4.1 Service tax of about 1.5 crores and huge penalties, interest, etc. were demanded from Great Lakes Institute of Management Ltd., which conducts post graduate programme in management and which has academic and research collaborations with renowned international universities [Great Lakes Institute of Management Ltd.- (GUM) vs. CST Chennai-2008-TIOL-134-CESTAT-Mad.]. Summary of the Tribunal’s observations was that GUM was a section 25 company and as such, most of its surplus earned was transferred to campus infrastructure project fund and that GUM aims to mould itself into a center of excellence in consonance with its avowed objective. The provision of education by an institution is a commercial concern run with the sole objective of making profit whereas in GUM’s case, no individual gained any profit by its operations and the Tribunal ruled,
“the test which has therefore now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to sub-serve the charitable purpose or to earn profit: where profit making is predominant object of the activity, the purpose though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to carry out charitable purpose and not to earn profit, it would not lose the character of charitable purpose merely because some profit arises in the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit”. The Tribunal further observed, “Healthcare and education are social services essential to provide minimum quality of life to the people of a country. As the demand for these services cannot be met by the public sector alone, private sector fills the gap. For most of them in the private sector, health and education are lucrative business”. “Primary object of GUM is to impart education, profit making is not its motive. The refrain of the several judicial authorities cited is that profit motive characterises a commercial concern as against general public utility in the case of a charitable organisation “.
4.2. In another case, viz. M/ s. Magnus Society vs. CCE-Hyderabad 2008- TIOL-1812-CESTAT-Bang. wherein the society registered under Chhattisgarh Societies Registration Act,1973, having an objective to provide instructions, teaching and training various career oriented programmes at bachelor, post-graduation and doctorate level provides education through centres across the country induding through distance learning courses. The Tribunal went into details of Memorandum of Understanding (MOU) entered into by the society with various UGC recognised universities and concluded that “so long as the instructions impart education, the same cannot be considered as ‘commercial training or coaching’; moreover, the appellants are registered under Societies Registration Act. The Income Tax Authorities have also issued certificates for exemption from Income Tax. All these prove that profit motive is not there in these institutions”. The Tribunal also stated that decision in the case of Great Lakes Institution-[GUM] (supra) squarely applied to this case. The Tribunal also observed, “education has a large scope. Education may include coaching or training and not vice-versa. Coaching or training is a very narrow activity imparting skill in a particular discipline. But education is a broader term which is a process of personality of body, mind and intellect … “. Education develops several skills whereas what is meant by commercial training or coaching, in the definition given by the Finance Act has a very narrow meaning and it is not broad enough to contain in its hold institutions imparting higher learning like MBA or Management in Computer Science or any other discipline. They would not be called as ‘commercial training or coaching centres’.
4.3 Interestingly in the case of Administrative Staff College of India, Hyderabad vs. CCE-Hyderabad-2008- TIOL-2007-CESTA T-Bang, wherein the institution, again a registered society, is engaged in providing an extension of practical training to those who already hold positions of responsibility and enable its members to share their own experience profitably with others having different but comparable experience. In this case notably, distinguishing commercial training and coaching from mere training or coaching, the Tribunal observed, in para 12 of the judgment as follows:
“We are not inclined to hold that the activities rendered by them would fall within the ambit of coaching or training. In our view, the fact that Income Tax Department has given them exemption is very very relevant. We do not agree with the department that the point is not at all relevant. In that case, legislature could have taxed all training and coaching. They need not have used the word ‘commercial’. The very fact the word commercial has been used indicates that the word ‘commercial’ qualifies the commercial coaching or training centre. It doesn’t qualify coaching or training. It qualifies the centre. As long as the institution is registered under the Societies Registration Act and also exempted from Income Tax, it cannot be considered as a commercial centre. Therefore, no service tax is leviable under the category of commercial coaching or training.”
