The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax demands on rental income earned by a temple-associated society from shops constructed within temple premises must be reconsidered by the adjudicating authority after examining the exemption available to religious institutions. 

The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) also ruled that the department could not invoke the extended limitation period in the absence of evidence showing wilful suppression or intent to evade tax. 

The case involved The Tuticorin Sri Subramanya Swami Mahamai Paribalana Sangam, a society registered under the Tamil Nadu Societies Registration Act, which owned immovable properties in Tuticorin and had constructed shops that were rented out for commercial purposes. According to the department, the rental activity was taxable under the category of “Renting of Immovable Property Service” under the Finance Act, 1994. The department alleged that the society neither obtained service tax registration nor paid tax for the period from June 2007 to March 2014. 

Two show cause notices were issued covering the periods from June 2007 to March 2012 and April 2012 to March 2014 respectively. The adjudicating authority confirmed a total service tax demand of Rs. 21.69 lakh along with interest and imposed equal penalties. Though the Commissioner (Appeals) partly allowed the appeal by extending benefits under certain exemption notifications relating to municipal taxes, the authority upheld the penalties and denied the benefit of cum-tax valuation. 

Before the Tribunal, the appellant contended that it was a charitable and religious body conducting poojas, temple festivals, and welfare activities for poor students, and that the shops were constructed only to generate funds for such purposes. It argued that the shops were situated within the temple precincts and therefore qualified for exemption under Notification No. 25/2012-Service Tax, which exempts renting of precincts of a religious place meant for the general public. 

The appellant further submitted that a substantial portion of the demand related to a period prior to July 2012 and that the extended limitation period was wrongly invoked in the absence of suppression or fraud. It also argued that since no service tax had been separately collected from tenants, the rental receipts should be treated as cum-tax amounts while computing liability. 

On the issue of limitation, the Tribunal observed that limitation goes to the root of jurisdiction and can be examined even if not specifically pleaded. The Bench noted that part of the demand covered by the first show cause notice extended beyond the permissible extended period and that portions of the second demand also appeared time-barred. However, the Tribunal clarified that the notices were not entirely barred by limitation. 

The Tribunal emphasized that for invoking the extended period and imposing penalties under Section 78 of the Finance Act, the department must establish deliberate suppression, wilful misstatement, fraud, or conscious intent to evade tax. Mere non-payment of service tax or failure to obtain registration was not sufficient. 

Relying upon Supreme Court precedents including Uniworth Textiles Ltd. and Easland Combines, the Tribunal held that the department failed to establish any positive act indicating deliberate evasion. It observed that detection of non-payment during a preventive visit, without corroborative evidence of intent, could not justify penalties or invocation of the extended period. 

The Bench also granted the benefit of cum-tax valuation to the appellant. It held that where no service tax is separately collected, the gross amount received for services must ordinarily be treated as inclusive of service tax. Referring to Section 67(2) of the Finance Act, 1994 and earlier Tribunal rulings, the Bench held that the taxable value must be recomputed after granting cum-tax benefit. 

Consequently, the Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority with directions to examine the appellant’s exemption claim under Notification No. 25/2012-Service Tax and consider the applicability of CBEC Circular No. 200/10/2016-Service Tax. 

The Tribunal directed that if the activity is ultimately held taxable, the demand must be restricted only to the normal limitation period. It further ordered that the benefit of municipal tax deductions and cum-tax valuation should be extended while recalculating liability. Penalties imposed under Section 78 were also held to be unsustainable

Case Details

Case Title: The Tuticorin Sri Subramanya Swami Mahamai Paribalana Sangam Versus Commissioner of GST & Central Excise 

Citation: JURISHOUR-1440-CES-2026(CHE) 

Case No.:  Service Tax Appeal No. 40322/2016

Date: 26.05.2026

Counsel For Appellant: R. Swaranavel, Advocate

Counsel For Respondent: Anandalakshmi Ganeshram, Authorised Representative

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