Study material provided are part of coaching services and are to be included in taxable value.

Case:- SONI CLASSES Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I

Citation:- 2013(30) S.T.R. 92 (Tri.-Del.)

Brief Facts:-The appellant M/s. Soni Classes are registered with the service tax department as they are providing taxable services falling under the category of 'commercial training or coaching centre' service. The dispute in the present appeal relates to the valuation of such services provided by them.

The appellant's business premises were visited by the Central Excise officers on 12-2-2007 and various records maintained by them were put to scrutiny. As a result it was found that Shri Udhav Lai Soni was proprietor of M/s. Soni Classes whereas his wife Mrs. Prem Lata Soni was running another proprietary firm under the name of M/s. Soni Patrachar Institute. The said proprietary unit M/s. Soni Patrachar Institute was also running from the same premises. Two types of bills were being issued one for training and coaching classes run by M/s. Soni Classes and the other as a consideration for providing study material to the students, by M/s. Soni Patrachar.

Statement of Shri Udhav Lal Soni was recorded on 12-2-2003 wherein he, inter aim, deposed that M/s. Soni Classes as also M/s. Soni Patrachar are being run from the same premises. He further disclosed that his wife is the proprietor only on paper and he is the one who is managing all the affairs of Soni Patrachar and Soni Classes. They prepare the study material in Soni Classes and the cost of the said material is 50% of the total cost charged from the students and such study material is being supplied by them to the students. He also clarified that text book and reference books are being purchased from the market at a discount of 40% to 50% but no charges are being collected from the students. Fees is being charged in cash and entered in registration card cum receipt form. They are not maintaining any cash book and the amount received by them are endorsed on the reverse of the registration card. He further clarified that in respect of the study material being supplied by M/s. Soni Patrachar Institute, no service tax is being paid.

Another statement of Shri Udhav Lal Soni was recorded on 25-6-2007 wherein he further clarified that at the time of admission, total fees included for class room coaching and the study material have been charged from the students. On being asked he stated that they have not paid any service tax on gross receipt charged from the students as he was under impression that there is no service tax on providing of study material to the students. On being asked he stated that some study materials are prepared in their institute which are short note type and also prepared test series, by their expert teachers. Tests are conducted periodically. They purchased detailed study material from the market and provided to the students so that similarity may be maintained during the teaching, for example they purchased test book of "Ray Publication" for the RPSC students in the year 2006. He further submitted that they have not kept any separate purchase bills of text books etc. The consolidated income received by them is divided into two parts i.e. in the name of Soni Patrachar as also in the name of Soni Classes. The amounts charged from the students is inclusive of all and no separate receipts are received from the students. He also disclosed the total consolidated amount charged from the students and division of the same between M/s. Soni Classes and M/s. Soni Patrachar.

Based on the above investigations and the statements recorded, Revenue entertained a view that the consideration for running the coaching centre is being artificially divided into two parts i.e. one for providing the coaching and the other showing sale of text books in the name of Soni Patrachar. Accordingly, proceedings were initiated against the appellant for confirmation of short paid service tax as also for imposition of penalty. The said proceedings resulted in confirmation of demand of service tax of Rs. 4,70,081/- and imposition of identical amount of penalty under the provisions of Section 78 of the Finance Act. In addition penalty of Rs. 100 per day was imposed in terms of Section 76 and Rs. 2000/- under Section 77 of the Finance Act, 1994. Appeal against the above order did not succeed before the Commissioner (Appeals). Hence the present appeal.

Appellant Contentions:-Ld. Advocate has relied upon the Notification No. 12/2003-S.T., dated 20-6-2003, which excludes the value of the goods and materials sold by the service provider to the recipient of service, from the value of the taxable services. The said exclusion is subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials. It is the appellant's contention that the study material, test papers, magazines like Competition Success Review, Pratiyogita Darpan etc. being sold by M/s. Soni Patrachar Institute is not required to be added in the value of coaching services being provided by M/s. Soni Classes. They have also assailed the demand on the point of limitation.

Respondent Contentions:-

Reasoning of Judgment:We have considered the submissions made by both the sides. We find that admittedly Notification No. 12/2003-S.T., dated 20-6- 2003 excludes the value of materials sold from the value of the taxable services. The Board's Circular No. 59/8/2003-S.T., dated 20-6-2003 is also to the effect that the cost of goods or materials sold by service provider to the receiver of such service during the course of the providing of the taxable services has to be excluded from the value of the services. The said circular further clarifies that the exemption to that extent would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoices. It is also clarified that in case of commercial training and coaching institute, the exclusion shall apply only to the sale value of standard text books, which are priced and any study material or written text provided by such institute as a part of the service which does not satisfy the above criteria will be subjected to service tax.

