Introduction:
Commercial training or coaching service was introduced in the service tax law from 1st July, 2003 by defining the expression, “commercial training or coaching” and “commercial training or coaching centre” in sections 65(26) and 65(27) respectively of the Finance Act, 1994 (the Act) as reproduced below:
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 the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool 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 time being in force.”
Consequently, taxable service in relation to this service was defined in section 65(105)(zzc) of the Act. Within a span of 4 to 5 years of the introduction of the service, in a significant number of cases, the co-ordinate Benches of the Tribunal at Bangalore and Chennai pronounced various decisions wherein various large and well-known institutions were held to be not liable under this taxing entry mainly on account of their status as non-profit making or charitable institutions. Understandably, as a consequence thereof, the Government appended an explanation to the definition to section 65(105)(zzc) of the Act vide the Finance Act, 2010 to come into effect retrospectively from 01-07-2003. Thus, the relevant provisions read as follows:
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 organization 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.”
It is also relevant to note here that the Finance Act, 2011 with effect from 01-05-2011 amended the definition of commercial training or coaching centre in section 65(27) whereby exclusionary part of the definition was omitted and instead the said exclusion part was simultaneously declared exempt vide Notification 33/2011-ST from 01-05-2011.
Primarily, in terms of the above explanation, the scope of the service was expanded to exclude profit motive element. When the decision of the Madras Tribunal in Great Lake Institute of Management Ltd. (GLIM) vs. CST Chennai 2008 (10) STR 202 (Tri.-Chennai) was challenged by the Revenue in the Supreme Court, on noticing the above explanation the Apex Court set aside the Tribunal’s order and remanded the case for denovo consideration in the light of the said Explanation [2010 (19) STR 481 (SC)].
Larger Bench direction vide Interim Order No.ST/443/2013 in Great Lake Institute of Management Ltd. vs. CST Chennai & 5 others: [2013-TIOL- 1480-CESTAT-DEL-LB]
Recently, in a bunch of appeals filed before the Tribunal, a Division Bench prima facie doubted the reasons recorded in one of the decisions viz., Magnus Society vs. CC&CE, Hyderabad 2009 (13) STR 509 (Tri.-Bang). In this decision, a distinction was made between higher learning through a proper format of education imparted by institutions on one hand and those which are characterised as commercial training or coaching centres preparing students for entrance examinations to universities or the like. The matter therefore was referred to the Larger Bench of CESTAT (LB or the Bench). The limited reference however was made to examine whether the provisions relating to commercial coaching or training service as defined in sections 65(26), 65(27) and 65(105)(zzc) of the Act accommodate a distinction between imparting of specific skill by an institution such as in computer literacy, computer operations, spoken English or accountancy at one end and a broader format of education imparted by an institution of higher learning providing a course of instructions in MBA, management, computer science or similar disciplines. The Bench headed by Hon. President, CESTAT examined the said relevant statutory provisions in relation to commercial training or coaching services specifically considering the scope of the service in the light of the above explanation inserted with retrospective effect and also analysed various precedents including Magnus Society (supra), GLIM (supra) and a few others as summarised below.
On making primary examination of the statutory provisions, the Bench held a view that for an institution or establishment to claim immunity from the liability of service tax, it must establish any one of the following exclusionary parameters:
• The institute/establishment is not imparting skill, knowledge or lessons on any subject or field except sports.
• If the establishment is a pre-school coaching or a training centre.
• Institute/establishment which issues any certificate, diploma, degree or an educational qualification recognised by the extant law.
Thus, as per the preliminary remark of the LB, if any institute fails to fulfill any of the listed parameters, it would be considered a commercial training or coaching centre and consequently be liable for service tax.
Gist of analysis of various precedents:
In case of GLIM vs. CST, Chennai 2008 (10) STR 202 (Chennai), the appeal was allowed by holding that it being a recognised charitable organisation under the Income- tax Act, 1961 and engaged in public utility areas, profit motive was absent although it may have earned surplus. Since the decision was pronounced prior to incorporation of the Explanation and profit motive was excluded by virtue of the Explanation, the Supreme Court in Revenue’s appeal remanded the matter (2010 (19) STR 481 (SC) for denovo consideration in the light of the Explanation. Another pre- amendment decision in the case of Administrative Staff College of India vs. CC&CE, Hyderabad 2009 (14) STR 341 (Tri.- Bang), the Tribunal concluded that although profit might have been earned, the laudable objectives of the institution registered as a society could not be equated with those of a tutorial college and that the expression ‘commercial’ in the definition indicates that it qualifies coaching or training centre and not coaching or training. Further, that the registered society also exempted from income tax as charitable organisation cannot be considered a commercial centre. Revenue’s appeal to Supreme Court in this case was dismissed without recording any reasons—reported in 2010 (20) STR J117 (SC). In another decision in Magnus Society vs. CC&CE, Hyderabad (supra) following the decision in GLIM (supra), the appeal was allowed. In this case, in addition to the reason of absence of profit motive involved in services of the institution, Hon. Tribunal carved out distinction for the term ‘education’ as against coaching or training by observing that ‘education’ was a much broader term of which coaching and training was only a part and the breadth of the term education could not be encompassed in the definition containing narrow meaning. Institutes offering degrees recognised by law could not be covered within the ambit of the defined category of the service. This view was also reiterated in Institute of Chartered Financial Analysts of India vs. CE&CE, Hyderabad 2009 (14) STR 220 (Tri. -Bang) while noting that the states Governments have recognised ICFAI University by notifications and there also existed UGC recognition. Further, considering the exempt nature of the income, the activity being non-commercial was held as not liable for service tax. This deci-sion also was pronounced prior to incorporation of the explanation.
