By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Is activity of teaching by non-affiliated colleges taxable under “commercial training or coaching service”? Held – No.
Facts:
Association of Parallel Colleges filed a writ petition challenging constitutional validity of levy of service tax treating parallel colleges as “commercial training and coaching centres.” The learned Single Judge had held that provisions of the Act authorising levy of service tax on Parallel Colleges was arbitrary and violative of Article 14 of The Constitution of India, also that there was no difference between regular colleges and Parallel Colleges. It was also clarified that the judgment was rendered on peculiar facts of the case which was applicable only to the petitioners and the section was not declared as unconstitutional. Service tax officials, herein the appellants, filed writ petition challenging the Judgment. The Revenue relied on various Apex Court Judgments deciding that the Court has a very limited power to intervene in such economical matters. The Revenue also tried to distinguish between regular colleges and parallel colleges.
Held:
It was observed that the section 65(27) of the Finance Act, 1994 defining commercial and coaching centre had 2 limbs, the inclusion part and the exclusion part. Exclusion was given only to such establishments which issue any certificate recognised by any law. It was observed that none of the regular colleges or parallel colleges were issuing any certificate/s. It was also observed that the object of the provisions of sections 65(26) and 65(27) of the Finance Act, 1994 was to prepare students for obtaining certificate recognised by law. Hence, interpretation of provision in consonance with the object was not violative of the Statute. Students, being economically and intellectually weak, were opting for Parallel Colleges and levy of service tax will ultimately fall on such students. On the other hand, an exemption was provided to affiliated colleges which was discriminatory and thus, violating Article 14 of the Constitution of India. Though the section was not held to be unconstitutional, the colleges appearing before the Court were held to be not liable to pay service tax.
