Service Tax Not Applicable on University’s Rental Income CESTAT Ruling Explained
In a significant relief for educational institutions, the CESTAT Delhi Bench has ruled that service tax is not applicable on rental income earned by universities from letting out space to banks, telecom companies, or post offices. This ruling offers clarity on a long-disputed issue and affirms the tax-exempt status of statutory universities under the Finance Act, 1994.
Let’s break down this judgment and understand its implications for Indian taxpayers and educational institutions.
Background of the Case
- Assessee: M/s Chaudhary Charan Singh Haryana Agricultural University (CCSHAU), Hisar
- Period under scrutiny: 2012–13 to 2016–17
- Issue: Department demanded service tax on rental income from letting out university premises to:
- SBI (ATM operations)
- BSNL towers
- India Post (Postal Services)
Key Observations by CESTAT
The Tribunal categorically held:
- Universities governed under statutes and performing educational functions are not commercial entities.
- Any incidental income (like rent from banks/post offices) does not change their core character as educational bodies.
📌 “University is not a ‘person’ as per Section 65B(37) of the Finance Act, 1994, hence service tax cannot be levied.” — CESTAT Delhi, Appeal No. ST/51785/2019
Summary Table – When is Service Tax Not Applicable?
| Income Source | Entity Type | Service Tax Applicable? |
|---|---|---|
| Rent from ATM (SBI) | Statutory University (CCSHAU) | ❌ Not Applicable |
| Rent from BSNL tower | Statutory University | ❌ Not Applicable |
| Rent to India Post | Statutory University | ❌ Not Applicable |
| Same rents by Pvt. College | Private Educational Institute | ✅ Likely Applicable |
Legal Reference
- Section 65B(37), Finance Act, 1994: Defines ‘person’ for service tax applicability.
- Notification No. 25/2012-ST dated 20.06.2012: Exempts certain services provided to or by educational institutions.
- CBEC Clarification (2012): Renting of immovable property by educational institutions for commercial use can be taxable, unless the institution is a statutory body with educational objectives.
Expert Insight: Practical Tip for Educational Institutions
If your institution is established under a central/state statute (like CCSHAU), get a legal classification of your entity status in advance before charging or paying service tax/GST on rentals. This can avoid future tax demands and litigations.
What This Means for You
- Universities and similar statutory bodies can now rely on this precedent to resist service tax demands on rental income.
- Institutions should review their service tax filings from 2012–2017 (pre-GST) for any potential refund claims.
- This ruling can influence similar disputes under GST regime, where “commercial use” is still a hot topic.
FAQ – Service Tax on University Rentals
Q1: Is service tax applicable on rent collected by a university?
A: If it’s a statutory university providing education, and the rent is incidental (e.g., from ATM, post office), service tax is not applicable.
Q2: What if the university leases land to a private firm for business use?
A: Then, tax applicability depends on whether the institution is acting as a commercial entity or not.
Q3: Can this case help in claiming refund for wrongly paid service tax?
A: Yes, subject to limitation period and proper legal advice, refund claims may be explored.
🔗 Related Blogs
- GST on Rent for Residential and Commercial Use – Explained
- Income Tax Exemptions for Educational Institutions
Summary
This landmark ruling protects education-focused entities from tax demands under the Finance Act, 1994. Institutions can use this to challenge past service tax notices or avoid future liabilities.