Charging Higher Fees By Charitable Institution Will Not Make It Commercial; CESTAT Allows Refund To Adani Institute Of Medical Sciences

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed the refund to Gujarat Adani Institute Of Medical Sciences and held that merely by charging a higher fee, an institution cannot be treated as a commercial institute.

The bench of Ramesh Nair (Judicial Member) and C. L. Mahar (Technical Member) has observed that the Lower Authorities have also discarded the status of the appellant as a charitable trust on the ground that the institution has charged higher fees. We find that merely on the basis of the quantum of fees, the status of a charitable institution shall not be altered, and the institution, which is otherwise statutorily a charitable trust, cannot lose its identity as a charitable trust. On this basis, it cannot be construed that the institution is a commercial institution.

The appellant/assessee filed a refund claim for refund of Service tax under Section 11-B of the Central Excise Act, 1944, paid to M/s Desai Construction Pvt. Ltd., Valsad, for the construction of the Medical College Building at Bhuj.

During the Scrutiny of the refund claim, revenue observed the discrepancies. The observations culminated in the issuance of a show cause notice in which it was proposed to reject the refund claims under Section 11B of the Central Excise Act, 1944.

The show-cause notices were adjudicated by the Lower Authority. The appellant filed appeals before the Commissioner (Appeals) held that the activity of running a medical college is nothing but a commercial one and the same cannot be construed as a non-commercial activity/organization. Since the appellant charged higher fees, the appellant would be considered a self-finance college and therefore, it is held that the appellant is a commercial entity.

The appellant submitted that it has been registered as a non-commercial entity. The appellant has neither declared dividends nor distributed surplus or profit to its shareholders, trustees, and members but plough back the surplus for the purpose of an object of the organization, which would be a charitable organization. Since the appellant charged higher fees, the appellant would be considered a self-financed college, and therefore, it is held that the appellant is a commercial entity. However, merely charging higher fees would not make any institution a commercial institution.

The issue raised was whether the appellant, as a recipient of service, is eligible for a refund of service tax paid by the service provider and whether the appellant can be termed a "non-commercial organization".

The tribunal held that when the property in question is not used by the appellant for commercial purposes, it cannot be liable for payment of service tax. The use of the property is non-commercial in nature. The service tax on the construction of buildings or property cannot be levied.

Case Title: Gujarat Adani Institute Of Medical Sciences Versus C.C.E. & S.T.-Rajkot

Case No.: Service Tax Appeal No. 222 of 2012 - DB

Date: 22-06-2023

Counsel For Appellant: Hardik Modh

Counsel For Respondent: P.K.Singh

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