The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has held that the benefit of the service tax exemption under Clause 9(b) of Notification No. 25/2012-ST dated June 20, 2012 cannot be claimed merely because leased premises were allegedly used for educational purposes and the assessee must establish that the premises were rented to an educational institution and satisfy the conditions prescribed under the exemption notification.

The bench of Dr. Rachna Gupta (Officiating President) and P.V. Subba Rao (Technical Member) however, partly allowed the appeal by holding that a portion of the service tax demand was beyond the permissible limitation period. It consequently set aside the demand falling beyond five years, while confirming the remaining demand and proportionately reducing the penalty.

The dispute concerned the denial of exemption under Clause 9(b) of Notification No. 25/2012-ST in respect of rental income received by the appellant.

Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine

The Department had received information from the Income Tax Department indicating that the appellant had income reflected under Sections 194C and 194J of the Income Tax Act, 1961, while no service tax returns had been filed for 2012-13. Based on the information, the Department alleged that the appellant had provided taxable services under Section 65B(44) of the Finance Act, 1994, without discharging the applicable service tax liability.

A service tax demand of ₹2,15,769, along with applicable interest and penalties under Sections 70 and 78 of the Finance Act, was proposed through a show cause notice dated April 25, 2018. The adjudicating authority confirmed the demand through Order-in-Original dated May 14, 2019, and the Commissioner (Appeals) subsequently dismissed the appeal.

The appellant, an individual proprietor and owner of immovable property situated at Gopal Bari, Ajmer Road, Jaipur, contended that the property had been leased under an agreement dated May 1, 2004, to Ritnand Balved Education Foundation, a registered society engaged in educational activities.

According to the appellant, the premises were taken on rent for conducting courses and imparting education to students. Therefore, the rental service was claimed to be covered by Clause 9(b) of the Mega Exemption Notification No. 25/2012-ST.

The appellant also argued that there was a bona fide belief regarding applicability of the exemption and, therefore, the extended period of limitation could not have been invoked. Reliance was placed on the CESTAT decision in Unified Council Educational Services Pvt. Ltd. v. Commissioner of Central Tax, Rangareddy GST, Hyderabad, where it was held that the extended period could not be invoked in cases involving interpretational issues.

The Department opposed the exemption claim, primarily on the ground that the lease deed itself did not establish that the premises were being leased to an educational institution.

The Department pointed out that the lease deed dated May 1, 2004, did not identify the tenant as an educational institution and did not clearly specify that the premises would be used exclusively for educational activities.

The Department further argued that the appellant had not filed service tax returns despite being liable to pay tax and that such non-compliance amounted to suppression of facts warranting invocation of the extended limitation period.

The Tribunal examined Clause 9 of Notification No. 25/2012-ST, which granted exemption to specified services provided to or by an educational institution in respect of education exempt from service tax.

Clause 9(b) specifically covered “renting of immovable property.” The Tribunal noted that the exemption was available where the renting service was received by an educational institution and the statutory conditions were satisfied.

The Bench observed that the nature of the service involved in the dispute was admittedly renting of immovable property. The crucial question, therefore, was whether the tenant to whom the property had been rented could be established as an educational institution for purposes of the notification.

On examining the lease deed, the Tribunal found that the property had been rented to Ritnand Balved Education Foundation, described as a society registered under the Societies Registration Act.

However, the Tribunal noted that the lease document did not identify the society as an educational institution.

More importantly, the usage clause in the lease agreement permitted the premises to be used for a number of purposes, including office/commercial use, education, counselling, research and hostel facilities for students. The Tribunal therefore concluded that education was not the sole purpose for which the premises had been leased.

The Bench also found that there was no other contemporaneous document on record establishing that Ritnand Balved Education Foundation was an educational institution within the meaning relevant to the exemption notification.

The appellant relied upon a certificate issued by Amity University, Rajasthan, stating that it was an educational institution and had taken the premises on rent for imparting education.

The Tribunal, however, found the certificate insufficient.

The principal difficulty was that Amity University was not the lessee named in the lease deed. The document did not establish that the tenant, Ritnand Balved Education Foundation, was itself an educational institution or that Amity University had derived any title or tenancy rights from the tenant.

The Tribunal also noted that the certificate was dated July 27, 2020, whereas the impugned appellate order had already been passed on June 16, 2020. It therefore held that the certificate could not be relied upon at that stage.

A significant observation of the Tribunal concerned the burden of proof in exemption claims.

The Bench held that the onus of establishing eligibility for an exemption notification rests upon the assessee. Since the appellant failed to establish that the tenant was an educational institution and that the statutory conditions for the exemption were satisfied, the exemption could not be granted.

The Tribunal further reiterated that exemption notifications have to be strictly interpreted, relying upon the Supreme Court’s decision in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company.

Accordingly, the exemption could be extended only when the rented premises were used by an educational institution as contemplated by the notification. Since the status of Ritnand Balved Education Foundation as an educational institution was not established, the denial of exemption was upheld.

The Tribunal separately considered whether the Department was justified in invoking the extended period of limitation.

It noted that mere non-payment of service tax is not, by itself, sufficient to invoke the extended limitation period. There must be a positive act on the part of the assessee demonstrating the intention or mens rea to evade payment of tax.

The Bench referred to the Supreme Court’s ruling in Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay on this aspect.

However, the Tribunal rejected the appellant’s plea that the non-payment resulted merely from a bona fide interpretation of the exemption provision. Since the appellant had failed to establish that the tenant qualified as an educational institution and that the premises were rented for the purposes contemplated by the notification, the Tribunal held that the extended period had been correctly invoked in the circumstances of the case.

Despite upholding the invocation of the extended period, the Tribunal found that part of the demand was nevertheless beyond the permissible period.

The Bench observed that the normal limitation period had to be reckoned from the last date prescribed for filing the service tax return. On that basis, it found that a portion of the demand travelled beyond five years.

The Tribunal set aside the portion of the demand falling beyond five years, while confirming the demand for the remaining period, including the normal period. The penalty was also directed to be reduced proportionately.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Demonetisation-Era Cash Deposit Explained Through Cash Book and Bank Records: ITAT Deletes Addition