In view of the above clear law, the only dispute required to be addressed is as to whether M/s. Soni Patrachar was independently selling the books to their students or whether the same was created on paper and the total consideration received for providing coaching services by M/s. Soni Classes was being artificially bifurcated, so as to avoid payment of service tax. During the course of search of the appellant's premises, the appellant failed to place on record any statutory documents being maintained by M/s. Soni Patrachar, showing independent sale of the goods. Statement of Shri Udhav Lal Soni recorded on two occasions very clearly admits that Soni Patrachar, which is a proprietary unit of his wife, is being managed by him and no separate receipts for the study material or the text books etc. are being issued by them. In his subsequent statement, he deposed that the entire receipts received by M/s. Soni Classes are being divided into two parts showing a part income in the name of Soni Patrachar and a part in the name of Soni Classes.

It is further seen that during the last hearings, the appellant was directed to produce on record evidence for consideration including any literature issued to public for enrolment in coaching, invoices issued to enroll the candidates and evidence showing that two separate activities are not integrated to each other. The ld. Advocate placed on record the bills issued by M/s. Porwal News Agency, during the relevant period. On going through the said bills, we find that the same is by a newspaper agency and pre-printed bills showing the names of various magazines which the agency sells. The said names include various household magazines like Grihshobha, Saheli, Santa, Mukta etc. as also various other magazines like Readers Digest, Science Today etc. The magazines sold to M/s. Soni Patrachar are Pratiyogita Darpan, Yojana Tathya etc. The said bills produced by the appellant are nothing but the regular and common types of bills which any newspapers agency supplying the magazines to any person would issue. Apart from the above bills, ld. Advocate was not able to produce any literature issued to the public or the invoices issued for enrolling the candidates. There is no material on record to show that M/s. Soni Patrachar was an independent proprietary firm. On the other hand, a lot of evidence appears on record to reflect upon one fact that though the value of coaching classes being provided by M/s. Soni Classes to their students was collected as such, the same was being projected under two different categories. The value shown for coaching was brought down by the appellant, by diverting a part of the same to M/s. Soni Patrachar. The appellant has not been able to show as to what was the text books which was being purchased by them from the market and were being resold to their students.

Ld. Advocate has also relied upon the Tribunal's decision in the case of Pinnacle v. CCE, Chandigarh - 2011 (24) S.T.R. 453 (Tri.-Del.). however, we find that the ratio of the above decision is not applicable to the facts of the present case inasmuch as in that case there was evidence to show that the text books and study material was being procured from different sources and was being separately sold to the students at prices decided by publisher and printed on books. Similarly in the case of M.K. lain Classes v. CCE, Jaipur-1 - 2008 (11) S.T.R. 24 (Tri.-Del.), the benefit of Notification No. 12/2003-S.T. was extended by observing that the study material/books published by the assessee was also being sold to outsiders and as such was a separate activity from the activity of coaching. As such, we are of the view that the above decision is also not applicable to the facts of the present case, where it stands established that it is only the value of the service which was being artificially bifurcated.

Ld. Advocate has also referred to various decisions to submit that the service tax based on income tax returns cannot be upheld. We find that the present case is not based on the returns showed in the income tax but there are various other evidences available on record indicating bifurcation of the value of taxable services. Further the appellant has miserably failed to establish from documentary evidence that M/s. Soni Patrachar was an independent firm engaged in purchase and sale of material to the students of M/s. Soni Classes.

As regards time bar also, we note that the appellant was aware of the fact that it is the entire consideration for the coaching services which has to be taxed. It was only with a mala fide view to save the service tax that he bifurcated the consideration into two different parts and indulged in diverting a part of the consideration to the sale of the study material. Providing study materials, test papers etc. is a part of coaching services and is required to be included in the value. At the cost of repetition it may be observed that it is only the extra text books or extra material, which is admittedly being sold to the students and is also available for sale to outsiders and students or procured from the outside and sold to the candidates, which will not form part of the taxable coaching services. The appellant have consciously indulged in diverting a part of the value of the services to M/s. Soni Patrachar and as such has indulged in mis-statement and suppression of facts with intent to evade payment of duty. The above fact comes out clearly from the statement of Shri Soni and actual non-functioning of M/s. Soni Patrachar, a firm created on papers only.

In view of the forgoing discussions, we find no merits in the appellant’s appeal, same is accordingly rejected.

Decision:- The appeal is rejected.

Comment:- The analogy drawn from this case is that the study material supplied along with coaching services would be available for benefit under notification no.12/2003 only if it is evidenced that such sale is an independent activity from the coaching service and such study material is not customized as per coaching institute.

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PJ/Case Laws/2012-13/1516

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