Act - The said activities are exempt under clause 2(k) of N/N.25/2012-ST. Conclusion - The religious use includes providing of education and medical aid which reduces human suffering. Accordingly 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. Demand with penalty set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the service tax was rightly demanded from the Appellant for the financial year 2016-17 based on the construction services provided to educational/charitable institutions registered under Section 12A of the Income Tax Act, 1961.
• Whether the services provided by the Appellant qualify for exemption under Notification No.25/2012-ST, particularly in relation to services provided to charitable institutions.
• Whether the penalties imposed under various sections of the Finance Act, 1994, read with the CGST Act, 2017, were justified.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves the Finance Act, 1994, particularly Sections 73(1), 75, 77, and 78, in conjunction with Section 174 of the CGST Act, 2017. The exemption under Notification No.25/2012-ST is pivotal, especially its clause 13, which discusses exemptions for services provided to entities registered under Section 12AA of the Income Tax Act.

Court's Interpretation and Reasoning

The Tribunal examined whether the construction services provided by the Appellant to charitable institutions were exempt from service tax. The Tribunal noted that the services were provided to entities registered under Section 12AA of the Income Tax Act, which are engaged in charitable activities. The Tribunal interpreted the exemption notification to include services related to education and medical aid as religious activities, thus qualifying for exemption.

Key Evidence and Findings

The Tribunal relied on the Appellant's receipts and financial records, which indicated that the total amount received for services was Rs.3,68,79,956/-. The Tribunal also considered the registration status of the service receivers under Section 12AA of the Income Tax Act, which was crucial in determining the applicability of the exemption.

Application of Law to Facts

The Tribunal applied the exemption clause from Notification No.25/2012-ST to the facts, determining that the services provided by the Appellant fell under the category of exempt services as they were rendered to charitable institutions engaged in educational activities. The Tribunal concluded that the Appellant was entitled to the exemption, thus negating the service tax demand.

Treatment of Competing Arguments

The Tribunal considered the Department's argument that the services were not exempt due to their nature as construction services. However, it found that the exemption notification's language, when read with the Income Tax Act's definition of charitable purposes, supported the Appellant's position. The Tribunal favored the interpretation that aligned with the broader purpose of promoting charitable activities.

Conclusions

The Tribunal concluded that the service tax demand of Rs.33,67,300/- was not sustainable, and the penalties imposed under Section 78 were unjustified. The appeal was allowed, and the Appellant was granted consequential relief.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

"Having considered the rival contentions, 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."

Core Principles Established

• Services provided to entities registered under Section 12AA of the Income Tax Act for educational and medical purposes can be considered as religious activities, thus qualifying for exemption under Notification No.25/2012-ST.
• The interpretation of exemption notifications should align with the broader intent of promoting charitable activities.

Final Determinations on Each Issue

• The demand for service tax for the financial year 2016-17 was set aside.
• Penalties imposed under Section 78 of the Finance Act, 1994, were also set aside.
• The appeal filed by the Appellant was allowed, granting consequential relief as per law.