By TIOL News Service

BANGALORE, JUNE 18, 2015: FACTS : The appellants are a not-for-profit society registered in the year 1987 under the provisions of the Registration of Societies Act, 1860 and operating solely for educational purposes. The appellants Society is also registered as a ‘Charitable Institution' under Section 12AA of the Income Tax Act, 1961 and is consequently claiming Income tax exemptions as a charitable institution.

Education is being provided by the appellants society through two types institutions, viz.: (i) Junior Colleges and (ii) Coaching Centers.

The appellant's society, through their own junior colleges and the junior colleges of other societies under its management imparts education to the students for Intermediate (11 th and 12 th Standard). In order to impart education for their students, like any other schools providing education for 11 th and 12 th Standard students, the Appellants Society is recognized by the Andhra Pradesh Intermediate Board.

The appellant's society introduced optional stream of courses in the year 1991 for students undergoing intermediate courses in their junior colleges. These courses are integrated into the syllabus of the First & Second year of the intermediate course. These optional courses are offered to students securing a high percentage of marks in their 10 th Standard & First Year Intermediate. The said optional courses are offered so as to enable the students to appear and score high in various entrance exams such as IIT-JEE, Engineering and Medical Common Entrance Test (EAMCET) etc. The appellant's society follows the guidelines for the syllabus prescribed by the A.P. Intermediate Board, conducts regular internal assessments, follows a standard admission procedure and imparts education in various subjects under the Intermediate Board.

After investigations against the society which were conducted since the year 2003 the department issued a show-cause notice dated 8.9.2008 on the society proposing to demand service tax amounting to Rs.87,38,34,876/- on the entire income received for the period 01.04.2003 to 31.03.2007 under the head of "Commercial training or coaching services". The demand has been quantified on the basis of information gathered from the Balance Sheets of the Society for the period 01.04.2003 to 31.3.2007 which included all the receipts of the Society from all their institutions in India.

The Commissioner confirmed:

++ Amount of service tax: Rs. 85,38,34,876/-;

++ Penalty of Rs.200 per day or 2% of the tax, whichever is higher u/s 76;

++ Penalty of Rs.150 crores u/s 78

++ Penalty of Rs.1000 u/s 77.

LAW : The texts of the relevant provisions of the Finance Act, 1994, which have a bearing on the case are as follows:

++ Section 65 (26) -"commercial training or coaching" means any training or coaching provided by a commercial training or coaching centre;

++ Section 65 (27) -"commercial training or coaching centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include pre-school coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force.

++ Section 65 (105) (zzc) - ["taxable service" means any service provided or to be provided], to any person, by a commercial training or coaching centre in relation to commercial training or coaching;

Explanation - For the removal of doubts, it is hereby declared that the expression "commercial training or coaching centre" occurring in this sub-clause and in clauses (26), (27) and (90a) shall include any centre or institute, by whatever name called, where training or coaching is imparted for consideration, whether or not such centre or institute is registered as a trust or a society or similar other organisation under any law for the time being in force and carrying on its activity with or without profit motive and the expression "commercial training or coaching" shall be construed accordingly;

This Explanation was inserted in the Finance Act, 2010 and made effective from 1/7/2003, i.e. the date from which the levy of service tax was imposed on "commercial training or coaching" services.

In the Tribunal Division Bench, the Members had a difference of opinion.

Per Member (T):

++ Education qualification recognized by law: it cannot be said that the institutions under SCEC are excluded from the definition of ‘commercial training or coaching centres' because they issued certificate/degree/diploma recognized by law.

++ Since the colleges are required to be run according to academic plan prescribed by the Board and each college is required to adhere to such plans, the observations that the coaching provided for competitive exam is optional and distinct and separate and is provided in campus which are considered as separate ones by the SCEC themselves, seems to be the correct position. Therefore the claim that it is integral part of curriculum of college education is not based on facts and ground reality.

++ The schools/institutions/Jr. colleges run by the appellants are neither excluded by the definition nor eligible for exemption Notification No.10/2003 issued by the Government in 2003.

++ Extended period: a simplistic approach to take a view that because the subsequent decisions of judicial fora took a view in favour of the appellant, appellant could have entertained a bona fide belief would not appropriate. While applying the precedent decisions to any particular case, the facts of the case have to be taken into account. After making efforts for more than two years the department proceeded to conduct search and investigations and thereafter show-cause notice was issued. Unless the very same facts are considered by a superior judicial forum or at least under the similar circumstances, a decision in favourable to the appellant has been taken, it would not be appropriate to simply follow the precedent decisions and apply the same to a case where the facts are totally dissimilar.

