2025 (8) TMI 804 - AT - Service Tax

Catering to Educational Hostels Exempt as Auxiliary Educational Services Under Mega-Exemption Notification

M/s. Smt. Kala Kudal, M/s. Kudal Caterer & Halwai Versus Commissioner, Central Excise & GST, Udaipur (Rajasthan)

M/s. Smt. Kala Kudal, M/s. Kudal Caterer & Halwai Versus Commissioner, Central Excise & GST, Udaipur (Rajasthan) - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the catering services provided to an educational institution with hostel facilities fall under the exemption from service tax as per serial no.9 of Notification No.25/2012-ST dated 20.06.2012. Whether the appellant was liable to pay service tax on outdoor catering services rendered to educational institutions during the period 2012-13 to 2014-15. Whether the appellant committed suppression of facts with intent to evade service tax liability and whether invocation of extended period of limitation for issuing Show Cause Notice was justified. Whether the appellant was required to obtain registration and file service tax returns in respect of the said services. Whether the penalties under sections 70, 77, and 78 of the Finance Act, 1994 were correctly imposed. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Exemption under Serial No. 9 of Notification No.25/2012-ST to Catering Services Provided to Educational Institutions Relevant Legal Framework and Precedents: The exemption under serial no.9 of Notification No.25/2012-ST dated 20.06.2012 exempts from service tax 'services provided to or by an educational institution in respect of education' by way of auxiliary educational services or renting of immovable property. 'Auxiliary educational services' is defined to include outsourced services ordinarily carried out by educational institutions themselves, such as catering for students under mid-day meal schemes, transportation, admission-related services, conduct of examinations, housekeeping, security, and canteen services. The Department's Circular No.172/7/2013 dated 19.09.2013 clarifies that auxiliary educational services include catering services provided to educational institutions, including mid-day meal schemes. Subsequent amendment to the notification effective from 11.07.2014 to 31.03.2015 further clarifies exemption for services provided to educational institutions by way of catering, transportation, security, cleaning, housekeeping, and examination-related services. Decisions in analogous cases have held that services such as manpower supply, housekeeping, and catering rendered to educational institutions fall within the ambit of auxiliary educational services and are exempt from service tax. Court's Interpretation and Reasoning: The Court examined the contractual arrangement whereby the appellant provided catering services to an educational institution running a hostel. The educational institution certified that the appellant was outsourced to run the mess/dining hall. The Court noted that the exemption notification and the Department's circular explicitly include catering services to educational institutions within auxiliary educational services. The Court observed that the impugned order incorrectly held that the exemption was not available prior to 11.07.2014 and that no services were provided after that date, which was factually incorrect. The Show Cause Notice itself included demand for the period beyond 11.07.2014, indicating that the exemption should have applied throughout the disputed period. Based on the statutory provisions, clarifications, and consistent judicial precedents, the Court held that catering services provided by the appellant to the educational institution were covered under the exemption notification. Key Evidence and Findings: Contract dated 25.07.2011 between appellant and educational institution for catering services. Certificate from the educational institution confirming outsourcing of mess services to appellant. Notification No.25/2012-ST and its amendment dated 11.07.2014. Department's Circular No.172/7/2013 clarifying auxiliary educational services. Precedents supporting exemption for similar services. Application of Law to Facts: The appellant's services fell squarely within the definition of auxiliary educational services as per the exemption notification and Department's clarifications. Therefore, the services were exempt from service tax for the entire period in dispute. Treatment of Competing Arguments: The Department argued that the appellant provided taxable outdoor catering services under Section 65(105)(zzt) of the Finance Act, 1994, and thus was liable to pay service tax. The Department contended that absence of registration amounted to suppression with intent to evade tax. The Court rejected this contention on the ground that the exemption notification specifically covered catering services to educational institutions, negating any liability. Hence, the appellant's activity was not taxable, and no registration or tax payment was required. Conclusion: The Court concluded that the appellant was entitled to exemption under serial no.9 of Notification No.25/2012-ST for the entire disputed period and was not liable to pay service tax on catering services provided to the educational institution. Issue 2: Allegation of Suppression of Facts and Invocation of Extended Period of Limitation Relevant Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 provides for extended period of limitation in cases involving suppression of facts, fraud, collusion, or wilful default. The Supreme Court has held that suppression must be deliberate and with intent to evade payment of duty/tax. In Pushpam Pharmaceutical Company vs. Commissioner of Central Excise, it was held that suppression of facts must be wilful and deliberate to attract extended limitation. Court's Interpretation and Reasoning: The Court observed that since the appellant's services were exempt from service tax, there was no liability to pay tax. Therefore, no question of wilful suppression or intent to evade tax arises. The appellant was not required to obtain registration or file returns for exempt services. Consequently, the invocation of extended period of limitation for issuing Show Cause Notice was improper as the demand related to a period beyond five years and was barred by limitation. Key Evidence and Findings: Exemption notification and clarifications negating tax liability. Absence of any evidence of deliberate concealment or fraud by appellant. Show Cause Notice covering extended period beyond five years. Application of Law to Facts: Since the appellant was exempt from tax, no wilful suppression could be attributed. The extended period for issuance of Show Cause Notice was wrongly invoked, rendering the demand barred by limitation. Treatment of Competing Arguments: The Department contended that failure to register and pay tax amounted to suppression with intent to evade tax, justifying extended limitation. The Court rejected this, emphasizing the exemption and absence of any wilful default. Conclusion: The Court held that the allegation of suppression was unfounded and the extended period of limitation was wrongly invoked. The demand was barred by limitation and liable to be set aside. Issue 3: Requirement of Registration and Filing of Returns Relevant Legal Framework: Service providers liable to pay service tax are required to obtain registration and file returns under the Finance Act, 1994 and Service Tax Rules, 1994. Court's Interpretation and Reasoning: Since the appellant's services were exempt under the Mega-exemption Notification, there was no liability to pay service tax and consequently no requirement to obtain registration or file returns for the exempted services. Conclusion: The appellant was not obliged to register or file returns for the exempted catering services, and non-registration could not be treated as suppression. Issue 4: Imposition of Penalties under Sections 70, 77, and 78 of the Finance Act, 1994 Relevant Legal Framework: Section 70: Penalty for failure to pay service tax. Section 77: Penalty for failure to furnish returns. Section 78: Penalty for suppression of facts. Court's Interpretation and Reasoning: Given that the appellant was not liable to pay service tax due to exemption, and there was no wilful suppression or failure to file returns for taxable services, the imposition of penalties under these sections was unwarranted. Conclusion: The penalties imposed were set aside as the foundational demand for service tax was itself unsustainable. Issue 5: Correctness of Demand Confirmation and Abatement Granted Court's Reasoning: The adjudicating authority had extended cum-tax benefit and dropped part of the demand but confirmed the balance demand and imposed penalties. The appellate authority upheld this confirmation. The Court found that the confirmation was based on factually incorrect findings, particularly ignoring the exemption notification and Department's clarifications. The entire demand was thus unsustainable. Conclusion: The Court set aside the entire demand, interest, and penalties confirmed by the lower authorities.