Can Higher Education Courses be equated to ‘training and coaching’ in tax parlance?

Taxing education sector has always been a tricky issue. For the first time in 2003, under Service Tax regime, service tax was imposed on ‘commercial training and coaching’ service. The term which was used in charging provision of tax is ‘training or coaching’. Further the activity “training and coaching” was preceded by the term “commercial”. Explanatory note to the Finance Act, 2003 states that new service tax has been imposed upon “commercial vocational institutes, coaching centres and private tutorials”. Joint Secretary, Tax Research Unit said in his D.O. letter D.O.F. No. 334/1/2003-TRU dated 28.02.2003 said that service tax is proposed to be imposed on “commercial vocational institutes, coaching centres and private tutorials”. Thus, it is clear that parliament never legislated to tax education. Tax was imposed merely on “commercial vocational institutes, coaching centres and private tutorials”.

Use of the term “commercial” in the definition was significant. None of the other services carried the prefix “commercial”. Thus, when a tour operator was taxed, the tax legislation didn’t use the term “commercial tour operator”. Architect was taxed as such and not “commercial architect”. It is necessary to understand the significance of the term “commercial” which was pre-fixed before “training or coaching” service and not before any other service.

The term “commercial” was examined in case of Great Lakes Institute v. CST [2008 (10) STR 202], wherein it was held that, “as per CBEC Circular F.No. 137/71/2006-CX., dated 1-11-06, a commercial concern is an institution or establishment that is primarily engaged in commercial activities. The Board clarified that the principal activity of institutes like IITs or IIMs is to impart education without the objective of making profit and, therefore, such institutes cannot be called commercial concerns, even if they charge for some of their activities/GLIM is exempted under Section 12AA of the Income Tax Act, 1961, as a charitable institution. As per its MOA, the institute does not declare any dividend to its shareholders and ploughs back the surplus for the purpose and object of the organization. The fact that GLIM is a charitable institution in terms of the Income Tax Act, would strengthen the claim of the appellants that they are not a commercial concern.”

Thus, it was held that “commercial means” institutions with profit motive. Charitable organization, trusts, societies, government etc. cannot be treated as “commercial concern”. In Magnus Society v. Commissioner [2009 (013) STR 0509] it was held that,

“Summing up, we are of the view that while deciding whether an institution imparts commercial training or coaching, the totality of the circumstances has to be gone into it. Just because an institution collects fees from the students, one cannot come to the conclusion that it imparts “commercial training or coaching”. “Commercial training or coaching” is very narrow in scope. It means imparting of a particular skill by the said institution, there are several commercial coaching or training centres which imparts skill in computers, literacy, computer operation, spoken English or accountancy. There are so many things. Whereas, education is a very broad term, which includes in its scope the development of personality. It may include coaching or training but that’s only a part of education. Education develop several skills, whereas, what is meant by “commercial training or coaching” in the definition given in the Finance Act has a very narrow meaning and it is not so broad enough to contain in its hold institutions imparting higher learning like MBA or Management in Computer Science or any other discipline. They would not be called as “commercial training or coaching centres”. There are many institutions preparing students for entrance examination to various universities. They may be called as “commercial training or coaching” but not institutions which offer degrees, which are recognized by law. In view of this, even the Chennai Bench’s decision in the case of M/s. Great Lakes (supra) covers this issue. After taking into account the totality of the circumstances, we allow the party’s appeal and reject that of revenue’s appeal.”

In Centre for Development of Advanced Computing [2009 (014) STR 165], the Tribunal held that “profit motive is very very important while classifying an institution as “commercial or training or coaching centre”. Same view was taken in Ahmedabad Management Association [2009 (014) STR 171], Institutes of Chartered Financial Analysts of India [2009 (014) STR 220], Administrative Staff College of India [2009 (014) STR 341] and numerous other cases.

As most of the education is provided in India by non-profit institutions and they do not have profit motive, the term “commercial” took them out of the ambit of service tax and everybody forgot that tax is basically imposed on “training and coaching” which was explained to the Parliament in explanatory memorandum as “tax on commercial vocational institutes, coaching centres and private tutorials”. It was never a tax on schools or colleges or institutes.

An retrospective amendment was made in Finance Act, 2010 which inserted an retrospective explanation in the definition of service. An Explanation was added in the definition of the taxable service “Commercial Training or Coaching Service” [section 65 (105) (zzc)] to clarify that the term ‘commercial’ appearing in the relevant definitions, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is being given retrospective effect from 1-7-2003.

It is a meaningless explanation. Service Tax is a tax only when consideration is received. If there is no consideration, there is no service tax. The explanation merely says that tax shall be levied “when a consideration is received”. With or without this retrospective amendment, the position was always the same. Thus, the explanation created an enigma- “coaching or training” is taxable only when it is commercial- it is just that the term commercial means nothing. This author is of the view that such practice of imposing tax is not in conformity with Article 265 of the Constitution of India. Nobody is saying that the state has no power to tax- but no tax ought to be imposed without declaring it clearly and unequivocally in Parliament. In the present case it has been explained to the Parliament that “commercial vocational institutes, coaching centres and private tutorials” has been taxed and tax demand is being raised against management institutes, Administrative Staff College, IFACI!!

Recently the meaning of the term “coaching and training” comes up before the Tribunal in case of All India Management Association v. CST [Final Order No.50124/2019]. The Tribunal unequivocally held that higher educational courses can be treated as “coaching or training”. It was held,

“Ld. Counsel further relies on the ruling of the Coordinate Bench in their own case Indian School of Business – [2010 (17) STR 83 (Trb.-Bang.)], wherein it has been held that the institutes imparting knowledge and conduct courses at higher level like post-graduate level, cannot be termed as Commercial Training and Coaching Institutes and such courses are not to be equated to Coaching or Training by tutorial colleges. Having considered the rival contentions, we hold that, such post-graduate short term courses are in the nature of professional development programmes and /or continuous education programmes for development of manpower/skill, is not taxable under the category of “Commercial Training or Coaching Service” as defined under Section 65 (27) of the Finance Act. We further hold that the appellant is not a “Commercial Coaching or Training Centre”.”

Earlier the Tribunal took the same view in Indian School of Business [2010 (017) STR 083], wherein it was held,

“On a proper understanding of commercial coaching or training, we would never subscribe to the view that the courses imparted by these institutions are on the same footing as of coaching or training imparted by tutorial colleges or institutions preparing students for imparting certain skills or preparing for examination for getting higher marks, which stand entirely on a different footing. We are only trying to interpret the terms commercial training or coaching as given in the Finance Act and we are of the firm opinion that all institutions imparting knowledge and conducting courses at fairly higher level such as post graduate level, cannot be just termed as ‘commercial training or coaching centre’ and subjected to Service Tax under this category. It is immaterial whether the degrees offered by them are recognized by law or not. So long as, the nature of the activity is not considered as commercial training or coaching, it would not fall under the taxable category.”

The term “coaching or training” has not been defined in the Service Tax law. In absence of statutory definition, the cardinal principle would be the way goods are known in “common parlance”. It is well established that in interpreting the meaning of words in a taxing statute, the acceptation of a particular word by the trade and its popular meaning should commend itself to the authority [Dunlop India V. UOI (1976) 2 SCC 241]. Trade meaning of coaching and training is well known in the common parlance. Higher educational courses are not understood in the trade parlance as “commercial training or coaching”.

It can further be argued that charging provision of a tax statute has to be strictly construed. If two views are possible, view favourable to the assessee has to be adopted. Further, onus is on the revenue to prove that a particular activity is squarely falling within the four corners of charging provision.

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