++ Therefore, if an assessee has to plead a bona fide belief, such a bona fide belief has to be pleaded during the relevant time and not on the basis of subsequent decisions. In this case, when the assessee intimated the department that assessee being a charitable trust was not liable to service tax, there were no decisions of any judicial forum taking such a view. Such decisions came only in 2008 and thereafter.

++ In view of the fact that suppression of facts and invocation of extended period are upheld, the penalty under Section 78 of the Finance Act would be mandatory.

++ Penalty under Sections 76 and 78 is required to be waived by invoking the provision of Section 80 of Finance Act, 1994.

++ Penalty under Section 77 of Finance Act 1994 of Rs.1000/- is upheld.

++ Normally when the service tax amount is required to be quantified, the matter is remanded to the original adjudicating authority for doing so. In this case in the absence of all the relevant details and the breakup under various heads, it may not be easily possible for the adjudicating authority to do the quantification without delay. In any case, the relevant details are required to be furnished by the appellants only to facilitate this. Therefore instead of remanding the matter for quantification, the appellant is directed to submit detailed worksheet year-wise to the Commissioner within two months from the date of receipt of this order quantifying the amount payable by them in terms of the decision taken by us above and also interest up to the date of preparation of such worksheet and thereafter interest per day payable.

Member (J) did not agree.

Per Member (J):

++ Formal education provided by school and college is not the subject matter of taxation under the Service Tax as defined in the Act. Such formal educational institution are not defined as Commercial Training or Coaching Centre under Section 65(27) of the Finance Act, 1994 and thus the coaching provided by such institution in addition to their prescribed syllabus by the Board is not the taxable activity under the Finance Act, 1994.

++ As regards invocation of extended period of limitation, the appellant had taken a stand as early as on 31.7.2003 (communicated in writing) that the activity is not taxable under the provisions of the Finance Act, 1994.

++ The stand taken by the appellant with respect to the activity in its coaching centre being not taxable, they being charitable institution registered under the Society Registration Act, 1860 and also recognized as a charitable institution under the provisions of the Income Tax Act, 1961, also has force.

++ The appellant's activity in respect of coaching classes is taxable in view of the subsequent explanation added with retrospective effect under Section 65(105)(zzc) of the Finance Act, 2010.

++ Delay in furnishing information sought for by Revenue from the appellant, cannot be a ground for invocation of extended period. All the powers of a Court with regard to attendance of witness, discovery of information/documents, etc. are vested in the adjudicating authority. Only for failure on the part of the adjudicating authority to exercise jurisdiction vested in him, extended period is not invokable.

Thus the Member (J) differed on the following points:

++ Service Tax is not leviable in respect of coaching provided by appellant through Junior Colleges under its management or under the management of others.

++ Extended period of limitation is not invokable.

++ Penalty under Section 77 is set aside.

He agreed with Member (T) on the following issues:

++ Service Tax is leviable on the activity of coaching at the Coaching Centres of the appellant.

++ Penalty imposed under Sections 76 and 78 of the Finance Act, 1994 are set aside.

++ Benefit of cum-tax calculation will be available.

++ Other receipts like Games fee, Hostel fee, Lab. Fee etc. will be deductible.

And so the matter went to the Third Member with the following questions:

++ Whether service tax is leviable in respect of coaching provided by the appellant through junior colleges under its management or under the management of others also as held by Member (Technical) or no tax would be leviable in such cases as held by learned Member (Judicial).

++ Whether extended period of limitation is invocable as held by Member (Technical) or is not invocable as held by learned Member (Judicial).

++ Whether penalty under Section 77 is to be set aside as held by learned Member (Judicial) or has to be imposed as held by Member (Technical).

Per Third Member :

++ I agree with the finding of the learned Member (Technical) that Service Tax is leviable on the Appellant Society on such coaching classes.

++ I agree with the order of learned Member (Judicial) and the demand of tax is barred by limitation.

++ Service Tax is leviable in respect of coaching provided by the Appellant as held by Learned Member (Technical) and therefore, the imposition of penalty under Section 77 as held by learned Member (Technical) is correct.

So the final order is:

++ Service tax is leviable in respect of coaching provided by the appellant through junior colleges under its management or under the management of others also;

++ Extended period of limitation is not invocable and the demand is limited to the normal period of limitation; and

++ Only penalty under Section 77 of the Finance Act, 1994 is upheld.

Effect on the party:

++ Most or whole of the demand of Rs. 85 crore will go as time barred.

++ Penalty of Rs. 150 crore is quashed.

++ Penalty of Rs. 10,000 survives.

Interestingly, the matter is not remanded for quantifying the demand - if any - that survives.

(See 2015-TIOL-1175-CESTAT-BANG)