2025 (6) TMI 1013 - AT - Service Tax

Commercial training or coaching centre services or not - entitlement to take benefit of the Notification dated 20.06.2003 to support the plea that service tax was not leviable under commercial training or coaching centre services - benefit of the Notification dated 25.04.2011 - exemption from 01.07.2012 to 10.07.2014 in terms of serial no. 9 of the Exemption Notification dated 20.06.2012 - exemption from 11.07.2014 onwards in terms of the Notification dated 11.07.2014 that amends the earlier Notification dated 20.06.2012 - invocation of extended period of limitation contemplated under the proviso to section 73(1) of the Finance Ac. Entitlement to take benefit of the Notification dated 20.06.2003 to support the plea that service tax was not leviable under commercial training or coaching centre services - HELD THAT - It is not in dispute that the students are directly paying charges to the appellant. The Notification dated 20.06.2003 specifically excludes the benefit of the exemption to centres where the charges are directly paid to the commercial training or coaching centre . The appellant would therefore not be entitled to the exemption granted under the Notification dated 20.06.2003. This is precisely what has been held by the Commissioner in the impugned order dated 21.06.2017. There is therefore no error in the finding recorded by the Commissioner. Whether the appellant can claim the benefit of the Notification dated 25.04.2011? - HELD THAT - The appellant is a study centre imparting education for some of the courses of the Universities. It is the Universities that award certificate diploma or degree and not the appellant. The finding recorded by the Commissioner that in such circumstance the appellant would not be entitled to the benefit of the Notification dated 25.04.2011 therefore also does not suffer for any illegality. Whether the appellant would be entitled to exemption from 01.07.2012 to 10.07.2014 in terms of serial no. 9 of the Exemption Notification dated 20.06.2012? - HELD THAT - The exemption would be available to a coaching centre only when the consideration in lieu of services provided by the service provider is paid by the University and not by the students. The appellant directly receives the fees from the students and the consideration is not received from the Universities. The benefit of this Notification would therefore not be available to the appellant. This is what has been held by the Commissioner in the impugned order for denying the benefit of this Notification. There is therefore no error in the finding recorded by the Commissioner. Whether the appellant is entitled to exemption from 11.07.2014 onwards in terms of the Notification dated 11.07.2014 that amends the earlier Notification dated 20.06.2012? - HELD THAT - The amended Notification has been reproduced in paragraph 17 of this order. The benefit of clause 9(b) is not available to the appellant as none of the conditions are satisfied. The conditions do not relate to imparting of education provided by the service provider to the educational institution. The finding recorded by the Commissioner therefore that the benefit of this Notification cannot be taken by the appellant does not suffer for any illegality. Whether the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could be invoked by the department? - HELD THAT - There is substance in the contention advanced on behalf of the appellant that mere suppression of fact is not enough as it has also to be conclusively established that suppression was wilful with an intent to evade payment of service tax - It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be wilful since wilful precedes only misstatement. It has therefore to be seen whether even in the absence of the expression wilful before suppression of facts under section 73(1) of the Finance Act suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be wilful and there should also be an intent to evade payment of service tax. In Pushpam Pharmaceuticals Company the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppression of facts has been used in the company of strong words such as fraud collusion or wilful default suppression of facts must be deliberate and with an intent to escape payment of duty. Thus the extended period of limitation could have been invoked only if there was suppression of facts with intent to evade payment of service tax - the extended period of the limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked in the facts and circumstances of the case. Conclusion - The appellant has produced a chart which shows the period covered by the extended period of limitation under the proviso to section 73(1) of the Finance Act and the normal period provided for in section 73(1) of the Finance Act. It transpires from the chart that the period from April 2010 to 12.04.2014 is covered by the extended period of limitation. The demand of service tax for the extended period of limitation with interest and penalty therefore cannot be sustained. However the demand for the normal period is confirmed. The matter would therefore have to be remitted to the Commissioner to only examine what portion of demand falls within the normal period of limitation contemplated under section 73(1) of the Finance Act for it is such demand that has been confirmed and then consider whether penalty under sections 77 and 78 of the Finance Act should be leviable on the appellant for this period and if so then to determine amount of penalty - appeal allowed in part.

Summary

The core legal questions considered in this judgment are:

1. Whether the appellant provided taxable 'commercial training or coaching centre' services under the Finance Act, 1994, and if so, whether the appellant was entitled to exemption notifications claimed during the relevant periods.

2. Whether the appellant was liable to pay service tax for the period from 01.04.2010 to 31.03.2015 on fees collected directly from students, despite the appellant's claim of exemption.

3. Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act could be invoked against the appellant for alleged suppression of facts with intent to evade service tax.

4. Whether interest and penalties under sections 75, 77, and 78 of the Finance Act were rightly imposed.

Issue-wise detailed analysis:

1. Taxability of services provided by the appellant as 'commercial training or coaching centre' services:

The relevant legal framework includes section 65(26) and 65(27) of the Finance Act, which define 'commercial training or coaching' and 'commercial training or coaching centre'. Section 65(105)(zzc) defines taxable service as any service provided by such centres. The definitions exclude any institute that issues certificates, diplomas, degrees, or educational qualifications recognized by law.

The appellant operated as a study centre for various universities, providing education in courses like B.Com, BBA, and MBA, with degrees awarded by the universities and not by the appellant itself.

