Exemption from Service Tax if service provided to the trust registered under section 12AA of Income Tax Act 1961

[Sudhir Kumar]

A firm is registered under section 12AA of income Tax Act, 1961(43 of 1961). A client has provided the firm work contract services by way of construction of Higher Secondary Education Building. The client has sought exemption from Service Tax in light of the entry sl. no. 13(c) of the Exemption Notification No. 25/2012-ST dated 20.06.2012 giving reference to the CESTAT Final Order No. 51031/2022 dated 31.10.2022 - 2022 (11) TMI 47 - CESTAT NEW DELHI. But the department has denied the claim of the client and confirmed the demand citing that 13(c) of exemption notification mention about the exemption from those work contract services which were meant predominently for religious use by general public. Since, in the instant matter the client has provided work contract service by way of construction of Secondary School hence, the construction of School can not be correlated to the religious use go general public. Hence, exemption can not be extended to the client.

Please give further direction.

[Sadanand Bulbule]

Plz refer issue ID No.108328 dated 28/03/2015, issue ID No.118876 dated 30/11/2023 and Article dated 03/06/2015 of CA. Akash  Phophalia for clear details on the subject.

[KASTURI SETHI]

Dear Querist,

                  What is period involved ?

[YAGAY andSUN]

The issue revolves around the interpretation of Sl. No. 13(c) of Notification No. 25/2012-ST dated 20.06.2012, and whether the construction of a Higher Secondary School building for a trust registered under Section 12AA of the Income Tax Act qualifies for exemption from service tax under that entry.

Relevant Legal Provisions:

Sl. No. 13(c) of Notification No. 25/2012-ST exempts:

“Services by way of construction, erection, commissioning, or installation of original works pertaining to —

(c) a building owned by an entity registered under Section 12AA of the Income-tax Act, 1961 (43 of 1961) and meant predominantly for religious use by general public.”

Department’s Stand:

The department has denied exemption, stating that the school building is not meant for religious use, and hence does not qualify under 13(c).

Client’s Argument (based on CESTAT Final Order No. 51031/2022):

In the CESTAT New Delhi decision dated 31.10.2022 (2022 (11) TMI 47), the Tribunal extended the benefit of exemption under a different clause of the same notification — not necessarily 13(c), but possibly 13(a) or 13(b). These entries provide exemption for:

• 13(a): Construction of a building for charitable activities.
• 13(b): Services provided to the Government or a local authority for educational purposes.

It’s likely that the Tribunal in the cited case interpreted educational institutions run by 12AA registered trusts as engaging in charitable activities, and hence the benefit may have been allowed under 13(a) rather than 13(c).

Clarification and Direction:

1. 13(c) specifically requires religious use, which the department is rightly pointing out does not apply to a school building.
2. However, the construction of a Higher Secondary School for an entity registered under Section 12AA may qualify under Entry 13(a) — if it can be shown that:
   • The construction pertains to a building used for charitable purposes, and
   • Education is one of the charitable purposes defined under Section 2(15) of the Income Tax Act.
3. In view of this, your client should not rely solely on Entry 13(c) (meant for religious use), but instead argue under Entry 13(a) — by establishing that:
   • The trust is registered under 12AA.
   • The activity of constructing a school building is in furtherance of its charitable purpose (i.e., education).
4. Additionally, support the argument with:
   • Copy of CESTAT Order No. 51031/2022 showing that similar services for educational purposes were allowed exemption.
   • Trust deed and supporting documents to prove charitable objective (education).
   • Registration under 12AA and compliance under Section 2(15).

Conclusion:

The department’s rejection under 13(c) may be technically correct; however, the exemption should be claimed under Entry 13(a) instead, and the client should reassert the claim accordingly. A review petition or appeal citing the correct entry and the CESTAT precedent may be filed. A legal opinion or representation clarifying this distinction would strengthen the client’s case.

***

[KASTURI SETHI]

The department's stand is correct.

[KASTURI SETHI]

The querist did not bother to post the information asked for by me above. 

[KASTURI SETHI]

Prior to 11.7.14 such exemption was allowed at serial no.9 of Notification.25/12-ST dated 20.6.12 as amended under the category of Auxiliary Services but w.e.f. the said exemption stands withdrawn. Compare both legal situations in Notification No.25/12-ST.

  BEFORE AMENDMENT (BEFORE 11.7.14)

"9. Services provided to or by an educational institution in respect of education exempted from service tax, by way of,-

(a) auxiliary educational services; or

(b) renting of immovable property;

AFTER AMENDMENT (EFFECTIVE FROM 11.7.14)

“9. Services provided, -

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

          (i) transportation of students, faculty and staff;

          (ii) catering, including any mid-day meals scheme sponsored by the Government;

          (iii) security or cleaning or house-keeping services performed in such educational institution;

          (iv) services relating to admission to, or conduct of examination by, such institution;”

           The words, "Auxiliary Educational Services" stand omitted w.e.f. 11.7.14. Study deep into the legal meaning of the word, "Auxiliary".

[Sudhir Kumar]

Period 2012-13 to 2017-18(upto June 2017)