Commercial Coaching and Training Centre Versus Charitable Institutions - Applicability of Service Tax

Facts of the Case

The appellant has conducts Post Graduate Programme in Management (PGPM), a 12 months fulltime programme and Executive MBA, a part time course.  GLIM has academic and research collaborations with Illinois Institute of Technology, Chicago, Yale University, USA and Nanyang Technological University, Singapore. The diploma/degree issued by appellant is not recognized by law.  

However, it has been approved as a 'not for profit' organization in terms of Section 25 of the Companies Act  and registered as a public charitable trust under Section 12 AA of the Income Tax Act.

Department has demanded from the appellant service tax of Rs.1,44,05,390/- and education cess of Rs. 2,39,112/- on a value of Rs. 14,70,51,997/- for the  training or coaching service provided by it during the period 1/4/04 to 31/7/06.  Department also imposed penalties under Sections 76, 77 and penalty equal to the service tax demanded under Section 78 of the Act. 

Findings and Decisions

After a detailed and thorough examination of the facts and circumstances, Honorable Tribunal in this landmark judgment has held that:

What is subject to tax is commercial training or coaching provided by a commercial training or coaching centre.   We find that the certificates for MBA or PGPM issued to the students on successful completion of these courses are not recognized by law.  Therefore, the appellant is not an establishment exempt from service tax for the reason that it issues a certificate or diploma or degree recognized by law……….

We find that the appellants are recognized as a charitable organization under the Income Tax Act, 1961.  Though the appellants earned some surplus income from the activity of imparting education, we hold that activity they are engaged in is predominantly one of public utility benefiting eligible youth  thereby sub-serving a much larger interest of providing useful talents  to the  industry and ultimately the economy of the country. ….…..

Healthcare and education are social services essential to provide minimum quality of life to the people of a country.  As the demand for these services cannot be met by the Public Sector alone, private sector fills the gap. For most of them in the private sector, health & education are lucrative business. However, we find that education in the instant case is not a business…………

Service Tax is not applicable on the appellant. 

For full text of judgment - visit 2008 -TMI - 2934 - CESTAT, CHENNAI