Whether the sale of study material used by coaching classes is eligible for exemption under Notification no.12/2003?

PJ/CASE LAW/2015-16/2597

Case:-CADD CENTRE TRAINING SERVICES (P) LTD. VERSUS COMMISSIONER OF C. EX., CHENNAI-IV

Citation:- 2014(35) S.T.R. 842 (Tri-Chennai)

Brief facts:-The applicant provides the services of commercial coaching and training in the fields of design, multimedia, architectural, engineering, mechanical design analysis, construction & management etc. They provide such training through their own centres and through their franchisees. In respect of franchise charges, they have been paying service tax under the franchise service. While providing commercial coaching and training, they were selling certain text books to the trainees. Further, it was one of conditions of franchise agreement that the franchisee shall conduct training using training materials supplied by the applicant and the applicant was selling such material to the franchisees. The applicant had not paid service tax on the materials sold directly to trainees in their own centres or to the franchisees.
Appellants contention:- The counsel for the applicant submits that exemption under Notification 12/2003-S.T. is applicable in respect of any materials sold and such exemption notification issued by government cannot be restricted through instructions issued by C.B.E. & C. to sale of standard text books. He further submits that they have been in fact selling their text books to any person who was interested in buying such text books and there were genuine sales to persons other than those to whom they were providing services. He relies on the order of Cerebral Learning Solutions Pvt. Ltd. v. CCE Indore - 2013-TIOL-34-CESTAT-DEL = 2013 (32)S.T.R.379 (Tribunal)wherein waiver of pre-deposit of dues was granted in similar context.

Respondents contention:-Opposing the prayer, ld. AR for Revenue submits that these books were of a type that could be used only in training classes to be provided by the applicant and their franchisees. He drew the attention of the Bench to the clause in the franchise agreement to the condition that franchisee should conduct training classes only using material sold by the applicant. According to him, this is a case of diversion of value of services to value of text books because the VAT rate on text books is very negligible as compared to rate of service tax. He relies on the following decisions in support of his argument:

(1) Soni Classes v. CCE Jaipur - 2013 (30)S.T.R.92 (Tri.-Del.)
(2) Fiitjee Ltd. v. CST Delhi - 2012 (25)S.T.R.24 (Tri.-Del.)

Revenue was of the view that the consideration received for sale of training material would form part of the value of the services rendered by the applicant. Revenue was of the view that exemption under Notification 12/2003-S.T., in relation to goods sold in the course of providing services will be applicable only for standard text books sold and the text books in question were prepared by the applicant and tailor-made for the training classes to be imparted either by them or by their franchisees and therefore the said exemption could not be claimed. Based on such reasoning, a show cause notice was issued for recovery of service tax not paid for the period 2005-06 to Sept., 2009 and after adjudication, an amount of Rs. 2,33,49,899/- is confirmed against the applicant along with interest and penalty.

Reasoning of judgment:-Considered arguments on both sides. In the case of Soni Classes (supra), the Tribunal came to the conclusion that the sale of books was not bonafide transaction based on various evidences which were available in that case. The case of Fiitjee Ltd. (supra) is a stay order. There are few other decisions to the effect that sale of study materials used by coaching classes is eligible for exemption under Notification 12/2003-S.T. as in the case of M/s. Cerebral Learning Solutions Pvt. Ltd. (supra). Prima facie, we adopt the reasoning given in the case of Cerebral Learning Solutions (supra) and grant waiver of pre-deposit of dues arising from the impugned order for admission of appeal. There shall be stay on collection of such dues during pendency of appeal.

Decision:- Stay application allowed.

Comment:- The crux of the case is that exemption under Notification No.12/2003 is in relation to the goods sold in providing the services and is also available to commercial training and institutes in respect of study material supplied by them. The exemption under notification no. 12/2003 cannot be restricted to standard books and rather it is also available for customized books. The ratio of the decision given in case of M/s. Cerebral Learning Solutions Pvt. Ltd. was followed.

Prepared by:-Neelam Jain

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PJ/CASE LAW/2015-16/2597

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