Whether value of study material supplied to students/trainees is to be included in the value of taxable services?

PJ-Case law-2013/14-1590

Case:-M/s CEREBRAL LEARNING SOLUTIONS PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:-2013-TIOL-834-CESTAT-DEL

Brief Facts:- The adjudicating authority by the order dated 31.03.2008 confirmed service tax liability on the assessee for Rs.12,75,834/-; assessed interest under Section 75; imposed penalty under Section 76; penalty under Section 77; and penalty equivalent to the amount of service tax assessed, under Section 78 of the Finance Act, 1994, in respect of the period 01 December, 2004 to 30 June, 2006. The primary authority concluded that Service Tax on Commercial Training and Coaching was w.e.f. 01.07.2003; and the tax is leviable on the taxable service provided or to be provided by a Commercial Training and Coaching Centre; that assessee had composed the course material relevant to the coaching/training imparted by it; and had furnished such material to its students. It was the assessee's case that the study material was being separately billed and the receipts therefore accounted. The adjudicating authority held that notwithstanding the distinctness of the transaction of supply of course material and collection of the value thereof, the course material being integral to the taxable service Commercial Training and Coaching, the value of the course material supplied to the assessee's students should be included in the gross value of the service rendered, and that the assessee's claim for exemption based on Notification No.12/2003-ST dated 20.06.2003, issued under Section 93(1) of the Act, was misconceived.

The assessee's appeal was partly allowed by the Commissioner (Appeals)-I, Indore. The Appellate authority granted relief on the quantum of liability without disturbing the basis for the assessment and levy of service tax and consequent interest and penalty thereon. Aggrieved by the concurrent conclusions, appeal is preferred before the Tribunal challenging the order of the adjudicating authority as confirmed by the appellate authority.

The relevant legislative provision and the exemption granted vide Notification No.12/2003-ST dated 20.06.2003 admit of no ambiguity. It is the admitted factual scenario that the assessee had provided the taxable service of Commercial Training and Coaching under Section 65(165)(zzc) read with Section 65(26) and (27) of the Act. Section 67 of the Act enjoins that the gross amount charged by the taxable service provider / assessee on the taxable service. Accordingly, the value of the books or course material supplied by the assessee to its students/trainees is required to be included in the value of the taxable service as the gross amount charged by the service provider. The assessee however relied on the Notification dated 20.06.2003, issued by the Central Government in purported exercise of its powers under Section 93(1) of the Act. Under this general exemption notification, the Central Government exempted "so much of the value of all the taxable services, as is equal to the value of goods and material sold by the service provider to the recipient of service, from the service tax leviable thereon under Section (66) of the Act" subject of the condition that there is documentary proof specifically indicating the value of the said goods and services and subject to the other eligibility criteria specified clauses (a) and (b) thereunder. That the assessee had furnished documentray proof indicating a separate value of the course material and text books supplied by it and that the assessee is entitled on this account, exemption under the Notification, is not in dispute. What has triggered Revenue's demand for service tax on the value of the course material and text books, is a Board Circular dated 20.06.2003 which seeks to "clarify" that in case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard text books which are priced and that any study material or written text provided by such institute as part of service, which does not satisfy the above criteria will be subjected to service tax.

Appellant Contentions:- The Appellant has relied upon the decision of this Tribunal in Chate Coaching Classes Pvt. Ltd. vs. CCE, Aurangabad reported in 2012-TIOL-714-CESTAT-MUM and which in turn rely on the earlier decision of this Tribunal in Pinnacle Vs. CCE, Chandigarh reported in 2011 (24) STR 453 (Tri.Del.) = (2011-TIOL-1865-CESTAT-DEL) to support its challenge to the concurrent orders of the primary and appellate authorities. These decisions are clearly in favour of the assessee and our analysis of the relevant provisions of the Act and the exemption Notification No.12/2003-ST dated 20.06.2003, is fortified by these decisions.

Respondent Contentions:- Ld. DR reiterates before us that theexemption granted vide the Notification No.12/2003-ST dated 20.06.2003 is inapplicable where a commercial training and coaching institute sells goods or material as part of its service of Commercial Training and Coaching Service which material does not answer the description of priced standard textbooks.

