2024 (7) TMI 1400 - AT - Service Tax

Statutory body exempt from service tax on fees collected for architectural institution inspection under Section 12AA

M/s. Council of Architecture Versus Commissioner of Service Tax, Delhi-II and Commissioner of CGST, Delhi East

CESTAT New Delhi allowed the appeal of a statutory body registered under Section 12AA of Income Tax Act, 1961, which was charged service tax for ... Non-payment of service tax - appellant registered under Section 12AA of Income Tax Act, 1961 - violation of various Section of Chapter 5 of Finance Act and also of Rule 2A and Rule 3 of point of taxation Rules, 2011 read with Rule 2(1)(d) of Service Tax Rules, 1994 - applicability of mega exemption Notification No.25/2012-ST dated 20.06.2012 or negative list of Section 66D of Finance Act 1994 - HELD THAT:- The activity of the appellant is squarely covered under Entry No. 9 of the above notification. The Mega Exemption Notification No. 25/2012, Entry No. 6 thereof, also exempt the services provided by any person other than a business entity. The word ‘business’ has not been defined in chapter V of the Finance Act, 1994. In the present case, the appellant is a statutory body carrying out the functions as laid down by the statute. It is collecting all such amounts as mentioned in the show cause notice but as per the statutory mandate of Section 18, 19, 21, 27, 29, 32, 33, 38 and 49 of the Architects Act, 1972 read with Rule 30 and 34 of Council of Architecture Rules. All kinds of the fees are apparently charged for inspection and approval of new institution as well as existing institutions admitting and offering recognised qualifications in the Architecture in India and for meeting out the other statutory objectives including promotion, research and development in architectural education - the impugned prescribed fees are collected by the appellants as a regulatory body for self financing its expenses incurred without motive of carrying out any kind of the commercial and economic activity of profit. The appellant admittedly is registered under Section 12AA of the Income Tax Act. The section provides that nonprofit organisations like charitable trusts, welfare societies, NGOs, religious institutions etc. are entitled to tax exemption. The certificate of appellants’ registration as a charitable trust is also on Further, there is department’s own Circular No. 177/09/2022- TRU dated 03.08.2022 wherein it has been held that all services supplied by an ‘educational institution’ to its students are exempts from GST. Consideration charged by the educational institutes by way of entrance fee for conduct of entrance examination is also exempt - it is clarified that the amount for fee charged prospective students for entrance or admission, or for issuance of eligibility certificate to them in the process of their entrance/admission as well as the fee charged for issuance of migration certificates by educational institutions to the leaving or ex-students is covered by exemption under Sl. No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. A prior circular also bearing no. 89/7/2006-ST dated 18.12.2006 has clarified that statutory functions performed in terms of specific responsibility assigned to a sovereign/public authority or any authority under law in force does not constitute provision of taxable service to a person and therefore no service tax is leviable on the activities of such authority. CESTAT Mumbai while relying upon this circular in the case of MIDC Vs. CCE [2014 (11) TMI 311 - CESTAT MUMBAI] has held that the fee collected by the authority constituted under provisions of law for performing such activity which is in nature of compulsory/statutory levy as per the provisions of relevant statute and that it is deposited in the government treasury, such activity is undertaken as mandatory and statutory function and thus, do not come under the ambit of taxable service. Hence, no service tax is leviable on such activity. The overall quantitative limit prescribed in the proviso to Section 2(15) (as amended from time to time) has to be complied with, if the regulatory body is to be considered as one with 'charitable purpose' eligible for exemption under the IT Act. Like statutory authorities which regulate professions, statutory bodies which certify products (such as seeds) based on standards for qualification, etc. will also be treated similarly. The original adjudicating authority has confirmed the demand holding that the appellants are neither covered under Mega Exemption Notification nor under the negative list, are therefore not sustainable. The orders under challenge are hereby set aside - Appeal allowed. Issues Involved:1. Taxability of services provided by the appellant.2. Applicability of Mega Exemption Notification No. 25/2012-ST.3. Nature of the appellant's activities and their classification as business or non-business.4. Registration under Section 12AA of the Income Tax Act.5. Departmental circulars and their impact on the case.Issue-wise Detailed Analysis:1. Taxability of Services Provided by the Appellant:The appellant, engaged in providing services to institutions imparting architectural education, was found to be receiving various fees and amounts. The department opined that these activities were taxable and that the appellant had not discharged the tax liability, resulting in the issuance of five show cause notices and subsequent adjudication orders confirming the demand and imposing penalties.2. Applicability of Mega Exemption Notification No. 25/2012-ST:The appellant argued that their activities were exempt under Mega Exemption Notification No. 25/2012-ST. The relevant Entry No. 9 exempts services provided by educational institutions to students, faculty, and staff, and services related to admission or conduct of examinations. The Tribunal observed that the appellant's activities, as a statutory body under the Architects Act, 1972, were covered by this exemption. The Tribunal noted that the activities were statutory functions and not commercial services provided for consideration.3. Nature of the Appellant's Activities and Their Classification as Business or Non-Business:The Tribunal examined whether the appellant's activities constituted a business. The Supreme Court's interpretation of 'business' in various cases was considered, emphasizing that business activities typically involve a profit motive. The Tribunal concluded that the appellant's activities, carried out as per statutory mandates, were not commercial or economic activities for profit. The fees collected were for self-financing expenses without any profit motive, aligning with the objectives of the Architects Act, 1972.4. Registration under Section 12AA of the Income Tax Act:The appellant's registration under Section 12AA of the Income Tax Act as a charitable trust was highlighted. This registration indicates that the appellant is a non-profit entity. The Tribunal relied on the Supreme Court's decision in Ahmedabad Urban Development Authority, which held that income and receipts of statutory regulatory bodies with charitable purposes are not considered business or commercial receipts. This supported the appellant's claim that their activities were non-business in nature.5. Departmental Circulars and Their Impact on the Case:The Tribunal referred to departmental circulars, including Circular No. 177/09/2022-TRU and Circular No. 89/7/2006-ST, which clarified that statutory functions performed by public authorities do not constitute taxable services. The Tribunal also cited the CESTAT Mumbai decision in MIDC Vs. CCE, which held that fees collected by statutory authorities for mandatory functions are not subject to service tax. These circulars and judicial precedents supported the appellant's position that their activities were exempt from service tax.Conclusion:The Tribunal set aside the adjudication orders, holding that the appellant's activities were exempt under Mega Exemption Notification No. 25/2012-ST and did not constitute business activities. The appeals were allowed, and the demands and penalties were quashed.[Order pronounced in the open court on 19.07.2024]