CBEC Clarified that even no profit making education centers are liable to pay service tax under the category of Commercial Training or Coaching

In the matter of M/s GREAT LAKES INSTITUTE OF MANAGEMENT LTD. Versus COMMR. OF S.T., CHENNAI reported in 2008 -TMI - 3914 - CESTAT,CHENNAI, honorable tribunal has held that:

            "6. 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.  No individual is gaining any monetary benefit out of the activity of GLIM.  The appellants are housed in a small facility in Saidapet and propose to re-locate to spacious premises and own building to be constructed.  They have already allocated most of the savings to achieve this objective.  We find that the appellants are acting strictly in accordance with the MOA, imparting quality education which has received well deserved recognition.

            6.1 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.  The primary object of GLIM is to impart education. Profit making is not its main motive. The refrain of the several judicial authorities cited is that profit motive characterizes a commercial concern as against general public utility in the case of a charitable organization. Therefore GLIM is not a commercial concern and the training or coaching provided by GLIM is not a commercial activity.  In the view we have taken of the issue on merits we do not consider it necessary to examine the question if the demand is time barred. In the circumstances, we set aside the impugned order and allow the appeal filed by M/s. Great Lakes Institute of Management."

Against the above decision of the CESTAT, department has filed an appeal before the honorable Supreme Court (2008 - TMI - 31008 - SUPREME COURT OF INDIA). Thus matter as decided by the CESTAT is pending before the SC for appropriate decision.

But, it seems that CBEC wish to override the decision of CESTAT by way of issuing a circular 107/01/2009 - ST dated 28-1-2009. In this circular, CBEC has clarified that:

            "The definition commercial training or coaching center has no mention that such institute must have 'commercial' (i.e. profit making) intent or motive. Therefore, there is no reason to give a restricted meaning to the phrase. Secondly, service tax, unlike direct taxes, is chargeable on the gross amount received towards the service charges, irrespective of whether the venture is 'profit making, loss making or charity oriented' in its motive or its outcome. The word "Commercial" used in the phrase is with reference to the activity of training or coaching and not to the nature or activity of the institute providing the training or coaching. Thus, services provided by all institutes or establishments, which fulfills the requirements of definition, are leviable to service tax."

Now, therefore, in the absence of any stay or decision by the Apex court against the decision of CESTAT in the matter ofM/s GREAT LAKES INSTITUTE OF MANAGEMENT LTD. Versus COMMR. OF S.T., CHENNAI reported in 2008 -TMI - 3914 - CESTAT,CHENNAI, it is highly debatable issue that which one is having binding force. CBEC ruling or CESTAT decision till the matter is decided by the honorable Apex Court.