Religious body not liable for service tax on property rental before July 2012 exclusion amendment

CESTAT Chennai held that the assessee, being a religious body, was not liable for service tax on renting of immovable property services prior to 01.07.2012 as such services by religious bodies were excluded from levy. The demand for the pre-July 2012 period was set aside. For the post-amendment period, the assessee discharged service tax obligations under VCES without penalty liability. The tribunal dismissed the department's appeal, upholding that no penalty was warranted for the transitional period given the interpretational nature of the issue.

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Issues Involved:
1. Liability of the assessee to pay service tax under the category of 'renting of immovable property service' for the period up to 30.06.2012.
2. Appropriation of interest paid under VCES for the period after 30.06.2012.
3. Imposition of penalty for the period after 30.06.2012.

Summary:

1. Liability of the assessee to pay service tax under the category of 'renting of immovable property service' for the period up to 30.06.2012:
The Tribunal examined whether the assessee, M/s. Chruch of South India Trust Association Trichy - Thanjavur Diocese (CSITA), falls under the definition of a 'religious body' as per Section 65(90a) of the Finance Act, 1994. The assessee argued that their activities, including maintaining churches, chapels, and other religious establishments, qualify them as a religious body. The Tribunal referred to the decision in the case of Diocese of Tanjore Society Vs Commissioner of GST & Central Excise, Trichy (2023) (9) TMI 871 CESTAT Chennai, which held that a Diocese is a religious body and is excluded from the levy of service tax under 'renting of immovable property service' for the period up to 30.06.2012. Consequently, the Tribunal concluded that CSITA is a religious body and not liable to pay service tax for the period up to 30.06.2012. The demand for this period was set aside.

2. Appropriation of interest paid under VCES for the period after 30.06.2012:
The assessee had paid service tax along with interest for the period after 30.06.2012 under the Voluntary Compliance Encouragement Scheme (VCES). The Tribunal noted that as per VCES, the assessee is not required to pay interest or penalty. However, the adjudicating authority had appropriated the interest paid by the assessee towards the interest payable for the period prior to 01.07.2012. The Tribunal found this appropriation erroneous and held that the assessee is not liable to pay interest under VCES.

3. Imposition of penalty for the period after 30.06.2012:
The department contended that penalties should have been imposed for the period after 30.06.2012. The Tribunal observed that the assessee had paid the service tax for the period 01.07.2012 to 30.09.2013 before the adjudication order was passed. Given that the issue was interpretational and the period was transitional with the new service tax regime becoming applicable, the Tribunal upheld the adjudicating authority's decision not to impose penalties for the period 31.12.2012 to 30.09.2013. The department's appeal on this ground was dismissed.

Conclusion:
The Tribunal allowed the assessee's appeal, setting aside the demand for the period up to 30.06.2012, and dismissed the department's appeal regarding the imposition of penalties for the period after 30.06.2012. The miscellaneous application filed by the assessee was also dismissed. The assessee was granted consequential relief, if any.

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