2005 (8) TMI 336 - HC - Service Tax

Commercial training of coaching center - constitutional validity - In the first place, the petitioners raised a contention that parallel colleges do not come within the definition clause contained in s. 65(27) of the Act. Alternatively, they contended that if the parallel colleges are covered by the definition clause, and consequently the charging provision, then the same is discriminatory and violative of Art. 14 of the Constitution, inasmuch as regular colleges affiliated to universities whether aided or self-financed rendering the same services are outside the scope of levy. - Held that - levy of service-tax for services rendered by parallel colleges which indirectly falls on the students, but by simultaneously providing exemption to regular affiliated colleges allowing the students therein study free of tax is patently discriminatory and violative of Art. 14 of the. Constitution of India. Though the service-tax is, in the Union List, since education happens to be in the concurrent list and considering the encouraging policy of the State Government to improve the educational opportunities of the students in the State, wherefrom large number of educated people migrate outside the State and outside the country seeking employment, the view of the State Government was called for by this Court. After referring the matter to the Cabinet, the Under Secretary to Government has filed an affidavit in Court wherein he has stated that though the State is helpless in regard to levy of service-tax, the Government decided to bring to the notice of the Central Government the difficulties experienced by parallel colleges in the matter of service-tax. In the circumstances, it has to be assumed that the State Government is also in favour of exemption to the parallel colleges in the same way granted to regular colleges under the exemption in the definition clause. In view of the above findings, I hold that the impugned provisions of the Act authorising levy of service-tax on parallel colleges are arbitrary and violative of Art. 14 of the Constitution of India.

Issues Involved:
1. Constitutional validity of levy of service tax on parallel colleges.
2. Applicability of service tax to parallel colleges under the Finance Act, 1994.
3. Discrimination under Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Levy of Service Tax on Parallel Colleges:
The petitioners, consisting of associations and individuals running parallel colleges in Kerala, challenged the constitutional validity of levying service tax on parallel colleges by treating them as "commercial training or coaching centres" under Section 65(27) of the Finance Act, 1994. They argued that taxing education is against the Constitution, referencing Article 21A, which mandates free and compulsory education for children aged 6 to 14, and Article 45, which encourages early childhood education. They contended that adding tax to education would hinder economically weaker sections from pursuing higher studies.

The court, however, rejected this argument, stating that the Supreme Court has upheld similar taxing provisions and that the legislative policy cannot be interfered with by the judiciary as long as there is no constitutional bar against such a levy. The court emphasized that the wisdom of the legislature should prevail in policy matters, even if the tax is viewed as unwise or regressive.

2. Applicability of Service Tax to Parallel Colleges:
The court examined whether parallel colleges fall under the definition of "commercial training or coaching centre" as per Section 65(27) of the Act. The definition includes any institute providing commercial training or coaching, excluding pre-school coaching, sports training, and institutions issuing recognized certificates, diplomas, or degrees.

The petitioners argued that they provide coaching for university degree examinations and should not be classified as commercial training centres. However, the court found that the definition broadly covers any form of coaching or training, except those explicitly excluded. Since parallel colleges do not issue recognized educational qualifications, they do not fall under the exemption and thus are liable for service tax.

3. Discrimination under Article 14 of the Constitution of India:
The petitioners contended that the levy of service tax on parallel colleges is discriminatory, as regular colleges affiliated with universities, whether aided or self-financed, are not subjected to the same tax. They argued that students in both types of institutions write the same examinations and receive the same degrees, thus there should be no differential treatment.

The court acknowledged that students in parallel colleges often come from economically weaker sections and that the tax burden would ultimately fall on them, making it harder for them to afford education. The court noted that the State Government also treats students from both types of institutions similarly in terms of concessions and financial benefits.

The court concluded that there is no substantial difference between students in parallel colleges and those in regular affiliated colleges. Therefore, the levy of service tax on parallel colleges, while exempting regular colleges, is discriminatory and violates Article 14 of the Constitution. The court held that the impugned provisions authorizing the levy of service tax on parallel colleges are arbitrary and unconstitutional.

Judgment:
The court quashed the impugned proceedings and prohibited the respondents from demanding registration or service tax from the petitioners, their members, and other parallel colleges in Kerala. The writ petitions were allowed, but the judgment was specifically limited to the peculiar facts applicable to parallel colleges in Kerala and did not declare the section unconstitutional for other educational institutions or training centres.

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