CESTAT Quashes Service Tax Demand on Religious Institution’s

CESTAT Sets Aside Service Tax Demand on Religious Institution’s Rental Income

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has remanded a dispute related to service tax demand on rental income earned by a religious institution, citing inconsistent departmental decisions on the exemption issue.

• The CESTAT set aside the impugned order and remanded the matter to the Commissioner (Appeals) for fresh examination and appropriate decision.
• The religious institution had rented out premises during the period from 01.07.2012 to 31.12.2013 but did not pay service tax on the rental income.
• The Department had dropped similar service tax demands for later periods, relying on Board Circulars, which the institution argued should also apply to the earlier period.

Readers should pay attention to this case as it highlights the importance of consistent application of tax laws and exemptions, and the potential consequences of inconsistent decisions.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore remanded a dispute relating to service tax demand on rental income earned by a religious institution after noting inconsistent departmental decisions on the same exemption issue.

The appellant, a religious body registered under Section 12A of the Income Tax Act, had rented out premises during the period from 01.07.2012 to 31.12.2013 but did not pay service tax on the rental income. A show cause notice dated 09.05.2014 demanded service tax of Rs. 4,36,657 along with interest and penalties. The adjudicating authority the demand with equivalent penalty under Section 78 and other penalties under the Finance Act, 1994, which was later upheld by the Commissioner (Appeals).

Before CESTAT, the appellant argued that renting of shops within its premises was exempt under Entry 5(a) of Notification No. 25/2012-ST dated 20.06.2012 applicable to religious bodies. The appellant also pointed out that for later periods, the Department itself had dropped similar service tax demands through subsequent appellate and adjudication orders relying on Board Circulars.

The Tribunal observed that the Commissioner (Appeals) had denied exemption for the period 01.07.2012 to 31.12.2013 in the impugned order dated 27.04.2017, whereas in a later order dated 16.11.2018 relating to January 2014 to March 2015, the same authority had decided the issue in favour of the appellant. The later order was also followed for subsequent periods and demands were dropped.

Considering these inconsistent findings, CESTAT set aside the impugned order and remanded the matter to the Commissioner (Appeals) for fresh examination and appropriate decision.

FULL TEXT OF THE CESTAT BANGALORE ORDER

This is an appeal filed against Order-in-Appeal No.COC-EXCUS-000-APP-107-2017 dated 27.04.2017 passed by the Commissioner of Central Excise, Customs & Service Tax (Appeals-I), Cochin.

2. Briefly stated the facts of the case are that the appellant is a religious institution / body for advancement of Muslim religion and registered as Religious Body under Section 12A of the Income Tax Act, 1961. During the relevant period from 01.07.2012 to 31.12.2013, they have collected rent by letting out their premises but failed to discharge service tax on the value of rent of the immovable property during the said period. Consequently, show-cause notice was issued to them on 09.05.2014 demanding service tax of Rs.4,36,657/- along with interest and penalty. On adjudication, the demand was with interest and penalty of equivalent amount under Section 78 and other penalties under different sections of Finance Act, 1994. Aggrieved by the same, appellant filed appeal before the learned Commissioner(Appeals) who in turn rejected their appeal. Hence, the present appeal.

3. At the outset, the learned advocate for the appellant has submitted that the appellant is registered as a religious body under the Income Tax Act, 1961 and even though their activities i.e. renting of shops situated in the premises of the appellant fall under the category of ‘service’ post 01.07.2012, it is exempted from payment of service ta under entry 5(a) of the exemption Notification No.25/2012-ST dated 20.06.2012. He has submitted that for the subsequent periods, demand notices issued had been adjudicated and dropped by the Department vide Order-in-Appeal No.COC-EXCUS-000-APP-1035-2018 dated 16.11.2018, later followed in Order-in-Original No.14/2019-SC-HQ dated 27.02.2019. Therefore, the present appeal also needs to be considered on the same line.

4. Learned AR for the Revenue has reiterated the findings of the learned Commissioner(Appeals).

5. Heard both sides and perused the records.

6. On going through the records, we find that the present Order-in-Appeal was passed on 27.04.2017 by the learned Commissioner(Appeals) holding that the appellant are not eligible to the benefit of Notification No.25/2012-ST dated 20.06.2012 for the period 01.07.2012 to 31.12.2013 whereas in the Order-in-Appeal No.COC-EXCUS-000-APP-1035-2018 dated 16.11.2018 pertaining to the period January 2014 to March 2015, the learned Commissioner(Appeals) decided the issue in favour of the appellant referring to Board’s Circulars mentioned therein. The subsequent Order-in-Appeal dated 16.11.2018 has been followed by the adjudicating authority and the demand for the period April 2015 to June 2017 had been dropped. In such circumstances, it is prudent to remand the matter to the learned Commissioner(Appeals) to examine the issue in detail and pass an appropriate order. The impugned order is set aside and the appeal is allowed by way of remand to the learned Commissioner(Appeals).

(Order pronounced in Open Court on 25.03.2026)

Readers should treat this as a tax and compliance update, not as personal advice.

This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.