2007 (12) TMI 13 - AT - Service Tax

Commercial Coaching and Training - Various management and PG programs conducted by a non-recognized institute which is registered u/s 25 of Companies Act and 12AA of IT Act - being a non-profit organization service tax is not payable demand of ST Rs. 1,44,05,390 with Cess and Penalty set aside.

Issues Involved:
1. Whether the appellant institute qualifies as a 'commercial training or coaching centre' under Section 65(26) of the Finance Act, 1994.
2. Whether the appellant institute's activities are exempt from service tax as a charitable organization.
3. The applicability of penalties and interest imposed under various sections of the Finance Act, 1994.

Detailed Analysis:

1. Qualification as a 'Commercial Training or Coaching Centre':
The primary issue is whether the coaching provided by the appellant for the PGPM and Executive MBA courses falls under the definition of 'commercial training or coaching' as per Section 65(26) of the Finance Act, 1994. The term 'commercial training or coaching' is defined as any training or coaching provided by a commercial training or coaching centre, which includes 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 excludes preschool coaching and training centres or any institute issuing recognized certificates, diplomas, or degrees.

In the impugned order, the Commissioner concluded that the appellant institute provides commercial training or coaching based on its financial surplus and the nature of its activities. However, the Tribunal found that the appellant institute, registered under Section 25 of the Companies Act, 1956, and recognized as a public charitable trust under the Income Tax Act, 1961, does not distribute its surplus as dividends or profits but reinvests it into the institution. The Tribunal emphasized that the provision of education by an institution attracts service tax only if the institution is a commercial concern, which is characterized by a profit motive. Since the appellant institute's surplus is used for educational purposes and no individual gains profit, the Tribunal held that the institute is not a commercial concern.

2. Exemption as a Charitable Organization:
The appellant argued that it is a 'not for profit' organization and should be exempt from service tax. The Tribunal considered various case laws and CBEC Circular F.No. 137/71/2006-CX dated 1.11.06, which clarified that institutions like IITs and IIMs, which impart education without the objective of making a profit, cannot be classified as commercial concerns. The Tribunal noted that the appellant institute is recognized as a charitable organization under the Income Tax Act, 1961, and its activities predominantly serve public utility by providing quality education and benefiting the industry and economy. Therefore, the Tribunal concluded that the appellant institute is not a commercial concern and its training or coaching activities are not subject to service tax.

3. Applicability of Penalties and Interest:
Given the Tribunal's finding that the appellant institute is not a commercial concern and its activities do not constitute commercial training or coaching, the imposition of penalties and interest under Sections 75, 76, 77, and 78 of the Finance Act, 1994, is rendered moot. The Tribunal did not find it necessary to examine the question of whether the demand was time-barred, as the primary issue was resolved in favor of the appellant.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, concluding that the appellant institute is not a commercial concern and its training or coaching activities are not liable to service tax. The order emphasized the importance of the appellant's charitable status and the reinvestment of surplus funds into educational infrastructure, aligning with its objective of providing quality education.

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