2024 (5) TMI 1566 - AT - Service Tax

Demand for service tax along with interest and penalty - non-payment of service tax under commercial training and coaching services on hostel fees received for non-residential courses - Reversal of CENVAT credit - improper registration under section 77(1) of the Finance Act - invoking extended period of limitation - HELD THAT - It is a settled principle of law as stated in the Circular No 109/3/2009-ST dated 23.02.2009 wherein it has been stated that once two contracting parties are acting on principal-to principal basis the activities are not covered under service tax. In this case the agreement between the parties clearly shows that it is a Revenue Sharing agreement entered on principal to principal basis. We have perused the Education and Training Service Franchise Agreement entered between CMC and the Appellant. The terms of the agreement clearly shows that it is a Franchisee Agreement. Thus if at all service tax is payable it will be under the category of Franchisee Service . But no service tax has been demanded under the category of Franchisee Service in the impugned order. As the agreement between the parties clearly shows that it is a Revenue Sharing agreement entered on principal to principal basis we hold that no service tax liability arises on the amount received by the appellant from CMC as a part of their share as per the agreement. Accordingly we hold that the demand of service tax confirmed in the impugned order on this count is not sustainable and hence we set aside the same. We observe that Sale of Newspaper Jibika Dishari and Swabhumi Sale of magazine namely RICE Times and Sale of forms and prospectus of the appellant are all tantamount to sale of goods which is not leviable to service tax. Thus the demands confirmed in the impugned goods on account of the above said sale goods is liable to be set aside and accordingly we set aside the same. We observe that the library facility is akin to any standalone libraries offering membership to readers. For the said facility we find that separate invoice is being raised by the Appellant towards library membership service library development charges and no service tax has been charged by them. We observe that Section 65(26) of the Finance Act 1994 defines commercial training or coaching services as any training or coaching provided by a commercial training or coaching centre. Further Section 65(27) of the said act defined commercial training or coaching centre as any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than sports. We observe that the library membership (optional) given by the appellant is not towards providing any Commercial training or coaching services under section 65(105)(zzc) of the Finance Act or under any taxable service liable to service tax under the Finance Act till 01.07.2012 and hence the same is liable to be dropped. In this case the appellant has acted on a bonafide belief that they are not liable to service tax on the basis of various judicial pronouncements available on these issues. Accordingly we observe that proceeding if any can be instituted only for a period of 12 months. In the Appellant s case demand for only 2011-12 could have been raised vide SCN dated 15.10.2012. Thus we hold that the demand confirmed by invoking extended period of limitation is liable to be set aside. However we observe that the demand is respect of the three major issues disputed by the appellant are liable to be set aside on merit itself. Hence we hold that the demands confirmed in the impugned order does not survive. Hence we pass the following order (i) The demand of service tax of Rs.35, 86, 321/- confirmed in the impugned order on account of nonpayment of service tax under commercial training and coaching services on hostel fees received for non-residential courses is set aside. (ii) The demand of service tax of Rs.25, 50, 658/- confirmed in the impugned order under business support services on share of fees received from CMC Limited is set aside. (iii) Service tax of Rs.60, 97, 878/- confirmed in the impugned order on account of sale of Forms News papers and Library subscription under commercial training and coaching centre services are set aside. (iv) We uphold the demand confirmed on account of short payment of Rs.2, 10, 073/- due to accrual accounting. The service tax of Rs. 84, 249/- paid along with interest on miscellaneous receipts is upheld. The reversal of cenvat credit of 1, 30, 295/- along with interest is upheld. Since all the amounts was paid prior to issue of the notice demand of penalty imposable on these payments are set aside. (v) The penalty of Rs.10, 000/- imposed on account of improper registration is set aside (vi) The appeal filed by the appellant is disposed on the above terms.

Summary

The core legal issues considered by the Tribunal in this appeal are as follows:

1. Whether service tax is payable under commercial training and coaching services on hostel fees collected for students enrolled in non-residential courses, where accommodation is optional and charged separately.

2. Whether service tax is payable under business support services on the share of fees received by the appellant from CMC Limited pursuant to a revenue-sharing franchise agreement.

3. Whether service tax is payable on amounts received from sale of newspapers, forms, prospectuses, magazines, and library-related charges under commercial training and coaching centre services.

4. Whether the extended period of limitation for demand of service tax can be invoked in the absence of proof of fraud, collusion, willful misstatement, or suppression of facts.

5. Whether penalties and interest imposed on admitted short payments and reversed CENVAT credits are sustainable, especially where payments were made prior to issuance of show cause notices.

Issue 1: Service Tax on Hostel Fees for Non-Residential Courses

The appellant contested the demand of service tax on hostel fees collected from students enrolled in non-residential courses, arguing that accommodation was optional and separately charged, and that such charges fall under exempted renting of immovable property services rather than commercial training and coaching services.

The relevant legal framework includes Section 65(105)(zzc) defining commercial training or coaching services and Section 65(90a) defining renting of immovable property services under the Finance Act, 1994. The Board's Circular No DOF/334/1/2007-TRU dated 28.02.2007 clarifies that residential accommodation services such as hostels are exempt from service tax under renting of immovable property services.

The Tribunal observed that for residential courses, service tax was charged on the entire course fee including hostel charges, but for non-residential courses, accommodation was optional and charged separately. The appellant did not charge service tax on these standalone hostel fees.