4.4 Vocational Training:
Another Bench of the Bangalore Tribunal examined the case of an institute viz. M/ s. Pasha Educational Training Institute, Hyderabad 2009 TIOL 288 CESTAT-BANG engaged in providing training in various fields in the name of different institutes i.e. insurance agents sponsored by various insurance companies, health care institute providing training for nursing exam, institute of media studies providing training in TV and Journalism, institute for performing arts provides training in music through classes, etc. The institute indeed is a case of a registered Trust under section 12A of the Income Tax Act as charitable institution and also is recognised and licensed by IRDA under IRDA Act, 1999 to conduct classes for students who appear for IRDA examination. After making detailed examination of syllabus, etc. it ruled as follows:
“On going through the nature of training, it is clear that the said training can be considered as ‘Commercial Training or Coaching’ because the Institute imparts skill or knowledge on the subject of insurance. However, the second point to be noted is whether the said training can be considered as a vocational training. Vocational training means training that imparts skills to enable the trainee to seek employment or undertake self-employment directly after such training or coaching. This definition should not be interpreted in a very narrow sense as done by the Commissioner (Appeals). The argument of the Commissioner (Appeals) is that even after the training, the trainee should again write examination conducted by IRDA to qualify to work as Insurance Agent under the Insurance Act, 1938. We should not forget that the comprehensive training given by the appellant enables the trainees to appear for the examination conducted by IRDA. Moreover, the appellant institute is also recognised for imparting training by the IRDA. In these circumstances, we cannot say that the training imparted is not a vocational training.”
4.5 In another case the Institute of CFA, Hyderabad etc. vs. CCE-Hyderabad viz. 2008-TIOL-2036-CESTAT-Bangalore, the following aspects were discussed in great detail:
- Relevant provision of Universities Grants Commission Act.
- Difference between ‘education’and ,coaching and training’.
- Objectives of the institute as set out in its Memorandum of Association.
- Judgment of the Kerala High Court in the case of Malappuram District Parallel Colleges Association (supra), Pasha Educational Training Institute (supra) etc. & GUM’s case (supra)
- Board’s Circular No.59/08/2003 dated 20-06-2003, wherein scope of the taxing entry is provided.
- Substitution of the phrase ‘any person’ for the phrase ‘commercial concern’ in section 65 with effect from 01-05-2006and that such deletion was not made in the definition of commercial coaching and training or commercial training and coaching centre.
In addition to the above, a point was made out tha t even if the courses are not recognised by the law, still they qualify as education, even if non-formal in nature ..Merely due to lack of recognition, the process of education will not cease to be education and it will definitely not become commercial training or coaching and there could not be an absurd conclusion that all schools in the country which do not confer degree or diploma certificate recognised by law are commercial training or coaching centre and subject to service tax. The fact of imparting education and recognition by various bodies should clearly be visible in order to get out of the purview of the definition of commercial training or coaching centre was the summary of observations. Further, the term ‘commercial’ was considered significant in interpreting the provision of law.
4.6 Another important case uiz, Ahmedabad Management Association (AMA) vs. CST- Ahmedabad-2009- TIOL-214-CESTAT-Ahm, which followed the decisions of GUM (supra) ICFAI (supra) also took the view that since the profit earned by the association cannot be distributed among the members and in case of dissolution any surplus would have to be given away to another society or charitable trust engaged in similar activities, the AMA was held as not a commercial concern. Further, while analysing the training programmes conducted by them, it was observed that they did not lead to conferring any degree. In this background, the decision of GUM (supra) and ICFAI (supra) were gone into detail and conclusion was reached that programmes conducted by AMA were in the nature of providing continuing education to candidates participating in the programme and/ or creating an awareness of the latest developments etc. but not to prepare the candidates for a particular job or for a particular examination. The Tribunal observed that training programmes conducted by AMA could not be called commercial training or coaching for the following reasons:
(i) AMA is not a commercial concern,
(ii) The purpose of the training is not commercial,
(iii) The objective of the AMA in conducting the programme is not commercial and whatever extra income is earned, it is ploughed back into the association and is used for public purpose,
(iv) The programmes conducted by the AMA can be considered as continuing education programmes and not as commercial training or coaching,
(v) No specific skills which prepare candidates for a particular job or an examination are imparted,
(vi) The diploma programmes/courses conducted by AMA amount to education or continuing education and no commercial training or coaching.
5. To summa rise, the crux of various pronouncements discussed above is that if the objective of an educational institution in entirety is education and the institution itself does not carry out the said educational activity solely with profit motive, even if the activity results in surplus which is deployed for the activity of education, the activity of education would not be interpreted as commercial training or coaching. Significance of the term ‘commercial’ has been recognised in all the above decisions. Although the status of an institution as charitable body under the Income Tax Act, or the registration under the Societies Registration Act or holding registration as section 25 company, etc. may not by itself directly determine the taxability under the service tax law, they certainly have pursuasive value to help determine non-taxability under the said category of service.