The respondent persuaded to hold in favour Revenue by relying upon the decision of this Tribunal in Sayaji Hotels Ltd. Vs. CCE, Indore reported in 2011 (24) STR 177 (Tri. Del.) = (2011- TIOL-226-CESTAT-DEL) wherein the core issue was whether the exemption Notification No.12/2003-ST dated 20.06.2003 is applicable to a deemed sale of goods, as in a transaction involving a composite service of mandap keeper/catering service which involves supply of food and beverages was well. This Tribunal in the distinct factual matrix of that case held that the word "sale" in the exemption Notification No.12/2003-ST dated 20.06.2003 is to be limited to a distinct sale of goods, within the meaning of the expression "sale" as defined in Section 2(h) of the Central Excise Act, 1944 and that the benefit of exemption under the said Notification cannot be extended to a transaction which involves a works contract not involving sale of goods primarily.

Respondent would refer to a passage in decision of the Tribunal in Aggarwal Colour Advance Photo System Vs. CCE, Bhopal reported in 2010 (19) STR 181 = (2010-TIOL-1804-CESTAT-DEL). The passage occurs in para 6 of the judgment dealing with question No.3 framed by the Tribunal, which is whether the term "sale" appearing in exemption Notification No.12/02-ST dated 20.06.2003 must be considered as in Section 2(h) of the Central Excise Act, 1944 read with Section 65 (121) of the Finance Act, 1944 or the term would also include deemed sale, as defined by Article 366 (29A) (b) of the Constitution. While referring this issue for consideration to larger bench, an observation is recorded by the ld. DR that under the Finance Act, 1944 providing of service being event of levy, incidence of tax arises on the whole of value of service including materials used in providing such service.

Reasoning of Judgment:We have considered the submission from both parties and perused the records, we find that the clarification in the Board Circular dated 20.06.2003 is misconceived, clearly illegal and contrary to the statutory exemption Notification dated 20.06.2003. Where the legislature has spoken or in exercise of its statutory power exemption is granted by the Central Government under Section 93 of the Act, the CBEC has no manner of power, authority or jurisdiction to deflect the course of an enactment or the exemption granted. Grant of exemption from the liability to tax is a power exclusively authorised to the Central Government under Section 93 of the Act. This statutory provision accommodates no participatory role to the Board. In seeking to engraft restrictions on the generality and plenitude of the exemption granted by the Central Government, the CBEC transgressed into the domain of the Central Government under Section 93 of the Act, a course of action clearly prohibited. On the above analysis, that part of the clarification of the CBEC which engrafts a condition that the exemption notification is applicable only where the value of the course material (sold by a commercial or training institute) answerers the description of standard text books which are priced, is illegal, unauthorised and of no effect. No notice or cognition can be taken by any authority or such unauthorised exertions by the CBEC. If this illegal and unauthorised condition, imposed on the generality of exemption granted by the Central Government vide Notification No.12/2003-ST dated 20.06.2003 is ignored, as it must, the assessee/appellant is clearly entitles to the benefit of the exemption.

The Tribunal also hold that decision given in Sayaji Hotels Ltd. Vs. CCE, Indore reported in 2011 (24) STR 177 (Tri. Del.) = (2011- TIOL-226-CESTAT-DEL), relied on by the revenue has no relevance in the present case. This decision is of no assistance to Revenue. The transaction in the appeal before Tribunal is a clear transaction of sale of study material by the assessee - appellant to its coaches / trainees. Its a distinct transaction for which "as concurrently found by the primary and appellate authority, separate value is receipted, documented and recorded". In any event, the exemption notification engrafts no restrictive condition other than those set out therein which are satisfied in the present case. The restrictive interpretation of the Notification by the Board vide its clarificatory Circular No.59/8/2003-ST dated 20.06.2003, is as earlier stated, unlawful and of no legal consequence.

Similarly, observations given in Aggarwal Colour Advance Photo System Vs. CCE, Bhopal reported in 2010 (19) STR 181 = (2010-TIOL-1804-CESTAT-DEL] were found to beof no relevance to the issues arising in the present appeal. The question in this appeal is whether the entire value of the services provided by the appellant herein (including the value of course material supplied) is to be included in the gross value of the service provided by the appellant? The question is also whether the Government has exempted the whole of the value of goods and material sold, from the gross value of taxable service, vide the Notification issued under Section 93(1).

Finally, it was concluded that the exemption notification is clear and admits of no restrictive clauses. Consequently, the assessee is entitled to relief. The appeal must therefore succeed. The order-in-appeal confirming the adjudication order is therefore quashed.

Decision:- Appeal allowed.

Comment:- The crux of this is that value of the books or course material supplied by the assessee to its students/trainees is not required to be included in the value of the taxable service in view of the exemption notification no. 12/2003-ST and the reliance placed on the board’s circular stating that the value of study material would be excluded only if it contains text of standardized books is erroneous due to the fact that the circulars cannot limit or restrict the scope of an exemption notification.

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PJ-Case law-2013/14-1590

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