The Court relied on the principle that once a service falls within a taxable category but is exempted, it cannot be reclassified under another taxable category. The Tribunal cited the decision in Aditya College of Competitive Exam v. C.C.E., Visakhapatnam, which held that mess charges or accommodation charges not connected with the coaching service should not be included in taxable value.

Applying this, the Tribunal concluded that standalone hostel accommodation fees for non-residential courses have no nexus with commercial training or coaching services and are exempt under renting of immovable property services. The demand of service tax on this count was therefore set aside.

Issue 2: Service Tax on Share of Fees under Business Support Services

The appellant received a share of fees from CMC Limited under an Education and Training Service Franchise Agreement, where the appellant provided courses directly to students following CMC guidelines. The entire fees collected were handed over to CMC, who discharged service tax on the full amount and paid 75% of the revenue (net of service tax) to the appellant.

The appellant contended that there was no service provider-service recipient relationship between them and CMC, and that the arrangement was on a principal-to-principal basis, thus not attracting service tax under business support services.

The Tribunal referred to the Supreme Court decision in Commissioner of Service Tax v. Inox Leisure Ltd., which held that a revenue sharing arrangement does not necessarily constitute provision of service unless a service provider-service recipient relationship exists. The Board's Circular No 109/3/2009-ST dated 23.02.2009 was also relied upon, which clarifies that principal-to-principal arrangements are not taxable under service tax.

The Tribunal noted that the agreement was a franchise arrangement with revenue sharing on principal-to-principal basis and that no service tax was demanded under the franchisee service category. It held that no service tax liability arises on the appellant's share of fees under business support services, setting aside the demand.

Issue 3: Service Tax on Sale of Newspapers, Forms, Prospectuses, Magazines, and Library Charges

The appellant challenged the demand of service tax on sale of newspapers (Jibika Dishari and Swabhumi), forms and prospectuses, magazines (RICE Times), and library subscription, fines, and development fees.

The Tribunal observed that sale of newspapers, forms, prospectuses, and magazines are sales of goods and not taxable services under the Finance Act. Hence, service tax cannot be levied on such sales.

Regarding library charges, the appellant submitted that the library facility was optional, separate from the coaching services, and akin to standalone libraries offering membership to readers. Separate invoices were raised for library membership and development charges without charging service tax.

The Tribunal referred to the definitions in Sections 65(26) and 65(27) of the Finance Act, 1994, which define commercial training or coaching services and commercial training or coaching centres respectively. It held that optional library membership fees have no nexus with commercial training or coaching services and are not taxable.

The Tribunal relied on the Aditya College decision which emphasized the necessity of a nexus between amount collected and services rendered for inclusion in taxable value. The demands on these counts were set aside accordingly.

Issue 4: Limitation for Demand of Service Tax

The appellant argued that the demand was barred by limitation as extended period of limitation could not be invoked without proof of fraud, collusion, willful misstatement, or suppression of facts.

The Tribunal noted that the appellant acted on a bona fide belief supported by judicial pronouncements. It held that in absence of such proof, only a 12-month limitation period applies for service tax demands. Since the demand related to periods beyond this limitation without requisite proof, the extended period invocation was not sustainable.

Issue 5: Penalties and Interest on Admitted Short Payments and CENVAT Credit Reversals

The appellant accepted certain demands relating to short payment due to accrual accounting, miscellaneous receipts, interest short payment, and reversal of ineligible CENVAT credit, all of which were paid with interest prior to issuance of show cause notices.

The Tribunal held that since these amounts were paid before notice issuance, penalties on these payments are not imposable. The penalty of INR 10,000 imposed for improper registration under Section 77(1) of the Finance Act, linked to the disallowed business support services, was also set aside following the dismissal of that demand.

Significant Holdings:

"Standalone accommodation service in a hostel for residential purposes would squarely fall under the exclusion clause provided under renting of immoveable property services defined under section 65(90a) of the Finance Act."

"For the purposes of levy of service tax there should be a service provider and service Recipient relationship. If the same is not present the basic question of levy of service tax does not arise."

"A revenue sharing arrangement does not necessarily mean provision of service, unless the service provider and service recipient relationship is established."

"In the revenue sharing arrangements where two contracting parties act on principal-to-principal basis one does not provide service for another and such activities are not covered under service tax."

"Sale of newspapers, forms, prospectuses, and magazines are sales of goods and cannot be subjected to service tax."

"There should always be a nexus between the amount collected and services rendered for inclusion in taxable value."

"Unless the allegation of fraud or collusion or willful misstatement or suppression of facts or intentful evasion of payment of tax is proved beyond reasonable doubt, the extended period of limitation cannot be invoked to demand service tax."

"Since the appellant has paid admitted short payments and reversed ineligible CENVAT credit prior to issuance of show cause notice, penalty on these payments is not imposable."

The Tribunal's final determinations were:

(i) The demand of service tax on hostel fees for non-residential courses under commercial training and coaching services is set aside.

(ii) The demand of service tax under business support services on share of fees from CMC Limited is set aside.

(iii) The demand of service tax on sale of forms, newspapers, magazines, and library subscriptions under commercial training and coaching centre services is set aside.

(iv) The admitted short payment demands, miscellaneous receipts tax, reversal of CENVAT credit, and associated interest are upheld, but penalties on these are set aside due to prior payment.

(v) The penalty for improper registration is set aside.

(vi) The appeal is disposed of on these terms.