2008 (1) TMI 75 - AT - Service Tax

Whether the coaching for the PGPM course or part time students in the Executive MBA course come within the commercial training or coaching - recognized as a charitable organization under the IT Act - No individual is gaining any monetary benefit out of impugned activity - education in the instant case is not a business - primary object is to impart education - profit making is not main motive - GLIM is not a commercial concern so training or coaching provided is not a commercial activity

Issues Involved:
1. Classification of GLIM as a 'commercial training or coaching centre' under the Finance Act, 1994.
2. Relevance of GLIM's status as a 'not for profit' organization and its recognition under the Income Tax Act, 1961.
3. Applicability of service tax on the training or coaching provided by GLIM.
4. Interpretation of 'commercial concern' and its implications for service tax liability.
5. Examination of judicial precedents and CBEC Circulars relevant to the case.

Detailed Analysis:

1. Classification of GLIM as a 'Commercial Training or Coaching Centre':
The primary issue was whether GLIM falls under the definition of 'commercial training or coaching centre' as per Section 65(26) of the Finance Act, 1994. The Commissioner concluded that GLIM provided commercial training or coaching, as the diplomas/degrees issued were not recognized by law, and the institute was not approved by AICTE. The Commissioner also noted that GLIM had earned significant surplus income, indicating commercial activity.

2. Relevance of GLIM's Status as a 'Not for Profit' Organization:
GLIM argued that its status as a 'not for profit' organization under Section 25 of the Companies Act and its registration as a public charitable trust under Section 12AA of the Income Tax Act were crucial in determining its non-commercial nature. The institute emphasized that all proceeds were reinvested into educational development, and no profits were distributed as dividends. The Commissioner, however, held that these facts were irrelevant for the purposes of the Finance Act, 1994.

3. Applicability of Service Tax on Training or Coaching Provided by GLIM:
The Commissioner demanded service tax and education cess on the training or coaching services provided by GLIM, along with penalties under various sections of the Finance Act, 1994. GLIM contended that it did not fit the statutory definition of a commercial training or coaching centre and was not engaged in commercial activity. They also argued that their activities were akin to those of IIMs, which were not taxed.

4. Interpretation of 'Commercial Concern' and Its Implications for Service Tax Liability:
The Tribunal examined whether GLIM could be considered a commercial concern. The Tribunal noted that GLIM's Memorandum of Association (MOA) explicitly prohibited the distribution of income as dividends or profits to members. Any surplus was to be used for educational purposes or transferred to similar institutions upon dissolution. The Tribunal found that GLIM's operations did not indicate a profit motive, which is essential for an entity to be classified as a commercial concern.

5. Examination of Judicial Precedents and CBEC Circulars:
The Tribunal reviewed several judicial precedents and CBEC Circulars that clarified the definition of a commercial concern. Notable cases included:
- Kerala State Ex-Service League v. Commissioner: Emphasized the need to establish profit-making intent for classification as a commercial concern.
- Board of Control for Cricket in India v. Commissioner: Supported the view that charitable institutions under the Income Tax Act are not commercial concerns.
- Institute of Banking Personnel Selection v. Commissioner of Service Tax: Held that charging fees does not necessarily make an institution a commercial concern if the surplus is reinvested in furthering charitable objectives.
- CBEC Circular F.No. 137/71/2006-CX: Clarified that institutions like IITs and IIMs, which primarily impart education without profit motive, are not commercial concerns.

The Tribunal concluded that GLIM's activities were predominantly charitable and aimed at public utility, benefiting eligible youth and the economy. The surplus income was reinvested in educational infrastructure, and no individual profited from GLIM's operations. Therefore, GLIM was not a commercial concern, and its training or coaching services were not liable to service tax.

Conclusion:
The Tribunal set aside the Commissioner's order, holding that GLIM is not a commercial concern, and the training or coaching provided by it does not constitute commercial training or coaching under Section 65(26) of the Finance Act, 1994. Consequently, the demand for service tax, education cess, and penalties was annulled, and the appeal filed by GLIM was allowed.

Order Pronouncement:
The order was pronounced in the open court on 2-1-2008.

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