The stated provisions were also considered by the Kerala High Court in Malappuram District—Parallel College Assn. vs. UOI 2006 (2) STR 321 (Ker) wherein challenge was made on several grounds interalia including the grounds of discrimination and violation of Article14 of the Constitution. The pleas regarding education being non-taxable under the Constitution and coverage of parallel colleges by exclusionary clause were repelled. The Hon. Court however ruled that the impugned levy was discriminative since the burden of the levy ultimately fell on students and there was no ap-parent distinction between the students pursuing education in regular colleges or in parallel colleges. The case of Indian Institute of Aircraft Engineering vs. UOI & Ors 2013-TIOL -430-HC-DEL-ST also was discussed by the Bench with reference to what constituted approved institution regulated by law. In this case, the High Court had concluded that the institution in question provides education resulting in degree/diploma/qualifications recognised by law and therefore was covered by the exclusionary clause and consequently not subject to service tax. In addition to various decisions by CESTAT, decisions involving issue of entitlement to exemption from income tax on the ground of educational purpose, under the Income-tax Act also were discussed. The Bench however, noted that neither the precedents nor the relevant provisions of the Income-tax Act assisted them significantly to interpret the scope of the expression “commercial training or coaching” or “commercial training or coaching centre” which was for their limited consideration.
Training & Education: Whether literal meaning relevant?
In addition to discussing various precedent decisions on behalf of the appellants, reference was made to various textual authorities to analyse contours of relevant terms such as teach, education, training, coach etc. to elucidate what the words meant and consequently to draw distinction between the concept of ‘training’ and ‘education’ or to examine whether they overlap. However, it was noted that when legislatively mandated definition was available, it is impermissible to look to extra textual guidance. “A good faith interpretation of section 65(27) requires that whatever skills/ knowledge/lessons are imparted on any subject or field, the activity must be considered to be training or coaching.”
Conclusion:
The Bench finally concluded that the retrospectively introduced Explanation in section 65(105) (zzc) of the Act redefined the scope of the expres-sion “commercial training or coaching” in section 65(26) by virtue of which a commercial element or profit motive became an irrelevant ingredient to bring an institute or establishment within the fold of “commercial training or coaching centre” nor would any organisational structure of registration of the entity as a trust or society would determine taxability. On analysing the other facet of the definition of “commercial training or coaching centre” in section 65(27), it was held that the training or coaching for imparting skill, knowledge or lessons on any subject or field constitutes commercial training or coaching and the scope of “training or coaching” could not be restricted by super-adding any conditions by parameters of course content, syllabus, duration, etc. The Bench declined to agree with the restricted interpretation pleaded or as was made in the precedent decisions and held that in the definition contained in section 65(27), there would be no rationale for engrafting an exclusionary clause broadly formulated other than what is specifically excluded viz., an institute or establishment which issues any certificate, diploma, degree or any educational qualification recognised by law. The Bench further held that since Parliament introduced the ‘Explanation’ retrospectively to clarify ambiguities to ascertain the expression ‘commercial’, recourse to guidance from precedents was not warranted. The reference to the Larger Bench was accordingly answered holding that the activities of imparting skill, knowledge, lessons on any subject or field or when imparted by an entity, institution or establishment which is excluded by a specific and legislated exclusionary clause would alone be outside the fold of the taxable territory. Considering the scope of the reference, the Bench declined to consider whether any of the appellants were taxable or otherwise in terms of the exclusionary clause in section 65(27) as it stood prior to its amendment with effect from 01-05-2011 and therefore the appeals stood remitted to the respective Bench to decide based on principles discussed above.
The direction provided by the Larger Bench is likely to have far-reaching implications on various institutions offering higher studies especially in absence of appropriate regulatory authority in this regard as the exclusion in terms of the direction of the Larger Bench is meant only for the degree, diploma, a certificate or any qualification recognised by the law for the time being in force. It appears therefore that the litigation hereafter would hinge mainly around whether a degree/ diploma certificate issued by an institution can be construed as one recognised under the law in force. It may be noted that in the new era of negative list based taxation effective from 1st July, 2012, what is specifically non-taxable is by way of entry in the “negative list” of services contained in section 66D of the Act is “education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.” In addition to preschool education, higher secondary education and approved vocational courses. Thus, a course or education recognised by law is the sole criterion for non-taxability
