Charitable institutions are exempt from service tax under Notification No. 25/2012-ST, emphasizing that services provided must be aligned with charitable purposes rather than profit motives.

RAJEEV TANDON

The appellant Rajput Sabha Bhawan, is a society registered under the Rajasthan Co-operative Registration Act, 1958 in the name and style “Shri Rajput Sabha, Jaipur” and functions under its constitution and byelaws framed for the purpose of philanthropy and charity for general public and members of the Rajput Community. The appellant is also registered under Section 12AA of the Income Tax Act, 1961 as a charitable institution and enjoys exemption from tax as recognized there under. It is their contention that the primary objective of the appellant is to impart education and promote physical, mental and intellectual development of its community members, develop Rajputana culture of bravery, devotion to nation and also to provide financial support to intelligent students from poor families and helpless or widow ladies. The appellant society runs educational classes on a two-tier system wherein poor and meritorious students from the community are exempted from payment of fees while other students pay moderate charges to meet institutional expenses and charitable purposes undertaken by the Society.

2. The appellants were issued two show cause notices dated 16.01.2017 and 10.04.2017 for the period April 2011 to March 2015 and April 2015 to September 2016 respectively, alleging non- payment of service tax under the categories of commercial training or coaching services, renting of immovable property services and short time accommodation services demanding a total Service Tax amount of Rs.3,23,41,057/-. Extended period of limitation in terms of Section 73(1) of the Finance Act, 1994 has also been invoked in the matter.

3. It is the contention of the appellant that they were under the bonafide belief, based on advice of statutory auditors that being a charitable institution and registered under Section 12AA of the Income Tax Act, they were exempted from payment of service tax by virtue of Notification No.25/2012-ST dated 20.06.2012, whereby entities for purpose of charity/charitable institutions were exempted.

4. Learned counsel for the appellant submits that besides the various charitable programs carried out by them to impart education, they also provide scholarships to poor and struggling students besides providing them for facilities of residential accommodation (need-based) – guest house/rest house for the poor, needy, downtrodden sections of society, backward classes and do not charge any fare/fee/rent from them, leaving it to the discretion of the said persons to pay whatever amount they wish to pay. The amount so received were booked as guest house income in the financial statements of the appellant. Likewise for social/cultural programs undertaken for community development, the appellant does not charge any amount/fare and it is the discretion of such persons availing the facilities to pay whatever they feel appropriate, as per their desire which income is booked as rental income in the financial statement of the assessee/appellant.

5. In the aforesaid backdrop, the appellant has contended that the activities undertaken by them being of a charitable nature fall under negative list of services or are exempted from levy of service tax by virtue of Mega Exemption Notification No. 25/2012 dated 20.06.2012 in terms of the following entry:

(i) Entry No. 4 – exempts from whole of service tax services provided by charitable trusts registered under Section 12AA of the Income Tax Act, 1961 by way of charitable activities. Entry No. 4 of Mega Exemption Notification No. 25/2012 dated 20th June 2012.

(ii) Entry No.5 –