CESTAT: Grants-In-Aid For Scientific Research Not Taxable As Consideration Under Service Tax Law

May 8, 2026 : The Bengaluru Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that grants-in-aid received from Central and State Government departments for scientific research projects cannot be treated as “consideration” for taxable services and therefore are not liable to service tax under the category of “Scientific or Technical Consultancy Services” under the Finance Act, 1994.

A Bench comprising Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi partly allowed two appeals filed by the National Centre for Earth Science Studies (formerly Centre for Earth Science Studies) against service tax demands raised by the department. The Tribunal observed that “wherever the Appellants receives grants-in-aid from Government Departments/Ministries, those grants-in-aid amounts cannot be subjected to service tax since they cannot be treated as ‘consideration’.”

The dispute arose from show cause notices issued to the National Centre for Earth Science Studies alleging short-payment of service tax for the periods 2002–03 to 2005–06 and April 2010 to March 2011. The department contended that grants-in-aid received from various Central and State Government departments for scientific research projects were taxable under “Scientific or Technical Consultancy Services.”

Before the Tribunal, the appellant submitted that it rendered services under three categories namely core projects, externally funded projects and consultancy projects. It argued that core projects funded by the Government of Kerala, where the institution retained exclusive rights over the data generated, did not constitute taxable services. The appellant further contended that grants-in-aid were financial assistance provided for public purposes and were subject to utilisation conditions, audits and government supervision, and therefore lacked the commercial quid pro quo necessary to qualify as consideration for services.

The appellant relied on several precedents including Apitco Ltd. v. CST, Hyderabad, where the Tribunal had earlier held that service tax was not leviable on grants-in-aid received from the Government by a project implementing agency. It also pointed out that in its own earlier case concerning the period from 2005–06 to 2009–10, the Commissioner had already held that grants-in-aid from Government departments and ministries could not be subjected to service tax as they were not “consideration.”

The Tribunal accepted the appellant’s submissions and held that the entire demand for the period 2002–03 to 2005–06 was barred by limitation. It further observed that the grants-in-aid received from Government departments and ministries could not be subjected to service tax in view of the settled legal position and the evidence on record.

With respect to the later period, the Tribunal noted that the appellant had produced sufficient documentary proof including agreements, government orders and statements relating to grants-in-aid receipts. It held that the impugned order confirming the demand was unsustainable and directed the Adjudicating Authority to exclude grants-in-aid amounts while finalising any taxable liability in accordance with law.

Accordingly, the Tribunal allowed Service Tax Appeal No. ST/21752/2015 by setting aside the demand and penalties in entirety, while Service Tax Appeal No. ST/21754/2015 was partly allowed by way of remand for limited recomputation after excluding grants-in-aid amounts from taxable consideration.

Case Title: M/s National Centre for Earth Science Studies v. Commissioner of Central Excise, Customs & Service Tax, Thiruvananthapuram

Case Nos.: Service Tax Appeal Nos. ST/21752/2015 and ST/21754/2015

Coram: Mr. P.A. Augustian, Member (Judicial) and Mrs. R. Bhagya Devi, Member (Technical)