Training to construction workers for upgradation of skills is not leviable to service tax.

Case:-M/s MEM WORLDWIDE PVT LTD VsCOMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, ROHTAK

Citation:-2014-TIOL-2297-CESTAT-DEL

Brief Facts:- The facts leading to filing of this appeal and stay application are, in brief, as under.

The appellant are engaged in sale and purchase of machinery and parts thereof. Beside this, from their premises at 9 Sainik Farm, Lane - 6/3, Khanpur, Delhi, they are also providing commercial training and coaching service and consulting engineer's service in respect of which they were not paying any service tax. The period of dispute In this case is from 2006-2007 to 2010-2011. They entered into an agreement with Construction Industry Development Council (CIDC), an agency recognized by the Government of India for testing and certification of the skills of labour, and imparting training to the construction workers for upgrading their skills. The training programmes organized by the appellant were recognized by IGNOU for certification purposes. The fees from the trainees was collected directly by the CIDC and reimbursed to the appellant. The Department was of the view that the training fee received by the appellant for imparting training to the construction workers for upgradation of their skills is taxable under Section 65 (105) (zzc) readwith Section 65 (27) as Commercial Training or Coaching Service. Though the appellant pleaded that this activity is exempt from service tax under Notification No.23/2001-ST dated 29/04/10 and also under Notification No.24/2004-ST dated 10/09/04, but the Department was of the view that these exemption notifications are not applicable to them. The service tax demand alongwith education cess totalling Rs.1,17,02,437/- against the appellant is on this basis.

It was also found by the Investigating Officers that CIDC in terms of its agreement with Oil and Natural Gas Commission (ONGC), was to develop cost index, cost data base and costing software as per the specific requirements of ONGC and also upgradation and maintenance of the data base and costing methodologies and for these services CIDC received an amount from ONGC as specified in the agreement. CIDC, however, subcontracted this activity to the appellant for which the appellant received from CIDC, 90% of the amount received by CIDC from ONGC. While CIDC paid service on the full amount received by them from ONGC and recovered the same from ONGC, the Department was of the view that the appellant would also be liable to pay service tax under Consulting Engineer's Service under Section 65 (105) (g) readwith Section 65 (31) of the Finance Act, 1994 on the amount received by them from CIDC. Service tax demand of Rs.6,09,621/ - is on this basis.

It was also found that during period from 2006-2007 and 2008-2009, the appellant had received an amount of Rs.4,04,540/- as- rent from renting of an immovable property for commercial purposes and service tax amounting to Rs.41,668/-payable on the amount of rent had not paid by them. Service tax demand of Rs.41,668/- is on this basis.

It is in view of the above Investigation that a show cause notice dated 22/10/11 was issued to the appellant for -

(a) demand of service tax alongwith education cess and secondary and higher education cess totalling Rs.1,23,53,726/- from the appellant company under proviso to Section 73 (1) of Finance Act, 1994 alongwith interest thereon under Section 75 ibid ; and

(b) imposition of penalty on them under Section 76, 77 and 78 of the Finance Act, 1994.

The above show cause notice was adjudicated by the Commissioner, Central Excise & Service Tax, Rohtak vide order-in-original dated 06/02/13 by which -

(a) service tax demand alongwith education cess totalling Rs.1,23,53,726/- was confirmed against the appellant company under proviso to Section 73 (1) of Finance Act, 1994 alongwith interest thereon under Section 76 ibid ;

(b) while penalty of Rs.1,23,53,726/- was imposed on the appellant company under
Section 78 of the Finance Act, 1994, another penalty of Rs.5,000/- was imposed on
them under Section 77; and

(c) No penalty, however, was imposed on them under Section 76.

Against the above order of the Commissioner, this appeal has been filed alongwith stay application.

