CESTAT Bengaluru Exempts KILA Training Services From Service Tax Under Mega Exemption Notification

The Bengaluru Bench of the Customs, Excise & Service Tax Appellate Tribunal on 8 May 2026 held that training and capacity-building services in local governance provided by the Kerala Institute of Local Administration (KILA) are exempt from service tax.

Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi held that the services fall under Serial No. 39 of Mega Exemption Notification No. 25/2012-ST as they relate to functions entrusted to municipalities under Article 243W of the Constitution. It observed:

“....Further it is certified that more than 90% control and substantial interest in KILA rest with Government of Kerala, both in terms of financial support and administrative supervision....”

The Department raised a demand for 2011–12 to 2014–15, treating amounts received by KILA for training programmes in local governance as taxable “consultancy services” and confirming service tax liability.

KILA contended that it is a State-established institution engaged in training officials of local self-government bodies and Panchayati Raj institutions. It submitted that its activities directly support constitutional functions under Article 243W and are therefore exempt under Notification No. 25/2012-ST.

It further argued that it qualifies as a “governmental authority”, as the Government of Kerala substantially controls and funds it, with over 90% participation through financial support and administrative supervision.

The Tribunal accepted the submissions and held that KILA's activities of training, capacity building, and strengthening local governance fall within municipal functions covered under Serial No. 39 of the Mega Exemption Notification.

It relied on a certificate dated 15 November 2025 issued by the Principal Secretary, Local Self Government Department, confirming that the State established KILA for training in local governance and that the Government of Kerala exercises more than 90% control over it.

The Bench referred to clause 2(s) of Notification No. 25/2012-ST, as amended by Notification No. 2/2014-ST, which defines “governmental authority” as an entity established by the Government with 90% or more control or participation for performing functions under Article 243W. It held that KILA satisfies this definition and its services fall within the exemption.

Accordingly, the CESTAT allowed KILA's appeal and set aside the service tax demand confirmed by the Commissioner of Central GST and Central Excise, Kozhikode.

For Appellant: D.S. Sreeganesh, Chartered Accountant with B. Somasekaran, Advocate

For Respondent: M.A. Jithendra, Assistant Commissioner