Commercial training or coaching

CESTAT, CHENNAI BENCH

Great Lakes Institute of Management Ltd.

Commissioner of Service tax, Chennai

P. G. CHACKO, JUDICIAL MEMBER

AND P. KARTHIKEYAN, TECHNICAL MEMBER

FINAL ORDER NO. 11 OF 2007

APPEAL NO. S/163 OF 2007

JANUARY 2, 2008

Section 65 of the Finance Act, 1994 - Commercial training or coaching - Period from 1-4-2004 to 31-7-2006 - Whether provision of education by an institution will attract service tax only if that institution is a commercial concern, which is run with sole object of making profit -Held, yes - Appellant, a charitable institution, was engaged in providing educational courses in management - Service tax was demanded from appellant under category of ‘Commercial training or coaching centre’ - However, it was found that there was no individual gain or profit in case of appellant and its memorandum of association clearly provided that if there was any surplus when company was wound up, it would be transferred to another institution run for same object as appellant or for some charitable object - Whether on facts, appellant was not a commercial concern and, therefore, training or coaching rendered by it was not liable to service tax as ‘commercial training or coaching’ - Held, yes [Para 5.3]

Circulars & Notifications - CBEC’s Circular F. No. 137/71/2006-CX dated 1-11-2006.

FACTS

The appellant a charitable institution, was engaged in conducting some full/part-time educational courses in management (PGPM and MBA) in collaboration with various universities of America and Singapore. Service tax was demanded from the appellant under category of ‘Commercial training or coaching centre’ on the ground that it was an establishment providing commercial training or coaching for imparting knowledge or lessons on any subject or field other than sports as defined in section 65(26) and that the diploma/degree issued by the appellant was not recognized by law. Penalty was also imposed upon appellant. In the instant appeal the appellant submitted that it was not a commercial venture and it had been approved as a ‘not for profit’ organization in terms of section 25 of the Companies Act and registered as a public charitable trust under section 12AA of the Income-tax Act, 1961.

HELD

In the impugned order the Commissioner had held that the appellant provided commercial training or coaching as defined in section 65(26). He did not find that the appellant was otherwise a commercial training or coaching centre. [Para 5.1]

What is subject to tax is commercial training or coaching provided by a commercial training or coaching centre. The certificates for MBA or PGPM issued to the students on successful completion of those courses were not recognized by law. Therefore, the appellant was not an establishment exempt from service tax for the reason that it issued a certificate or diploma or degree recognized by law. The appellant conducted courses in association with a couple of universities in the USA and Singapore. Several members of faculty attached to renowned universities trained the students receiving coaching at appellant. In a short period of its existence, the appellant had to its credit, the enviable achievement of 100 per cent of its students getting placements in choice companies with pay packets ranging from Rs. 9.3 lakh per annum to Rs. 17 lakh per annum in the last year. The appellant had been closely associated with top management of leading companies in various sectors of industry. The appellant aimed to mould itself into a centre of excellence in consonance with its avowed objective. The provision of education by an institution will attract service tax only if the institution is a commercial concern. A commercial concern, is run with the sole object of making profit. In the case of the appellant there was no individual gains or profit. The MOA clearly spelt out that no income earned by the company would be paid by way of dividend, bonus or otherwise by way of profit to any member of the company or to anybody else through the members. If there was any surplus when the company was would up, it would be transferred to another institution run for the same object as the company or for some charitable object. Those facts indicated that the appellant was not a commercial concern and, therefore, training or coaching rendered by it was not liable to service tax as ‘Commercial training or coaching’. [Para 5.3]

As per CBEC Circular F. No. 137/71/2006-CX, dated 1-11-2006, a commercial concern is an institution or establishment that is primarily engaged in commercial activities. The board clarified that the principal activity of institutes like IITs or IIMs is to impart education without the objective of making profit and, therefore, such institutes cannot be called commercial concerns, even if they charge for some of their activities. The appellant was exempted under section 12AA of the Income-tax Act, 1961 as a charitable institution. As per its MOA, it did not declare any dividend to its shareholders and ploughed back the surplus for the purpose and object of the organization. The fact that the appellant was a charitable institution in terms of the Income-tax Act, would strengthen its claim that it was not a commercial concern. [Para 5.5]

Though the appellant earned some surplus income from the activity of imparting education, activity it was engaged in was predominantly one of public utility benefiting eligible youth thereby sub-serving a much larger interest of providing useful talents to the industry and ultimately the economy of the country. No individual was gaining any monetary benefit out of the activity of the appellant. The appellant was housed in a small facility and proposed to relocate to spacious premises and own building to be constructed. It had already allocated most of the savings to achieve that objective. The appellant was acting strictly in accordance with the MOA, imparting quality education which had received well deserved recognition. [Para 6]

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 & education are lucrative business. However, education in the instant case was not a business. The primary object of the appellant was to impart education. Profit making was not its main motive. The refrain of the several judicial authorities cited was that profit motive characterizes a commercial concern as against general public utility in the case of a charitable organization. Therefore, the appellant was not a commercial concern and the training or coaching provided by it was not a commercial activity. Therefore, the impugned order was to be set aside and the appeal filed by the appellant was to be allowed. [Para 6.1]