Coaching Institute Wins Service Tax Exemption Case Before CESTAT
Coaching Institute Wins Service Tax Exemption Case Before CESTAT
Introduction
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has delivered a significant judgment in favor of Roy's Institute of Competitive Examination Private Limited (RICE), a Kolkata-based coaching institute. The tribunal ruled that standalone hostel accommodation services provided by coaching centers/educational institutions are exempt from service tax, and revenue-sharing arrangements between coaching institutes and franchisors do not constitute taxable services.
Factual Background
RICE faced multiple service tax demands totaling ₹1,25,29,172 with interest and penalties for the period 2011-12 to 2015-16. The demands were related to hostel fees charged to students in non-residential courses, revenue-sharing arrangements with CMC Limited, and educational materials such as newspapers, admission forms, prospectus, and magazines.
Procedural Background
The case was filed before the CESTAT, Kolkata Bench, and was heard by a two-member bench comprising Judicial Member Ashok Jindal and Technical Member K Anpazhakan. The tribunal handled a number of petitions for educational materials. The sale of newspapers (Jibika Dishari and Swabhumi), admission forms, prospectuses, and magazines (RICE Times) are considered goods rather than taxable services, according to the ruling.
Issues Involved
1. Service Tax Exemption: Whether standalone hostel accommodation services provided by coaching centers/educational institutions are exempt from service tax.
2. Revenue-Sharing Arrangements: Whether revenue-sharing arrangements between coaching institutes and franchisors constitute taxable services.
3. Educational Materials: Whether the sale of educational materials such as newspapers, admission forms, prospectus, and magazines constitutes taxable services.
Contentions of the Parties
RICE's Contentions: RICE argued that standalone hostel charges collected for non-residential courses have no connection with commercial training and coaching services, and are therefore exempt from service tax. The institute also contended that revenue-sharing arrangements with CMC Limited do not constitute taxable services.
Tax Department's Contentions: The tax department argued that the services provided by RICE are taxable, and the revenue-sharing arrangements with CMC Limited constitute taxable services.
Reasoning and Analysis
The CESTAT ruled in favor of RICE, holding that standalone hostel accommodation services are exempt from service tax under the exclusion clause of renting immovable property services. The tribunal relied on Board Circular No DOF/334/1/2007-TRU, which exempts residential accommodation like hostels from service tax.
The tribunal also observed that for the purposes of levy of service tax, there should be a service provider and service recipient relationship, which is not present in the case of revenue-sharing arrangements between RICE and CMC Limited. The tribunal relied on the Supreme Court’s decision in Commissioner of Service Tax Vs Inox Leisure Ltd., which held that establishing that revenue sharing doesn't necessarily constitute taxable service provision.
Moreover, regarding educational materials, the tribunal ruled that the sale of newspapers, admission forms, prospectus, and magazines constitutes the sale of goods, not taxable services. The tribunal also found that library subscription and development fees were optional services with no connection to coaching courses, and therefore, not taxable.
Final Decision
The CESTAT set aside service tax demands totaling ₹1.22 crore against RICE, including demands related to hostel services, revenue-sharing arrangements, and educational materials. The tribunal also rejected the revenue's use of the extended limitation period, noting that the institute acted on a bona fide belief based on judicial precedents.
Potential Implications
The judgment has significant implications for coaching institutes and educational institutions that provide hostel accommodation services and engage in revenue-sharing arrangements. It provides clarity on the taxability of such services and arrangements, and may lead to a reduction in tax disputes and litigation in the education sector.
Law Settled
This judgment reinforces the principle that service tax exemption is available for standalone hostel accommodation services provided by coaching centers/educational institutions. The tribunal's decision also highlights the importance of establishing a service provider and service recipient relationship for the levy of service tax.
In this case the appellant, RICE, was represented by Chartered Accountant Rajarshi Dasgupta and a team from AQUILAW. Meanwhile the respondent, Principal Commissioner of Service Tax, Kolkata, was represented by Authorized Representative RK Agarwal.
