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

1. Whether service tax can be demanded on the amount received by the Appellant for the act of managing and conducting a course on behalf of another party, if Service Tax liability on the gross consideration has already been discharged by the other party?

Facts & Pleadings: M/s. Samadhan Systems (P) Ltd. (hereinafter referred to as “the Appellants”) are engaged in providing computer education in animation and cinematics. The Appellants have made an arrangement with Maya Academy of Advanced Cinematics (hereinafter referred to as “MAAC”) for providing computer education to various participants. As per the said arrangement, MAAC shall provide all the course materials and suitable training to the personnel whereas the Appellants shall provide all the infrastructure, coaching staff etc. and undertake such coaching to the participants. The receipt of consideration for such coaching was issued in the name of MAAC and deposited to the account of MAAC. On such full consideration, Service Tax liability under “Commercial Training or Coaching Service” has been paid by MAAC. The Appellants receives back the 80% of the said gross consideration.

According to the department, the Appellant’s arrangement with MAAC to receive consideration for the said service cannot take away the service tax liability. The Appellants are conducting courses in their premises using their own resources and the same is clearly covered under head “Commercial Coaching and Training Service” under Finance Act, 1994.

The Appellants have argued that there is no service provider and service recipient relationship between the Appellant and the students as the gross consideration paid by the students were remitted to MAAC. The Appellant is not liable to pay service tax as the full amount was subjected to Service Tax for the very same service at the hands of MAAC. The Appellants have alternatively submitted that the Appellants are exempted as vocational training institute from the ambit of “Commercial Coaching and Training Service” under Finance Act, 1994, as the courses are specific and professional in nature directly resulting in employment in the specialized skills imparted by the Appellant

Judgment: The Honorable CESTAT agreeing with the contentions of the Appellants has held that the Appellant does not receive any amount from the service recipient as a consideration. As per the said arrangement, the gross amount paid by the students is credited to MAAC on which Service Tax has already been discharged. The Hon’ble CESTAT has further held that the Appellant acts as an instrument in carrying out the training programme which is designed and managed by the MAAC. The Hon’ble CESTAT has stated that MAAC is overall managing the said activity and have discharged service tax liability on the whole consideration under the head “Commercial Coaching and Training Service”. Thus, no Service Tax liability will arise on the Appellants being a business partner of MAAC under “Commercial Coaching and Training Service” under Finance Act, 1994.

Samadhan Systems (P) Ltd. vs. CCE, Jaipur, CECTAT, New Delhi decided on 9.1.2018 in the Final Order No. 50264/2018.

Samadhan Systems (P) Ltd.

2. Whether a consideration received in view of an operating lease is liable to be taxed under “Banking and Other Financial Services”?

Facts & pleadings: M/s. Lease Plan India Limited (Hereinafter referred to as the “Assessee”) are engaged in business of financial as well as operating lease of vehicles. The Assessee has procured orders from their clients and has entered into a lease agreement with them.

According to the department, the terms and conditions governing both types of leases, namely financial lease and operating lease are similar and as such the consideration received in such business transaction is liable to be taxed under “Banking and Other Financial Services”.

The Assessee submitted that transaction of the Assessee amounts to operating lease and thus is not leviable to service tax under the category of “Banking and Other Financial Services”. According to the Assessee, there exists a difference between “financial lease” and “operating lease”. On one hand, in operating lease after expiry of the lease period, the assets are sold through bidding process whereas in a financial lease, assets and their ownership is identified to the lessee who alone depreciates the said assets. Since, in the present case, the assets are owned by the Assessee and these are handed over to the lessee for a temporary period for their use, the Assessee transaction of the Assessee amounts to operating lease and is leviable to VAT. Hence, the Assessee is not liable to pay service tax under “Banking and Other Financial Services”.

Judgment: The Hon’ble CESTAT while rejecting the claims of the Revenue has held that the whole dispute is with reference to categorising the lease arrangement either as “Financial lease” or “Operating lease”. On perusal of profit and loss accounts of the Assessee for the relevant period, the Hon’ble CESTAT noted that the income for operating lease were shown as lease rental and the assets were depreciated in the lesser’s account. The Hon’ble CESTAT further held that the lease arrangements on which the Assessee has discharged VAT are operating leases and thus, are not liable to service tax.

CCE & ST, New Delhi Vs M/s Lease Plan India Limited, CESTAT, Delhi decided on 10.01.2018 in Final Order Nos. 50113-50116/2018.

M/s Lease Plan India Limited

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

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