Customs, Excise and Gold Tribunal - Mumbai
Institute Of Banking Personnel ... vs Commr. Of S.T. on 6 September, 2007
ORDER
Jyoti Balasundaram, Vice-President
1. The above appeal arises out of the order of the Commissioner of Central Excise (Appeals) upholding demand of service tax of Rs. 1,00,60,498/- against the appellants herein for providing services as a "manpower recruitment agency" and penalties of equal amount under the provisions of Section 78, Rs. 500/- under Section 75A, Rs. 200/- per day under Section 76 and Rs. 10,000/- under Section 77 of the Finance Act, 1994. The period of demand is October 1998 to March 2003.
2. The brief facts of the case are that the appellants are inter alia engaged in the activity of conducting examinations for recruitment of clerical, officers and specialist officers cadre in banks, financial institutions and other organizations. For this purpose, they carried out detailed job analysis, identify and develop suitable selection tools, conduct confidential printing of test material, make arrangements for conducting examinations, assess test papers and finalize results of written test and shortlist candidates for interview by their clients. They also handle recruitment projects on turnkey basis right from release of advertisement, receipt of applications, scrutiny of construction of test items, conduct of examinations and processing of final results. They charge a fee on per candidate basis to each user organization for the services rendered by them. During investigations carried out by central excise officers, the appellants furnished a list of nine heads under which amounts were received by them, out of which the following three heads were identified as being chargeable to service tax as manpower recruitment agency as defined in Section 65(40) of the Finance Act, 1994:
(i) Test material fees and testing fees received for entry-level test for public sector banks and central financial institutions;
(ii) Test material fees and testing fees received for entry level tests of, other banks and institutions;
(iii) Amounts received from other organizations (other than banks and financial institutions) for entry level test for public sector undertaking, Central/State level.
Show cause notice dated 22-1-2004 proposing recovery of service tax which had escaped assessment during the period in dispute was issued; the notice was adjudicated by the Deputy Commissioner who confirmed the demand and imposed penalties; his order was upheld by the lower appellate authority; hence this appeal.
3. We have heard both sides.
The only plea raised before us by the appellants that they are not a commercial concern and hence not liable to service tax as manpower recruitment agency in view of the definition thereof under Section 65(68) of the Finance Act, which defines "Manpower recruitment agency" as "any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment of manpower, to a client."
4. We note that admittedly the appellants have not distributed profits any member and that as per Clause 26 of the Memorandum of Association, dissolution of the appellant-institute has to be undertaken, in accordance with the provisions of Sections, 13 and 14 of the Societies Registration Act, 1860, under which statute the appellants are registered. Section 14 of the Act specifically prohibits distribution of profit to any member on dissolution and any surplus remaining on dissolution will be required to be given to another society with similar object. The appellants are registered as a charitable trust with the Charity Commissioner of Mumbai under the Bombay Public Trusts Act, 1950, vide certificate dated 14-1-1985 and under Section 12-A of the Income-tax Act, 1961 vide certificate dated 28-6-1984 and consequently exempt from payment of income-tax under Section 11 of the Income-tax Act, 1961. An organization that does not declare dividend or distribute surplus/profits to its shareholders, trustees and/or members but ploughs back the surplus for the purpose of an object of the organization would be a charitable organization, if the object thereof is of charitable nature.
5. In the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association 121 ITR 1 (SC), the issue that was considered by the Constitution Bench of the apex court was whether the association (SASMIRA) was carrying on activity which could be treated as an object of general public utility not involved in any profit and was therefore charitable in nature under the provisions of Section 2(15) of the Income-tax Act, 1961. The main object of SASMIRA was to promote commerce and art silk, cotton etc. To supplement the main object, SASMIRA was undertaking the activity of obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn. The income-tax department contended that the aforesaid activity was an activity for profit and, therefore, SASMIRA was not a charitable organization entitled to exemption from payment of income-tax. This contention was negatived by the apex court which held that the object of SASMIRA was one of general public utility. The relevant extracts from the apex court's judgment are reproduced below:
The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object general public utility is to sub-serve the charitable purpose or to earn profit. Whether profit making is predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for person in charge of the trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg J. when he said in Sole Trustee, Loka Shikshana Trust's case that: "...if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter that charitable character of the trust. This test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity.
