The service tax is leviable on construction of a Public/charitable Educational Society registered under Societies Registration Act (XXI of 1860) where the main object is to provide education to the general public, at large and status of charitable institution under Section 12AA of Income tax Act, 1961 has been granted.
– A letter F. No. B2/8/2004 TRU (para 13.2) was issued by Government of India, Ministry of Finance, (Department of Revenue) on Finance Act, 2004 clarifying that service tax shall not be applicable on construction of educational institutes, which are being solely established for charitable purposes without any commercial intent.
– Consequently, a Circular No. 80/10/2004 ST (para 13.2) was issued by Central Board of Excise and Customs, New Delhi reiterating the same which clarified that service tax shall not be applicable on construction of educational institutes, which are being solely established for charitable purposes without any commercial intent.
– The Central Government vide powers conferred by sub-section (1) of Section 93 of Finance Act, 1994 issued Notification No. 25/2012 ST dated 20.06.2012 w.e.f 01.07.2012 and vide Sr. No. 13 (c) of above notification exempts construction services provided to an building owned by and entity registered under Section 12 AA of Income Tax Act, 1961 and predominantly used for religious purpose by general public from service tax by not exempting and imposing service tax on service provided by way of construction, erection, commissioning, installation, completion etc. to a building owned by an entity registered under Section 12AA of Income Tax Act, 1961 and meant predominantly use for charitable educational purposes.
– Further, the Sr. No. 4 of the above notification exempts services provided by entity registered under Section 12AA by way of charitable activities, meant services provided by petitioner shall be exempt from service tax.
– The Sr. No. 12 exempts any service provided to government, local authority in r/o construction is exempted. Further, it is being now made liable from 01.04.2015.
– A Circular No. 172/7/2013-ST Dated-19.09.2013 was issued by Central Board of Excise and Customs clarifying all services relating to education are exempt from service tax. The circular was illustrative in nature.
– Impugned Entry No. 13(c) of Notification No. 25/2012 ST dated 20.06.2012 w.e.f 01.07.2012 is ultra vires to the mandate of Constitution being unsustainable, arbitrary, unconstitutional and against the mandate of Article 14 of Constitution of India as the allows class legislation in r/o educational charitable institute registered under Section 12AA of Income Tax Act, 1961. As the tax levied on the person who provided construction services to charitable educational institute, shall be borne by petitioner, being an indirect tax levy.
– The imposition of service tax in relation to construction of charitable educational institute on the contractor is being borne by charitable institute resultantly hamper the main object of the educational society and shall be against the Right to Education and against the mandate of Article 14 which allows reasonable classification and prohibits class legislation. The classification meant segregation in classes which had a systematic relation, usually found in common properties and characteristics. It postulated a rational basis and did not mean herding together of certain powers and classes arbitrarily. The mere inequality in no manner would determine the matter of constitutionality, for the idea of classification implied inequality. The practical assessment of the operation of the law in the particular circumstances would be necessary.
– The classification must be found on an intelligible differentia which distinguishes persons or things that are grouped together from others. It is also emphasis that differentia must have a rational relation to the object sought to be achieved. In the instant case, both the entities are registered under Section 12AA of Income Tax Act, 1961 and holding charitable entity status. The classification is bad in law as both religious and educational services are for the betterment of masses. Bothe entities are one and same alike, classification is merely a systematic arrangement of things into groups but it ought to be permitted by Article 14. It must not arbitrary, evasive. It must be a reasonable classification.
– The reasonable classification must be just, fair and reasonable. In the instant case educational societies are on the same footings as of religious entities. There is no commercialism in the educational institutes; all are running for the welfare of state to spread education. The tax charged by contractor shall be borne by educational institutes; this will eventually add more costs to students and hamper their right to education. Also, an Article 21-A added by the Constitution (86th Amendment) Act, 2002 which makes education from 6 to 14 years old, as their fundamental right, within the meaning of Part III of the constitution.
– That the circular no. F. No. B2/8/2004 TRU dated 10.09.04 and 80/10/04 – ST dated 17.09.04 refers above clearly substantiating service tax in r/o construction of charitable institutions are exempt and not liable to service tax. It is submitted that both circulars have not been rescinded and superseded till date. It is emphasis that circulars have binding force. The entry 13 (C) of Notification No. 25/2012 is bad in law.
– That the Sr. No. 4 of the impugned Notification No. 25/2012 stipulates that services provided by entities registered under Section 12AA of the Income tax Act, 1961 shall be exempted from service tax. In this scenario, it suggests that educational institutes are exempt from service tax and shall have to borne the service tax charged by contractors for construction of buildings of petitioner’s institutes. The cenvat credit policy under Cenvat Credit Rules, 2004 of indirect tax regime becomes redundant in the above transactions as they cannot charge the service tax but have to pay tax. Hope Education sector should not be seen as commercial service sector in above scenario by legislature and suitable amendments shall be brought in future.
(Rishi Chanan, Advocate – Mob:-098158-28244)