Appellant contentions:- Shri Subodh Gupta, C.A., the learned Counsel for the appellant, pleaded that the training being imparted to construction workers for upgradation of their skills is fully exempt from service tax under exemption Notification No.24/2004-ST dated 10/09/04, as this training is vocational training and, hence, the appellant have to be treated as vocational training institute, that in respect of this training, the syllabus of the training, competency standards and performance levels to be achieved and training and testing procedures have been prepared by CIDC in collaboration with IGNOU and have been provided to the appellant and the appellant have conducted these courses accordingly, that from the content of these courses, it is absolutely clear that these courses are vocational courses aimed at improving and upgrading the skill levels of construction workers, that the Commissioner's finding that the appellant are not a vocational training institute and the courses being conducted by them for construction industry workers are not vocational courses is totally incorrect, that as regards the job of development of cost index and upgradation of cost data of ONGC, for this job, CIDC had entered into an agreement with ONGC and CIDC has paid service tax on the full amount for this job received from ONGC, that the appellant have received only 90% of the amount received by CIDC from ONGC, that when service tax has been paid on full amount received by CIDC from ONGC, no service tax would bepayable by the appellant on the amount received by them from CIDC, that even if the service tax is charged from the appellant on the amount received by them from CIDC, CIDC would be eligible for its Cenvat credit which could be utilized by them for payment of service tax on the amount received by them from ONGC and it would be a revenue neutral exercise that in any case charging service tax both from CIDC and from the appellant company would amount to double taxation, that in view of this, confirmation of service tax demand on the amount received by the appellant from CIDC for development of cost index and upgradation of cost data for ONGC is not correct, that as regards service tax demand of Rs.41,668/- on renting of immovable property, this service tax is not chargeable under Section 65 (105) (zzzz) in as much as the property let out by the appellant was not owned by them, that in view of the above, the impugned order is not correct, that the appellant have a strong prima facie case in their favour and, hence, the requirement of pre-deposit of service tax demand, interest thereon and penalty may be waived for hearing of their appeal and recovery thereof may be stayed.

Respondent Contentions:-Shri Govind Dixit, learned DR, opposed the stay application by reiterating the findings of the Commissioner and emphasized that so far as service tax demand of Rs.1,17,02,437/- is concerned, the training provided by the appellant company to construction workers is commercial training or coaching service taxable under Section 65 (105) (zzc) readwith Section 65 (27) of the Finance Act, 1994 and as held correctly by the Commissioner, this activity of the appellant is neither exempt under Notification No.23/2010-ST dated 29/04/10 nor under Notification No.24/2004-ST dated 10/09/04. With regard to the service tax demand of Rs.6,09,621/- on the amount received by the appellant from CIDC for development of cost index and upgradation of the cost data for ONGC, he pleaded that even if this job was to be done by CIDC for ONGC in terms of an agreement between CIDC and ONGC and even if CIDC have paid service tax on the full amount received for this job from ONGC, since this job was sub-contracted by the CIDC to the appellant company for which the appellant company received 90% of the amount received by CIDC from ONGC, the appellant company as sub-contractor would also be liable to pay service tax on the amount received by them from CIDC. With regard to service tax demand of Rs.41,668/- on the renting of Immovable property, it was pleaded that even if the property not owned by the appellant was sub-let by them, service tax under Section 65 (105) (zzzz) readwith Section 65 (90a) would be attracted. He, therefore, pleaded that the appellant have not been able to establish prima facie case in their favour and, hence, this is not the case for waiver from the requirement of pre-deposit.

Reasoning of Judgment:- Heard both the sides in respect of stay application.
The service tax demand of Rs.1,17,02,437/- is on the amount received by the appellant for imparting training to construction workers under a skill development plan of the Government of India. Under this scheme, CIDC in association with IGNOU prepared the syllabus of the courses, competency standards and performance levels to be achieved by the trainees and training and testing procedures to be adopted and the appellant company conducted the courses by using the infrastructure of ITIs (Industrial Training Institutes) for conducting such skill development courses for construction workers.The fees from the workers was collected by CIDC and passed on to the appellant. The courses organized by the appellant result in issue of certificates which are recognized by IGNOU. In terms of Section 65 (105) (zzc) of Finance Act, 1994, the service provided to any person by a "commercial training or coaching centre" in relation to commercial or coaching is taxable. In terms of Section 65 (27) as the same stood during the period of dispute, the term "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 sports with or without issuance of a certificate and includes coaching or tutorial classes, but does not include pre-school 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. The exclusion clause in the definition of commercial training or coaching centre in Section 65 (27) was deleted by Finance Act, 2011 w.e.f. 08/04/11. Thus, during the period of dispute, the term "commercial training or coaching centre" did not include a training centre or any institute or establishment which issued any certificate or diploma or degree or any educational qualification recognized by law for the time being in force. Since, the impugned order passed by the Commissioner mentions that the skill upgradation programmes being conducted by the appellant were recognized by IGNOU for certification purposes, we are of prima facie view that the appellant company would not be covered by the definition of "commercial training or coaching centre", as given in Section 65 (27) and, hence, the training, in question, being organized by them would not attract service tax under Section 65 (105) (zzc).

