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M/s Choice Estates and Constructions Ltd. Versus Commissioner of Customs, Central Excise & Service Tax

Scope of negative list u/s 66D(1) - educational services - Revenue Sharing agreement - Partnering Agreement to combine their mutual areas of expertise for the setting up and operation of an educational institution - 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. - Held that:- with regard to pre-school education and e .....

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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 said property would be received as per the “Revenue Share” clause in the said Agreement. Therefore, renting of immoveable property would be liable to Service Tax. - a) Service Tax is applicable on the .....

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ms of Section 68(1) of the Finance Act, 1994. Therefore, in this case, Service Tax will not be payable by the students, as they are not providing any service. - Ruling No. AAR/ST/ 14 /2016, Application No. AAR/44/ST-1/10/2015 - Dated:- 6-5-2016 - V. S. Sirpurkar (Chairman), Shri S. S. Rana (Member) And Shri R. S. Shukla (Member) For the Applicant : Shri Jose Jacob, Advocate For the Respondent : Shri Amreesh Jain (AR) RULING M/s Choice Estates and Constructions Limited (hereinafter also referred .....

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ement of the educational institution while Choice Foundation would 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 a .....

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licant 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 students, which is equally shared between the applicant and Choice Foundation. Applicant further submits that service recipient in the present case is the student and service providers are the applicant and Choice Foundation jointly; that no s .....

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om the students? If answer to any of the above questions is yes, then whether the applicable Service Tax can be recovered from the student? 4. Revenue inter-alia submits that the proposed Partnering Agreement between the applicant and M/s Choice Foundation is that the applicant shall, on an exclusive basis, undertake construction and infrastructure development of the scheduled property in accordance with the architectural design and specifications provided by Choice Foundation within 30 days fro .....

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including but not limited to obtaining affiliation certification, recruiting academic staff, determine the curriculum and other academic activities to be undertaken etc.; that applicant is proposing to construct the Civil Structure of the same which appears to be taxable; that as per 4.1. b of the said proposed Partnering Agreement , the nature of constructions and the materials used shall be sole discretion of M/s Choice Estates who shall be entitled to appoint its own architects, engineers, co .....

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ated 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 .....

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dule A property, hereinafter referred to as SCHEDULED PROPERY, owned by CHOICE ESTATES. IV. CHOICE ESTATES has undertaken to be responsible for the entire infrastructural requirement of the educational institution including developing the SCHEDULED PROPERTY in accordance with the design and specifications provided by CHOICE FOUNDATION and coordinating all activities thereto and also to undertake all infrastructural development and maintenance required arising there from during the term of this A .....

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CHOICE ESTATES shall, on an exclusive basis undertake, the construction and infrastructure development of the Scheduled Property in accordance with the architectural design and specifications provided by CHOICE FOUNDATION within 30 days from the effective date and ensure the upkeep and maintenance of the infrastructure so developed for the, Educational Institution during the terms of this Agreement. 3.2 CHOICE FOUNDATION shall be responsible for the overall management and operation of the Educat .....

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ree to perform the following duties during the Term of this Agreement: a. CHOICE ESTATES shall construct building/s and undertake the infrastructure development of the Educational Institution at the Scheduled 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 .....

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ccount 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 maintained by the Parties and shall be shared in the ratio envisaged in Clause 5.1 5.4Each Party may draw revenue fro .....

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ation and students; that there is no service provider-service receiver relationship between the applicant and Choice Foundation; that provision of service and taking revenue share is different and distinct from engaging a sub contractor or service provider to provide service, which enable provision of service. Applicant further submits that they are rendering educational services and taking a revenue share which cannot be equated to a service provider; that mutuality of interest is absent in cas .....

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institution. Therefore, partnering of applicant with Choice Foundation (hereinafter also referred to as partnering person ) would come under the ambit of person as defined under Section 65B (37) (VII) of the Finance Act, 1994, which includes an association of persons or body of individuals, whether incorporated or not. Applicant is a company and would fall under the definition of person as also Choice Foundation being a Society under Section 65 B(37)(iii) and 65B(37) (IV) of the Finance Act, 19 .....

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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 .....

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. Further, Circular 148/17/2011-ST dated 13.12.2011 clarified the earlier Circular dated 23.02.2009. Relevant paragraphs are extracted from Circular dated 13.12.2011 are as under; 6. It is being represented that in certain situation the distributor and the theatre owner conduct business together and hence no service tax is leviable. Arrangement amongst two or more entities can either be on principal to principal basis or on partnership/ joint/collaboration basis. In the former, the constituent m .....

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1994. As per Section 3(42) of General Clauses Act, 1897 person shall include any company or association or body of individuals, whether incorporated or not . In this regard attention is invited to explanation to Section 65 of the Finance Act, 1994 wherein the taxable service includes any taxable service provided or to be provided by any incorporated association or body of persons to a member thereof. 10. It is observed that arrangement between the applicant and Choice Foundation is not on princi .....

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Section 65 B(37)(iii) and 65B(37) (IV) of the Finance Act, 1994 respectively. CBEC in Circular dated 13.12 2011 have clarified that when arrangement is under unincorporated partnership/ joint/collaboration basis, then service provided by each of the person is liable to Service Tax. Therefore, in the present case, applicant-[a person under the meaning 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) (V .....

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ce 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 appro .....

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th respect to expenditure incurred includes expenditure incurred on services etc. provided individually by the applicant and Choice Foundation to the Educational Institution, to be partnered by the applicant and Choice Foundation i.e. separate legal entity, is nothing but consideration. However, value of service will have to be determined in terms of Section 67 ibid read with rules made there-under. 13. Applicant further submits that the proposed Agreement is in the nature of a consortium and th .....

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turnkey project, therefore ratio of said Tribunal judgment is not applicable to the case before us. 14. Applicant submits that both the applicant and Choice Foundation are jointly providing education service which is exempted from payment of Service Tax by virtue of being mentioned in the Negative List; that revenue share received by both parties being Revenue share for provision of an exempted service cannot be taxed separately. It is to be observed that applicant shall construct building(s) an .....

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e-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. .....

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titution at Thiruvalla. Therefore, service provided by the partnering person would come under the Negative List and would not be liable to Service Tax. 17. Further, Revenue has pointed out 3 areas wherein Service Tax is leviable. They are; a) Construction of Civil Structure b) Renting of immoveable property c) Construction of Civil Structure would entail services of architect, engineer etc. Construction of Civil Structure 18. Revenue submits that Notification No. 6/2015-ST dated 01.03.2015 has a .....

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Govt. Authority. Therefore, said Notification No. 06/2015-ST dated 01.03.2015 is not applicable to the present case. Applicant submits that both land and building are owned by the applicant; that Section 66 E(b) of the Finance Act, 1994 would apply only where the building is intended for sale and where at least some consideration is received prior to issuance of Completion Certificate. In this connection, Section 66E (b) is reproduced, as under; SECTION 66 E. Declared services - The following s .....

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o Service Tax provided it is intended for sale to a buyer. Further, construction of civil structure etc. even if intended for sale would not be declared service, where the entire consideration is received after issuance of completion certificate. In the case before us, civil structure is not intended for sale and further, no amount shall be received by the applicant before issuance of completion certificate by the competent authority. Therefore, we agree with the applicant that the construction .....

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vice 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 un .....

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