2017 (11) TMI 690 - AT - Service Tax

Short payment of service tax - Coaching services - Running pre-school classes - Coaching for pre-engineering and pre-medical students - Sale of books to the students who are engaged in preparation of medical and engineering exams - Examination and evaluation of students through test series - Section 67 of the Finance Act - scope of the word Commercial - penalties - Held that - so far the activity of running pre-school classes is concerned the same is not taxable under the definition as contained in Section 65(27) - demand set aside. Conducting of test series Held that - the same is not taxable as there is no finding by the learned Commissioner that the appellant have held any classroom guidance either before the test or after the test. The tax has been demanded only on presumption that such tests also improve the skills of the prospective examinees - demand set aside. Sale of books - Held that - it is an admitted fact by the Department that the appellant have separately recorded the receipts on account of sale of books in their books of accounts maintained on tally software in the regular course of business. Further, there is no finding to the contrary by the Commissioner that the appellant have not done the activity of purchase and sale of books or have bifurcated their coaching receipts under the head of sale of books - demand set aside. The demand of ₹ 5,60,607/- based on imprest account is an mere assumptions and presumptions and hence liable to be set aside. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Short payment of service tax by the coaching institute.
2. Taxability of pre-school coaching activities.
3. Taxability of test series activities.
4. Taxability of sale of books.
5. Discrepancy in receipts and tax demand based on imprest account.

Detailed Analysis:

1. Short Payment of Service Tax:
The primary issue in this appeal was whether the coaching institute had short paid service tax as alleged in the Order-in-Original. The Revenue conducted a search and inspection on January 7, 2010, and found discrepancies between the receipts as per the balance sheet and the ST-3 returns filed by the appellant. The total short payment of service tax was calculated to be ?98,93,491/- for the period 2004-05 to 2009-10 (up to September 2009). The Commissioner confirmed the demand along with interest and penalties.

2. Taxability of Pre-School Coaching Activities:
The appellants argued that their pre-school coaching activities were not taxable under the definition of "Commercial Training or Coaching Centre" as per Section 65(27) of the Finance Act, 1994. This section excludes pre-school coaching and training centers from the definition. The appellants provided evidence such as fee receipts, attendance sheets, advertisements, and press coverage to support their claim that they were running pre-school classes. The Tribunal found that the activity of running pre-school classes is not taxable under the definition provided in Section 65(27).

3. Taxability of Test Series Activities:
The appellants contended that their test series activities were not taxable as they did not involve any coaching or training. The test series were open to all and were conducted to evaluate prospective rankings or scores in main exams conducted by statutory bodies. The Tribunal held that the test series activities are not taxable as there was no classroom guidance provided either before or after the tests. The tax demand was based on the presumption that the tests improved the skills of the examinees, which was not substantiated by the Commissioner.

4. Taxability of Sale of Books:
The appellants maintained a separate ledger for the sale of books, which was acknowledged by the Commissioner. The Tribunal found that the sale of books is not taxable as a service. The Department admitted that the receipts from the sale of books were separately recorded, and there was no evidence to suggest that the coaching receipts were bifurcated under the head of 'sale of books'. Therefore, no service tax could be demanded on the sale of books.

5. Discrepancy in Receipts and Tax Demand Based on Imprest Account:
The Revenue found a discrepancy between the receipts recorded in the cashbook maintained on tally software and the rough cashbook/imprest book. The total receipt as per the cashbook was ?1,13,95,583/- for the period April to September 2009, while the imprest book showed ?1,73,98,987/-, leading to a difference of ?60,03,441/-. The Tribunal held that the demand of ?5,60,607/- based on the imprest account was based on mere assumptions and presumptions and was liable to be set aside.

Conclusion:
The Tribunal concluded that no case of short payment of service tax was made out as the appellants had paid tax on their taxable activities. The activities of running pre-school classes and conducting test series were not taxable, and the sale of books was not subject to service tax. The demand based on the imprest account was also set aside. Consequently, the appeals were allowed, and the impugned order was set aside, entitling the appellants to consequential benefits in accordance with the law.

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