CESTAT Chennai Extends Cum-Tax Benefit to Temple Society; Sets Aside Section 78 Penalty and Restricts Demand to Normal Limitation Period

Case Overview

Tuticorin Sri Subramanya Swami Vs Commissioner of GST & Central Excise (CESTAT Chennai)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai bench, recently adjudicated a significant appeal involving a temple-associated society challenging service tax demands spanning nearly seven years. The case raises important questions around the availability of cum-tax benefit under Section 67(2) of the Finance Act, 1994, invocation of extended limitation periods, applicability of penalties under Section 78, and the scope of exemption for religious institutions engaged in renting activities.

The appellant — a society registered under the Tamil Nadu Societies Registration Act — was engaged in renting out shops constructed on immovable properties, purportedly situated within the precincts of the Sri Vinayaga temple, to generate funds for religious and charitable purposes. The department treated this activity as taxable under "Renting of Immovable Property Service" and initiated proceedings for the period from June 2007 to March 2014, alleging non-registration and non-payment of service tax.

Background and Procedural History

Show Cause Notices and Adjudication

Two show cause notices (SCNs) were issued, both dated 13.05.2014:

  • First SCN: Covering the period 01.06.2007 to 31.03.2012
  • Second SCN: Covering the period April 2012 to March 2014

The Adjudicating Authority confirmed a consolidated demand of Rs. 21,69,612/- (comprising Rs. 12,75,045/- and Rs. 8,94,567/- for the two respective periods), along with applicable interest and an equivalent penalty.

First Appellate Stage

The Commissioner (Appeals) partly allowed the appeal, extending benefits under Notification No. 24/2007-ST dated 22.05.2007 and Notification No. 29/2012-ST dated 20.06.2012, and remanded the matter to the original authority for re-quantification of the tax liability. Dissatisfied with the partial relief, the society approached the CESTAT.

Submissions by the Appellant

The appellant's advocate placed the following arguments before the Tribunal:

Exemption on Religious and Charitable Grounds

The society contended that all shops were located within the temple complex. Relying on the ruling in DAKSHINA KANNADA MOGAVEERA MAHAJANA SANGHA (2010 (17) STR 258, Tri. Bang.), the appellant argued that where the temple and its surrounding compound are enclosed within a common boundary, the entire area is to be treated as part of the temple precincts — and rental income derived therefrom should be exempt from service tax.

Exemption Under Notification No. 25/2012-ST

The appellant claimed that Notification No. 25/2012-Service Tax dated 20.06.2012, Sl. No. 5(a), specifically exempts renting of precincts of a religious place. Since the shops are situated within the temple complex, their renting would fall squarely within the exempted category even after the negative list regime came into effect from 01.07.2012.

Challenge to Extended Limitation Period

A substantial portion of the demand related to periods allegedly beyond the permissible normal limitation window. The appellant argued that extended limitation cannot be invoked in the absence of willful suppression of facts or intent to evade tax. The following judicial precedents were cited:

  • M/s. JAIPRAKASH INDUSTRIES LTD (2002 (146) ELT 481, SC) – mere non-registration or non-payment is insufficient to invoke extended limitation
  • ISPAT INDUSTRIES LTD v CCE (2006 (199) ELT 509, Tri. Mumbai) – different interpretation of law by the assessee does not constitute suppression
  • NIZAM SUGAR FACTORY v CCE (2006 (197) ELT 465, SC) – extended period cannot be invoked in the second SCN on the same grounds
  • UNIWORTH TEXTILES LTD. v CCE (2013 (288) E.L.T. 161 (S.C.))
  • PAHWA CHEMICALS PRIVATE LIMITED v CCE (2005 (189) E.L.T. 257 (SC))

Cum-Tax Benefit Under Section 67(2)

Since the society had not collected service tax separately from shop occupants, the appellant contended that all amounts received should be treated as inclusive of tax (cum-tax value) and the taxable value should be computed by back-calculating the tax component. Reliance was placed on: