2014 (9) TMI 385 - HC - Service Tax

Constitutional validity of levy of Service Tax treating Parallel Colleges as commercial training or coaching centres coming under Section 65(27) of the Finance Act, 1994 - Article 14 of the Constitution of India - Held that - When we come to the real picture herein, it can be seen that whether it is parallel colleges run by the writ petitioners herein or by the regular colleges are concerned, they are not issuing any certificate or diploma directly and are not awarding any degree, etc. Going by the averments of both sides, these types of institutions are preparing the students to appear for the University examinations in various subjects, like arts, science, commerce, etc., leading to award of degree, diploma, certificate, etc., which are approved by law. To that extent there is no dispute also. The crucial aspect is whether, there is an intelligible differentia in the classification sought to be introduced. These students form a homogeneous class. The coaching centres which come within the first limb of the Section 65(27) alone are subjected to the tax liability. Therefore, since Parallel Colleges, which are involved herein are also conducting classes and preparing the students for appearing the very same University examinations like regular students, which fact is not disputed and has been practically agreed to in the counter affidavit filed by the respondents in the writ petitions also, we find no distinction between these two classes of students. Merely because some of the students who are less fortunate have found themselves in Parallel Colleges, that cannot lead to a situation where they have to bear the burden of Service Tax as rightly found by the learned Single Judge. The distinction provided in the section is not based on any other characteristics like the curriculum, period of study, infrastructure provided by the colleges, the way in which fees are collected in regular colleges and Parallel Colleges, etc. The legislative policy is clear from Section 65(27) itself. Therefore, we will have to find out, the real object of the provision and the impact of the same. Therefore, the plea raised by the learned counsel for the appellants that students undergoing regular course of study are covered by various other factors like curriculum, period of study undergone, University examinations, etc. are relevant cannot be accepted. Those institutions or colleges, namely, parallel colleges, who are parties before this Court, who are preparing students to obtain certificates or diploma or degree or any other educational qualifications, recognised by law will not be liable to pay Service Tax under Sections 65(26) and 65(27) read with Section 65(105)(zzc) of the Act. The Department will be free to find out the credentials of other institutions or coaching centres as to whether they will come within the first limb of Section 65(27). Such individual cases will have to be dealt with accordingly and in the proper legal manner, as the learned Single Judge has made clear that the judgment is not to be treated as declaring the Section unconstitutional insofar as any other category of educational institution or training centre is concerned. We are not making a Universal declaration in respect of all institutions in whatever manner they are being conducted. - Decided against the revenue.

Summary

Issues Involved:
1. Constitutional validity of the levy of Service Tax on Parallel Colleges under Section 65(27) of the Finance Act, 1994.
2. Discrimination between regular colleges and parallel colleges concerning the imposition of Service Tax.
3. Interpretation of the terms "commercial training or coaching centre" under Section 65(27) and related provisions.

Detailed Analysis:

1. Constitutional Validity of Levy of Service Tax on Parallel Colleges:
The primary issue was whether the levy of Service Tax on Parallel Colleges, treating them as "commercial training or coaching centres" under Section 65(27) of the Finance Act, 1994, is constitutionally valid. The learned Single Judge ruled that the provisions authorizing the levy of Service Tax on Parallel Colleges are arbitrary and violative of Article 14 of the Constitution of India. However, this judgment was specific to the peculiar facts applicable to Parallel Colleges in Kerala and did not declare the section unconstitutional for other categories of educational institutions.

2. Discrimination Between Regular Colleges and Parallel Colleges:
The appellants argued that the levy of Service Tax is within the Central Government's purview and is beyond judicial review. They contended that regular colleges are governed by university regulations, have a defined curriculum, and provide specific infrastructure, unlike Parallel Colleges. The respondents countered that Parallel Colleges perform similar educational functions as regular colleges and cater to students who cannot afford regular colleges or do not get admission due to limited seats. The learned Single Judge found that there is no qualitative difference in the education provided by both types of colleges and that imposing Service Tax on Parallel Colleges, while exempting regular colleges, is discriminatory and violates Article 14.

3. Interpretation of "Commercial Training or Coaching Centre":
Sections 65(26), 65(27), and 65(105)(zzc) of the Finance Act define "commercial training or coaching" and "commercial training or coaching centre." The court examined whether Parallel Colleges fall under these definitions. The provisions exclude institutions that issue certificates, diplomas, or degrees recognized by law. The court noted that Parallel Colleges prepare students for university examinations, leading to degrees recognized by law, similar to regular colleges. Therefore, the distinction based on the issuance of certificates or diplomas and the recognition of these by law was crucial. The court concluded that Parallel Colleges should be excluded from the definition of "commercial training or coaching centre" as they prepare students for recognized qualifications.

Conclusion:
The court upheld the learned Single Judge's decision that the levy of Service Tax on Parallel Colleges is discriminatory and violates Article 14 of the Constitution. The judgment clarified that Parallel Colleges preparing students for recognized university degrees should not be liable for Service Tax under the relevant sections of the Finance Act. The court emphasized that this ruling applies specifically to the parties involved in these appeals and does not universally declare the section unconstitutional for all educational institutions. The department is free to verify other institutions' credentials individually.