2019 (5) TMI 230 - AT - Service Tax

Educational institutions or not - Business support services or not - Taxability - services rendered by appellants to the educational trusts - whether the Trusts Sri Chaitanya Education Trust, Nexgen Education Trust and SKCMET are educational institutions or otherwise and whether services rendered to them will be services rendered to educational institution or otherwise? - Difference of opinion. HELD THAT - There is difference of opinion - Registry is directed to place the file before Hon ble President to refer the matter to a third member to settle the difference of opinion Whether prior to 01.7.2012 the services rendered by appellants is taxable under Business Support Services as held by Hon ble Member (Technical) or not taxable as held by Hon ble Member (Judicial).

Issues involved:
1. Classification of services provided by the appellants prior to 01.07.2012.
2. Taxability of services post 01.07.2012 under the negative list regime.
3. Applicability of exemption under Notification No. 25/2012-ST.
4. Demand under Section 73A of the Finance Act, 1994.
5. Penalties imposed on the appellants.

Detailed Analysis:

1. Classification of Services Provided by the Appellants Prior to 01.07.2012:
The primary issue was whether the services provided by the appellants to educational trusts were classifiable under "Support Services of Business or Commerce" as per Section 65(104c) read with Section 65(105)(zzzq) of the Finance Act, 1994. The appellants argued that the services were provided to charitable trusts engaged in educational activities, which do not fall under "business or commerce." The Tribunal found that the trusts were educational institutions imparting education and thus, the services provided to them could not be considered as "business support services." The Tribunal relied on the Supreme Court's decision in the Aditanar Educational Institution case, which held that societies managing educational institutions solely for educational purposes are to be regarded as educational institutions.

2. Taxability of Services Post 01.07.2012 Under the Negative List Regime:
Post 01.07.2012, the service tax regime changed to a negative list approach. The appellants contended that their services were exempt under Sl.No.9 of Notification No. 25/2012-ST, which exempts services provided to or by an educational institution in respect of education. The Tribunal agreed with the appellants, holding that the services provided by the appellants were auxiliary educational services and thus exempt from service tax. The Tribunal noted that the definition of "educational institution" and "auxiliary educational services" as per the notification covered the services provided by the appellants.

3. Applicability of Exemption Under Notification No. 25/2012-ST:
The Tribunal examined whether the services provided by the appellants were covered under the exemption provided by Notification No. 25/2012-ST. The Tribunal found that the services provided to educational trusts, which were managing schools and junior colleges, were indeed auxiliary educational services and thus exempt from service tax. The Tribunal also noted that the department had accepted similar findings in other cases involving the appellants for subsequent periods.

4. Demand Under Section 73A of the Finance Act, 1994:
The department alleged that the appellants had collected service tax but not deposited it with the government, raising a demand under Section 73A. The appellants argued that they had refunded the collected amounts to the students or reversed the entries. The Tribunal remanded this issue to the adjudicating authority for verification of the appellants' claims and to determine the correct tax liability.

5. Penalties Imposed on the Appellants:
Given that the Tribunal set aside the major portion of the demands, it held that the question of imposing penalties did not arise. The Tribunal directed the adjudicating authority to reconsider the issue of penalties sympathetically during the remand proceedings.

Separate Judgment by Member (Technical):
The Member (Technical) disagreed with the Member (Judicial) regarding the classification of services prior to 01.07.2012. The Member (Technical) held that the services provided by the appellants were indeed "Support Services of Business or Commerce" as the educational trusts were engaged in business activities. The Member (Technical) emphasized that the nature of the activity, rather than the entity's status as a trust, determined whether it constituted a business. The matter was referred to the President to resolve this difference of opinion.

Conclusion:
The appeals filed by the appellants were allowed, and the appeal filed by the revenue was rejected. The issues regarding the demand under Section 73A and the classification of services prior to 01.07.2012 were remanded to the adjudicating authority for reconsideration. The Tribunal directed the adjudicating authority to follow principles of natural justice and allow the appellants to produce relevant documents and evidence.

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