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TMI Blog2016 (5) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be responsible for the entire academic aspect and related requirements of the educational institution. The agreement is for a term of thirty years and it has been agreed between the Parties that any revenue generated from the project, during the term, will be shared by the parties in the ratio agreed in the Agreement. For this purpose, the entire revenue relating to the school will be received in a joint account operated by the applicant and Choice Foundation jointly and revenue share would be drawn from this account by the applicant and Choice Foundation. 2. Applicant submits that they along-with Choice Foundation are partnering together to providing education services up to Higher Secondary School, which is a service mentioned in the Negative List under Section 66 D (1) of the Finance Act, 1994; that the service falls within the Negative List, therefore, the revenue share relating to such service taken by both the applicant and Choice Foundation, is also not liable to Service Tax. Applicant inter-alia submits that they along-with Choice Foundation propose to jointly provide educational services to students; that in consideration to educational services, fees is paid by studen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice Estates; that the inference from here again is that many kind of service providers and service will be involved which will be taxable as per the different provisions; that as per Para 5 (Revenue Share) of the "Partnering Agreement", the revenue will be shared equally between the parties; that as these natures of activities are not essentially related to imparting of education, it appears that the same is also subject to levy of Service Tax. Further, the exemption hitherto available to services provided by way of renting of immovable property to educational institutions stands withdrawn, with effect from 01/10/2014. 5. In order to appreciate the facts of the case, it is important to go through the relevant portions of "Partnering Agreement" submitted by the applicant which has been relied upon by the applicant as well Revenue. They are as under; WHEREAS I. CHOICE FOUNDATION is engaged in the running of premier educational institutions in the state of Kerala: II. CHOICE ESTATES is engaged in the business of partnering with educational institutions for taking up the infrastructural requirement of such educational institutions. III. CHOICE ESTATES and CHOICE FOUNDATION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property in accordance with the design and specifications provided by CHOICE FOUNDATION and in accordance with any and all regulations applicable under the law for the time being in force. b. The nature of construction and the materials used shall be at the sole discretion of CHOICE ESTATES who shall be entitled to appoint its own Architects, Engineers, Contractors, Sub-Contractors, workmen of all types all other personnel for construction and completion of the building to be constructed by the CHOICE ESTATES. c. All costs relating to the construction and infrastructural development of the Educational Institution shall be borne by CHOICE ESTATES. x x x x x x 5. REVENUE SHARE 5.1The revenue will be shared equally between the Parties. 5.2The Parties shall open and maintain a Joint Account with any Nationalised Bank or other bank as may be mutually agreed which shall be jointly operated by the Authorised Signatories of the Parties. No drawings may be made from this account without the approval in writing of the Authorised signatories of both the Parties. 5.3All revenue accruing relating to the Educational Institution shall be deposited into the Joint Account maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agreement, the contracting parties do not provide services inter-se to each other, but merely act on principal to principal basis to jointly undertake education services and to share the economic gains resulting from such activity. Applicant submits that they are covered by CBEC (Central Board of Excise and Customs) Circular No. 109/03/2009-ST dated 23.02.2009. The relevant paragraph is extracted as under; Another type of arrangement is where the contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting parties act on principal-to-principal basis and one does not provide service to another. Hence, in such an arrangement the activities are not covered under service tax. 9. It is to be observed that the CBEC Circular dated 23.02.2009 relied upon by the applicant is prior to the introduction of Negative List regime in 2012, wherein paradigm shift was made in the Finance Act, 1994. The word "service" was defined first time under Section 65B (44) as also "pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of Section 65 B(37)(iii)] if providing services to another person i.e. "partnering person", who is a separate person in terms of Section 65 B(37) (VII) Ibid, will be liable to Service Tax. 11. Another point raised by the applicant is that they are not receiving any consideration, other than from the students; that consideration received from the students cannot be consideration received from Choice Foundation as per Section 67(1) of the Finance Act, 1994 which inter-alia states that for the purpose of Service Tax, value shall be the gross amount charged by the service provider for such service provided or to be provided. Therefore, in absence of any consideration, no Service Tax can be levied. 12. It is noticed that the applicant and Choice Foundation have agreed to partner together to combine their mutual expertise for setting up and operation of an educational institution. Expertise of the applicant is providing infrastructural requirement like building etc., whereas Choice Foundation expertise is in the field of academics. Both parties are to have joint account and no withdrawal is to be made from said account without the approval of other party. Further, each party can d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1994 reads as under; (l) Services by way of - (i) pre-school education and education up-to higher secondary school or equivalent; (ii) education as a part of curriculum for obtaining a qualification recognized by any law for the time being in force; (iii) education as a part of an approved vocational educational course; 16. It is clear from Section 66D (l) of the Finance Act, 1994 that service provided by way of pre-school education and education up-to higher secondary school or equivalent is not liable to Service Tax being in the Negative List. In the subject case, applicant and Choice Foundation propose to enter into a Partnering Agreement. Applicant and Choice Foundation would be formed for a specific purpose of providing education to students up-to higher secondary school, wherein role of both the parties have been specified in said Agreement. Further proposed Agreement clearly mentions that the applicant and Choice Foundation would partner together to combine their mutual expertise for setting up and operation of an educational institution at Thiruvalla. Therefore, service provided by the "partnering person" would come under the Negative List and would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c., in this case will not come under the ambit of declared service and not be liable to Service Tax. Renting of Immovable Property 20. We have held that construction of civil structure etc., by the applicant for the Educational Institution (partnering of applicant with Choice Foundation) will not be liable to Service Tax. Revenue has raised another issue that renting of immoveable property (Civil Structure etc.) by the applicant for said Educational Institution will be liable to Service Tax especially when the exemption Notification No. 3/2013-ST dated 01.03.2013 available to services provided by way of renting immovable property to educational institutions, stands withdrawn vide Notification No. 6/2014 dated 11.07.2014. Applicant submits that renting of immoveable property by the applicant is self service, hence not liable to Service Tax. We have already held in preceding paragraph that the applicant, Choice Foundation and "partnering person", are all 3 separate persons under Section 65 B (37) of the Finance Act, 1994. Therefore, service of providing of renting of immoveable property by applicant to "partnering person" will not be "self service". The consideration for renting sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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