6. In the instant case also the object of the appellant-institute is to plan, prmote and provide for competent, well-qualified and efficient cadres of personnel at various level to banks and financial institutions in the country. As per CBEC Circular F. No. 137/71 /2006-CX dated 1-11-2006, 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 making profit and, therefore, such institutes cannot be called commercial concerns, even if they charge for some of their activities. In the light of the above circular, the mere charging of fees will not alter the position that the appellant-institute is not a commercial concern.
7. In the case of Trustees of Tribune Trust (1939) 7 ITR 415 (PC), the Privy Council has categorically held as under:
In the High Court, stress was laid by the learned Chief Justice and by Addison, J., on the tact that the Tribute newspaper charges its readers and advertisers at ordinary commercial rates for the advantages which it affords. As against this, the evidence or finding do not disclose that any profit was made by the newspaper or press before 1918 and it is at least certain that neither was founded for private profit whether to the testator or any other person. By the terms of the trust it is not to be carried on for profit to any individual. It cannot in their Lordships', opinion be regarded as an element necessarily present in any purpose of general public utility; that it should provide something for nothing or for less than it costs or for less than the ordinary price. An eleemosynary element is not essential even in the strict English view of charitable uses [CIT v. University College of North Wales (1909) 5 Tax Cases 408, 414]. There seems to be no solid distinction to be taken under the phrase "general public utility" between a school founded by a testator but charging fees to its pupils and a paper founded by a testator and sold to its readers. The purpose of providing the poor or the community in general with some useful thing without price or at a low price may doubtless be in itself a purpose of general public utility. But if another object be independently in itself of general public utility the circumstance that the testator's (sic) bounty was only in respect of the initial capital assets, or had only to met a working loss temporarily and not permanently will not, necessarily at least, alter the character of the object.
8. Similar view has been taken by the Hon'ble Bombay High Court in the case of CIT v. Breach Candy Swimming Bath Trust , wherein the High Court has held as under:
...It may then be suggested that it is not a charitable trust because the object was not go give the facility of swimming to the public free without any charge but the object was to set up a commercial institution which would charge for the admission of every member of the public to the swimming pool and make profit out of running the institution. Now, on a casual consideration of the matter it may strike one that the most essential element of charity is to render service to the public without any charge or remuneration, out, as we shall presently point out, it is clear on the authorities that the eleemosynary element is not an essential element of charity. A settler or a donor may make a charity by setting up an institution and also providing funds by which those who take advantage of the institution can do so without paying any charge; or we may have a case where the charity may not go to those limits and one may confine his charity to merely setting up the institution and providing that those who wish to take advantage of the institution must pay reasonable charges for the same. In both cases the setting up of the institution would be a charitable object if the institution serves a purpose of general public utility. The only essential factor to determine whether it is a charity or not would be whether there is any private gain by the setting up of the institution. If the gain derived by running the institution continues to be impressed with the trust which is a charitable trust, then it is immaterial whether the institution is run as a commercial institution or not, but if in the running of the institution profits are made and the profit goes to any private individual or if the institution is intended for any private gain, then undoubtedly the running of the institution could not be considered as being run for a charitable object.
9. Learned DR contended that the appellants were undertaking activities for organizations other than member banks, viz. for Colgate and Narsi Monjee Institute of Management Studies and thus, in view of the profit earned by them from the above activity, they would be a commercial concern. However, the activity undertaken by the appellants is well within the scope of their object clause which includes rendering of assistance to banks and financial institutions in the areas of personnel such as recruitment, selection, placement etc. Further, this activity was undertaken only with a view to minimise costs/fees charged to member banks and in any event the profit earned from the aforesaid activity has been ploughed back for the purpose/running of the organization itself as is brought out from the income and expenditure account at page 170 of the paper book. Surplus has been used for the object of the organization itself and not for the purpose of distribution of profits to its members. Moreover in the case of CCE v. Employ Me 2006 (4) S.T.R. 303, the Tribunal has held that the respondent was not a manpower recruitment agency leviable to service tax for the reason that it was not a commercial concern, even though it was collecting some fees from youth for employment.
