Commercial Coaching: Only commercial for Government

Article: Commercial Coaching: Only commercial for Government

Prepared By:

CA Pradeep Jain

Mayank Palgauta

The budget, 2010-11 has brought many changes in Service Tax field, although the same was not referred in Finance Minister’s speech. Yet there are many changes in service tax. The service providers of “commercial training or coaching service” are greatly affected due to applicability of new Notifications inserted in this Budget. Prior to this Budget, the word “Commercial” was a point of litigation that this word is to be considered as “for profit making” or not, for service tax purposes. Therefore, we are giving the whole analysis of notifications which will help to know how they will affect upon service providers of the said service.

Definition:

The definition of Commercial training or coaching service has been given in Section 65 (26) of the Finance Act, 1994. The said definition is reproduced hereunder for ready reference:

“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 the time being in force;

This levy has come by Notification No. 07/2003 dated 20.06.2003 with effect from 01.07.2003.

Judicial Pronouncements:

From the above definition it is not clear that the Word “Commercial” is to be considered as “for profit making” or not. But in the case of Shri Chandraprasad Desai Memorial Foundation v/s C.S.T., Ahmd it was held that as the education provided by the appellant to poor children with just a nominal fee will amount to no intention to make profit and will not be covered under levy of service tax as it is not commercial. The relevant portion of judgment is as follows: -

“…appellant submits that even though fee has been collected from the children, the coaching classes are conducted for poorest class of the society and the fees charged is very nominal and it is being charged only for the purpose that only serious children can attend the course and, further, he also submits that the actual cost of course is much more than fees collected and this activity has been undertaken by the Trust for the benefit of poor children and, therefore, no intention to make in profit.”

Thus from the above Revenue Judgment it is clarified that if the coaching centre has provided such service with no intention to make profit then such service will not cover under scope of service tax.

There are number of decisions on the same lines from the tribunal which has held that the service tax is not attracted on educational institute if the profit motive is missing. The exemption was granted to trusts, societies on the basis of the same.

Board Circular:-

However, the board intention was clear. As per Para 2 of latest Circular No. 107/01/2009- ST, DT 28/01/2009, the board has clarified its position on Commercial training or coaching Services. The clarification is produced as under: -

The first issue arises from the very name i.e. Commercial training or coaching center’. Many service providers argue that the word ‘commercial’ appearing in the aforementioned phrase, suggests that to fall under this definition, the establishment or the institute must be commercial (i.e. having profit motive) in nature. It is argued that institutes which are run by charitable trusts or on no-profit basis would not fall within the phrase commercial training or coaching center and none of their activities would fall under the taxable service. This argument is clearly erroneous. As the phrase ‘commercial training or coaching center ‘has been defined in a statute, there is no scope to add or delete words while interpreting the same. The definition commercial training or coaching center has no mention that such institute must have ‘commercial’ (i.e. profit making) intent or motive. Therefore, there is no reason to give a restricted meaning to the phrase.

Therefore by going to the Board Clarification it is cleared that the word “Commercial” has not to be considered as “for profit making” and thus service will cover under levy of service tax.

But the judicial pronouncements were still in favour of assessee and it was held that the word “Commercial” clearly implies that profit motive should be there. As such, the exemption from service tax was extended to trusts and societies working without the profit motive.

Budget’s Outcome: -

The board has already clarified its stand from the above notification. But the judicial pronouncement was not coming in their favour. As such the board has come with the legislation. It was clarified that

“A view has been taken by taxpayers that the term ’commercial’ appearing in various definitions implies that the institute must be run with a profit Motive to fall under the taxable service.

In this Budget 2010-11, in order to clarify the legislative intent, the definition of the taxable service is being suitable amended, through insertion of an Explanation, to clarify that the word ‘commercial’ means any training or coaching that is provided for a consideration irrespective of the presence or absence any profit motive. This amendment is being carried out retrospectively (from July 2003) so as resolve the disputes pending at different levels of the dispute settlement system.”

Thus from this Budget it is ample clarified to all taxpayers that whether “Commercial training or coaching center” is profit oriented or not they will have to pay service tax on gross receipts from their service recipients.

Conclusion:-

The effect of the amendment is very much clear. The word “Commercial” does not have any link with profit. Second very clear message from the Government- “We are the rulers. We can amend the notification retrospectively. Do not fight with us.”

Lastly, on the lighter side, the word “Commercial” has proved commercial for the Board only.

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Commercial Coaching: Only commercial for Government

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