Catering to Educational Institutions Exempt from Service Tax: CESTAT
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Principal Bench at New Delhi has set aside a service tax demand of ₹15.94 lakh against Bhilwara-based Kudal Caterers & Halwai, holding that catering services provided to educational institutions are exempt from service tax under the Mega Exemption Notification and its subsequent amendments.
The bench comprising Dr. Rachna Gupta (Judicial) and Ms. Hemambika R. Priya (Technical) delivered the ruling while allowing the appeal filed by M/s Kudal Caterers & Halwai against the orders of the Commissioner (Appeals), Central Excise and GST, Jodhpur, which had upheld the original adjudication confirming the demand.
Background of the Dispute
The proceedings began when the Central Excise and GST Commissionerate, Udaipur, acting on third-party ITR data for 2012-13, found that substantial payments had been made to the appellant by Noble Educational Society and Udham Protsahan Sansthan. These payments were recorded under contracts attracting TDS deduction under Section 194C of the Income Tax Act. According to the department, the services rendered amounted to “Outdoor Catering Services” taxable under Section 65(105)(zzt) of the Finance Act, 1994 (prior to July 1, 2012) and thereafter under Section 65B(44).
The department alleged non-payment of service tax amounting to ₹26,57,045/- for the period 2012-13 to 2014-15, along with interest and penalties under Sections 77 and 78 of the Finance Act. Suppression of facts was also alleged, forming the basis for invoking the extended period of limitation under Section 73.
Adjudication and First Appeal
During adjudication, the original authority extended the benefit of cum-tax calculation and dropped ₹10.62 lakh from the proposed demand, but confirmed the balance ₹15,94,227/- with proportionate interest, imposed equal penalty under Section 78, and levied penalties of ₹10,000/- each under Section 77. The Commissioner (Appeals) later affirmed this order, rejecting the appellant’s claim for complete exemption under Notification No. 25/2012-ST dated June 20, 2012.
Arguments Before the Tribunal
The appellant argued that its services were squarely covered under “auxiliary educational services” defined in the notification, which specifically included catering for students. Counsel submitted that the appellant, a sole proprietorship concern, had a written contract dated July 25, 2011, with the warden of Noble Children Hostel, part of Noble Educational Society. The services included preparation and serving of breakfast, lunch, dinner, weekly special diet, milk, and fruits for hostel students and faculty.
The Noble Educational Society had issued a certificate confirming that it was an educational institution running both the school and hostel as part of its operations and that the mess facility was outsourced to the appellant during 2012-13 to 2015-16. The appellant maintained that such services were exempt for the entire disputed period and that the department’s interpretation restricting exemption from July 11, 2014, was unfounded.
In support, the appellant cited CCE & ST v. M.J. Solanki, CCE & ST v. National Edu Venture Institute, and Mody Education Foundation v. CCE Jodhpur, where similar services were held exempt.
The department contended that the exemption applied only to auxiliary educational services and not to taxable outdoor catering. It maintained that failure to register and file returns amounted to suppression with intent to evade tax, justifying invocation of the extended period.
Tribunal’s Findings
The tribunal examined the text of Notification No. 25/2012-ST and its definition of “auxiliary educational services,” which included services that educational institutions ordinarily carry out themselves but may outsource, such as catering for students. The 2013 CBEC Circular further clarified that such services, along with others like transport, housekeeping, and security, were exempt.
The bench also referred to the amendment made by Notification No. 06/2014-ST, effective July 11, 2014, which specifically listed “catering, including any mid-day meal scheme sponsored by the Government” as exempt when provided to an educational institution. It held that this amendment, read with the original definition and clarification, established that catering to educational institutions was exempt for the entire period in dispute. The tribunal found that the adjudicating authority’s conclusion — that exemption was unavailable before July 11, 2014, and that no services were provided thereafter — was factually incorrect, especially since the show cause notice itself demanded tax for the period beyond July 2014.
On Limitation and Suppression
Addressing limitation, the bench relied on the Supreme Court’s decision in Pushpam Pharmaceutical Company v. CCE, Bombay, which held that “suppression” must be wilful and with intent to evade. Since the appellant’s services were exempt, there was no occasion to evade tax, making the extended period invocation unsustainable. The demand, therefore, was held time-barred.
Holding that the appellant’s services were fully exempt, the bench set aside the orders of the lower authorities, quashed the entire tax demand of ₹15.94 lakh along with interest, and annulled all penalties. “This order reinforces the legal position that catering services to educational institutions are squarely covered under service tax exemptions,” the tribunal concluded while allowing the appeal in full.
Appearance
Counsel For Appellant: Vivek Sharma and Ms. Saumya Mehrotra
Counsel For Respondent: Anand Narayan
Cause Title: M/s. Smt. Kala Kudal V. The Commissioner, Central Excise & GST, Udaipur (Rajasthan)
Case No: Service Tax Appeal No. 51606 Of 2019
Coram: Dr. Rachna Gupta [Judicial], Ms. Hemambika R. Priya [Technical]