Even if the training being imparted by the appellant company to construction workers is treated as taxable under Section 65 (105) (zzc) during the period of dispute, prima facie Notification No.24/2004-ST dated 10/09/04 would be applicable. This notification exempted taxable service provided in relation to commercial training or coaching by a "vocational training institute" to any person from the whole of the service tax leviable thereon, The term "vocational training institute" as defined in this notification means a commercial training or coaching centre which provides vocational training or coaching that imparts skills to enable the trainees to seek employment or undertake self-employment directly after such training or coaching. The training programmes being organized by the appellant company are meant for construction workers and the purpose of these programmes is the development of their skills which was improves their market value. In our prima facie view, these training programmes enable the trainees to seek employment or undertake self-employment directly after such training and, hence, the appellant for the purpose of this notification have to be treated as "vocational training institute" and they would be covered by the exemption Notification No.24/2004-ST. Therefore, we are of prima facie view that the service tax demand of Rs.1,17,02,437/- is not sustainable and in respect of this demand which is the appellant who have prima facie case in their favour.

As regards the service tax demand of Rs.6,09,621/-, this service tax demand is on the amount received by the appellant from CIDC for development of cost index and upgradation of cost data base and costing software of ONGC. CIDC had entered into an agreement with ONGC for development of cost index and upgradation of cost data base and costing software and there is no dispute that CIDC have paid service tax on the full amount received by them from ONGC. The CIDC, however, subcontracted this job to the appellant and the appellant in terms of their agreement with CIDC, received 90% of the amount received by CIDC from ONGC. Service tax is being demanded on the amount received by the appellant from CIDC. Since CIDC have paid service tax on the full amount received by them from ONGC, but instead of doing the job themselves sub-contracted this job to the appellant for which they paid 90% of the amount received from ONGC to the appellant, in our prima facie view, it would not be correct to charge service tax once again from the appellant on the amount received by them when on the same amount ONGC have paid the service tax. Thus, on this point the appellant have prima facie case in their favour.

As regards the service tax demand of Rs.41,668/- on alleged renting of immovable properly by the appellant company, prima facie the appellant's contention that the immovable property rented by them were not owned by them and, as such, was sub-let by them would not save them from their tax liability under Section 65 (105) (zzzz) readwith Section 65 (90a), as it is not disputed that the renting of the property was for commercial purposes. In view of this, so far as this demand is concerned, the appellant do not appear to have prima facie case in their favour.

In view of the above discussion, the appellant company is directed to deposit an amount of Rs.1,00,000/- (Rupees One Lakh) within a period of four weeks from the date of this order. Compliance to be reported on 30.9.2014 On deposit of this amount within the stipulated period, the requirement of pre-deposit of balance amount of service tax demand, interest thereon and penalty shall stand waived and recovery thereof stayed. The stay application stands disposed of, as above.

Decision:-Stay application disposed of.

Comment:- The substance of this case is that commercial training or coaching service under positive list tax regime was not taxable if the training institute issuedany certificate or diploma or degree or any educational qualification recognized by law or if the institute provided vocational training. Consequently, complete stay was granted for service tax confirmed under commercial training or coaching service. One more analogy that is drawn from this case is that if on a transaction, service tax has already been paid once on the total consideration, then the sub-contractor is not primarily liable to pay service tax again on the said transaction.

PREPARED BY: MEET JAIN

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