The Commissioner found that since the appellant did not issue degrees or certificates recognized by law but only provided coaching, it fell within the definition of a 'commercial training or coaching centre' and was liable to pay service tax.

The appellant contended that it was akin to a college affiliated with universities and thus exempt, but the Court upheld the Commissioner's interpretation, emphasizing that only the entity issuing recognized qualifications is excluded from the definition.

2. Applicability of exemption notifications:

The appellant relied on various exemption notifications:

• Notification dated 20.06.2003: Exempted services by commercial training centres forming essential parts of courses leading to recognized qualifications, provided charges were not paid directly by students to the centre.
• Notification dated 25.04.2011: Exempted coaching/training leading to recognized qualifications when provided by commercial training centres.
• Notification dated 20.06.2012 and its amendment dated 11.07.2014: Provided exemption to services by educational institutions or auxiliary educational services, subject to conditions on who pays the consideration.

The Commissioner held that the appellant was not entitled to exemption under the 2003 notification as fees were collected directly from students, violating the condition that charges must not be paid directly to the coaching centre. The appellant's claim under the 2011 notification was denied because the appellant did not issue recognized certificates; the universities did.

For the period 01.07.2012 to 10.07.2014, exemption under the 2012 notification was denied because the appellant received fees directly from students, not from universities, which was a condition for exemption. Similarly, for the period post 11.07.2014, the appellant's services did not fall under the amended exemption notification's specified categories.

However, the Commissioner allowed exemption for the skill development fees received in 2014-15 under a separate notification, as the appellant produced evidence of registration as a training partner under vocational skill development schemes.

3. Invocation of extended period of limitation under proviso to section 73(1) of the Finance Act:

The extended period of limitation allows recovery beyond the normal 18 months if there is "suppression of facts" with intent to evade payment of service tax.

The show cause notice alleged deliberate and willful suppression by the appellant in not disclosing provision of taxable commercial training services, which escaped assessment until departmental investigation in 2012.

The Commissioner found that the appellant did not approach the department for clarification, filed nil returns, and thus suppressed facts with intent to evade tax.

The appellant argued that it had a bona fide belief in the applicability of exemption notifications, and mere non-payment or omission does not amount to wilful suppression with intent to evade tax. Further, the appellant contended that the department was aware of the services from 2012 and that the extended period could not be invoked beyond the normal limitation period.

The Court analyzed precedents, including the Supreme Court's decision in Pushpam Pharmaceutical Co. and Delhi High Court rulings, which held that suppression of facts must be deliberate and with intent to evade tax to invoke extended limitation. Mere omission or failure to pay tax is insufficient.

The Court further noted that the appellant's bona fide belief in exemption, even if ultimately incorrect, negates mala fide intent. The Court also rejected the Commissioner's view that the appellant was obliged to seek departmental clarification, citing that no such legal duty exists.

Additionally, the Court emphasized that in a self-assessment regime, the department has a duty to scrutinize returns and call for information, and cannot rely solely on the appellant's failure to disclose as suppression.

Based on these principles, the Court concluded that the extended period of limitation was wrongly invoked for the period from April 2010 to April 2014, but the normal limitation period demands were sustainable.

4. Interest and penalties under sections 75, 77, and 78 of the Finance Act:

The Commissioner imposed interest under section 75 and penalties under sections 77 and 78. The appellant challenged the imposition of penalties, particularly under section 78, arguing lack of suppression with intent to evade.

The Court remitted the matter to the Commissioner to reconsider penalties only for the demand confirmed within the normal limitation period and to determine the penalty amount accordingly, after excluding the extended period demand.

Significant holdings and core principles established:

"It is clear from the aforesaid definitions that 'commercial training or coaching' means any training or coaching provided by a commercial training or coaching centre. A 'commercial training or coaching centre' has been defined to mean, any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field with or without issuance of a certificate and includes coaching or tutorial classes, but does not include any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force."

"The exemption Notification dated 20.06.2003 specifically excludes the benefit of the exemption to centres where the charges are directly paid to the 'commercial training or coaching centre'. The appellant would, therefore, not be entitled to the exemption granted under the Notification dated 20.06.2003."

"Suppression of facts must be deliberate and with an intent to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression." (Supreme Court in Pushpam Pharmaceuticals)

"In any scheme of self-assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bona fide manner." (Supreme Court in Reliance Industries Ltd.)

"There is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious." (Delhi High Court in Mahanagar Telephone Nigam)

"The Department cannot be permitted to invoke the period of limitation by merely stating that it is a case of self-assessment as even in a case of self-assessment, the Department can always call upon an assessee and seek information." (Tribunal in Sunshine Steel Industries)

"The extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked in the facts and circumstances of the case."

Final determinations:

• The appellant provided taxable 'commercial training or coaching centre' services and was not entitled to claimed exemption notifications for the periods prior to 01.07.2012 and from 01.07.2012 to 31.03.2015, except for the skill development fees in 2014-15.
• The extended period of limitation under proviso to section 73(1) was wrongly invoked for the period April 2010 to April 2014 due to lack of wilful suppression with intent to evade service tax.
• Service tax demand for the normal limitation period is confirmed.
• The matter is remitted to the Commissioner to determine penalty and interest only for the demand confirmed within the normal limitation period.