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By Vinay Jain, Chartered Accountant, & Sachin Mishra, Advocate

1. Whether the fees received by an institute for offering courses of a foreign university resulting in issue of degree by
that university is eligible to service tax under ‘Commercial Training or Coaching Services’?

Facts & pleadings: M/s. ITM International (P) Ltd. (hereinafter referred to as ‘Appellant’) is engaged in the field of education and coaching. The Appellants is mainly rendering two kind of activities, namely, (a) fees received for offering courses of London School of Economics (University of London) resulting in issue of degree by the University of London and (b) fees received for coaching provided for Business English and Personality development.

The present appeal is against confirmation of demand of service tax against the Appellants for providing the above-mentioned services under the category of ‘Commercial Coaching or Training Services’. The ld. Member (Technical) confirmed the demand of service tax against the Appellants under the said category on the ground that the Appellants do not issue any kind of degree or diploma recognised by law. Whereas, the ld. Member (Judicial) set aside the said demand on the ground that the courses provided by the Appellants resulted in the issue of degree by the University of London (London School of Economics) which is recognised by law in India. Thus, due to difference of opinion between the members of Division Bench, the matter has been referred to Third Member of the CESTAT vide Interim Order No. 15-16/2017 dated 9-2-2017.

Judgment: - The ld. Third Member agreeing with the decision of the ld. Member (Judicial) has held that courses offered by a college or an institution or a centre resulting in issuance of degree or diploma by a foreign university to which such college or institution or centre is affiliated is excluded from the category of ‘Commercial Coaching or Training Services. The ld. Third Member has also held that a degree issued by University of London is a degree or diploma i.e. recognized by law for the time being in force in view of Notification dated 13-3-1995 issued by the Ministry of Human Resource Development. Further, the ld. Third Member has also set aside the demand of service tax on fees received for coaching provided for Business English and Personality development on the ground that these activities are vocational coaching or training that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching and hence exempted under Notification No. 9/2003-ST.

M/s. ITM International (P) Ltd. vs. CST, Delhi, CESTAT, New Delhi decided on 4-7-2017 vide Interim Order No. 57- 58/2017 in Appeal No. 825, 960/2010

M/s. ITM International (P) Ltd. vs. CST, Delhi, CESTAT

2. Whether shared expenses incurred by a company on behalf of group companies and shared with them is liable to service tax under the head ‘Business Auxiliary Services’?

Facts & pleadings: M/s. Historic Resorts Hotels (Pvt) Ltd. (hereinafter referred to as ‘Appellants’) are engaged in hotel business. They have other group companies in similar business. The Appellants have incurred various expenses which were shared by the group companies in proportion to the turnover of respective group company in terms of Memorandum or Arrangement among all group companies.

The department is of the view that the Appellants are liable to pay service tax on such expenses as the Appellants are involved in providing ‘Business Auxiliary Services’ to group companies on the ground that the Appellants procured various services which promoted the business of group companies, being individual legal entities there is a relationship of service provider and service recipient between the Appellant and the group companies.

The Appellants submitted that the services by third party are for all the group companies and the payments are routed through them. Such sharing of expenditure on actual basis, without any mark up, will not attract any service tax liability under ‘Business Auxiliary Service’.

Judgment: - The Hon’ble CESTAT has held that the Appellant is not per se engaged in promoting sales or business of group companies. As per the said arrangement, all the group companies will benefit from the sales promotion and other related activities of third parties, for which expenses are to be borne by the Appellant and thereafter to be shared with other group companies. In such arrangement, there is no scope for tax liability on the part of the Appellant under the category of ‘Business Auxiliary Service’. Accordingly, the impugned order has been set aside.

M/s. HISTORIC RESORT HOTELS (PVT.) LTD. vs. CCE, JAIPUR-II, CESTAT, New Delhi decided on 3-8-2017 vide Final Order No. 55823/2017

M/s. HISTORIC RESORT HOTELS (PVT.) LTD. vs. CCE, JAIPUR-II, CESTAT

3. Whether an arrangement for providing services between two private parties for execution of a Government project (issue of RC Books in smart Cards for RTOs) is exempted from service tax under CBEC Clarification dated 18-12-2006 as sovereign/statutory Activities?

Facts & pleadings: M/s. Virgo Softech Ltd. (hereinafter referred to as ‘Respondents’) are engaged in the in preparing SOC– VRC (smart card) for vehicle registration by the Road Transport Authorities, Government of Maharashtra. The Government of Maharashtra entered into an agreement with M/s. Shonkh to implement the smart card project for vehicle registration.

M/s. Shonkh further assigned this work, in terms of another agreement, to M/s. Rosmerta Technologies Ltd. The Respondents have entered into an agreement with M/s. Rosmerta Technologies Ltd. for implementing the SOC-VRC project by way of issuing RC books in the form of Machine Readable Smart Card.

The Revenue was of the view that the Respondents rendered a taxable service under the category of “business auxiliary service” on the ground that the service provider and service recipient being private parties cannot be said to be engaged in any sovereign/statutory activities. The consideration received by the Respondent from M/s. Rosmerta as service charges cannot be held as a statutory levy and thus exigible to service tax.

Judgment: - The Hon’ble CESTAT has held that though the Respondents are not executing the full project for Government of Maharashtra in terms of direct agreement with the Regional Transport Authorities, it is clearly an admitted fact that their work is directly linked to the preparation of smart cards which are essential to fulfil the statutory work of Government of Maharashtra. The fact that the Government has outsourced some part of the work and paid certain consideration for such outsourced work does not take away the merit that the whole process of issue of smart card for applicant is statutory function. Accordingly, Revenue appeals have been dismissed.

M/s. CCE, Indore vs. M/s. Virgo Softech Ltd., CESTAT, New Delhi decided on 14-8-2017 vide Final Order No. 55831-55833/2017.

M/s. CCE, Indore vs. M/s. Virgo Softech Ltd., CESTAT

Note: The Whole Decisions can be downloaded from the CTC Website www.ctconline.org under Knowledge Centre.

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