10. The term "commercial concern" has not been defined under the Finance Act, 1994 and therefore has to be understood in the sense as used by the legislature under the taxable head of "manpower recruitment agency" service along with the following taxable heads out of the 100 odd specified taxable services:
(a) 'advertising agency' means any commercial concern engaged in providing any service connected with making, preparation, display or exhibition of advertisement and includes and advertisement consultant
(b) 'courier agency means any commercial concern engaged in the door-to-door transportation of time-sensitive documents, goods or articles....
(c) credit rating agency' means any commercial concern....
(d) 'dry cleaner' means any commercial concern....
(e) market research agency means any commercial concern engaged in conducting market research....
(f) photography studio or agency means any professional photographer or commercial concern....
(g) sound recording studio or agency means any commercial concern engaged in....
(h) video production agency means any professional videographer or commercial concern engaged in....
As per Websters Comprehensive International Dictionary 1996 Edition, the term "commercial" means "having financial gain as an object". As per Illustrated Oxford Dictionary, commercial concern means "having profit as a primary aim rather than artistic value". Thus, only a commercial concern whose primary aim is to earn profit is sought to be taxed as manpower recruitment agency service.
11. The appellants rely upon the Tribunal's decision in BCCI v. CCE 2007 (7) S.T.R. 384 (Tri.-Bom) : 2007-TIOL-684] which covers the present dispute in their favour. In that case the issue for decision was whether BCCI was providing taxable services as advertising agency. One of the contentions of BCCI was that they do not satisfy the statutory definition of advertising agency, as they were not a commercial concern but a government body for the control of cricket, which was exempted under Section 12 of the Income-tax Act, 1961, as a charitable institution. BCCI was not established with the purpose of making profit and it had not declared any dividend to its shareholders, trustees and/or members. It ploughs back the surplus for the purpose and object of the organization. The Tribunal accepted this contention as well as other contentions as seen from paragraphs 5.1, 5.2 and 6 of the decision reproduced hereunder:
5.1 The appellant's main contention is that BCCI does not satisfy the statutory definition of advertising agency, as contained in Section 65(2) of Finance Act, 1994. For fulfilling the criteria of advertising agency, the same has to be a commercial concern, engaged in providing any service connected with the advertisement. It has been primarily argued that BCCI is a Government body for control of cricket in India and stands exempted from payment of income-tax under Section 12 of Income-tax Act, 1961 as a charitable institution. The same is not established with the purpose of making profit and neither it has declared any dividend to its shareholders, trustees, and/or members and ploughs back the surplus, if any, for the purpose and object of the organization. As such, the same has to be considered as a charitable organization. Even if in the process some profits are made by it, as held by Hon'ble Supreme Court in case of Addl., CIT v. Surat Art Silk Cloth Manufacturers Association reported in 121 ITR 1 (SC), the same still remains a charitable organisation. It has been strongly contended that the surplus revenues, if any, earned by the appellant is used for the promotion of the sports and even in the case of winding up of BCCI, surplus would be transferred to another organization with similar object. Reliance was placed upon the Tribunal's decision in case of CCE v. Employ Me reported in 2006 (4) S.T.R. 303 Para 6, holding that Employ Me was not a manpower recruitment agency taxable under the Act as it was not a commercial concern, even though it was collecting some fees from youth for employment.
5.2 As against above, Shri Anil Kumar, learned Advocate appearing for the Revenue submits that the BCCI is a commercial concern, inasmuch as it is making profit out of the advertising activities undertaken by it. Merely because it is exempted from income-tax, will not convert the same into a charitable institution and will not automatically make them exempted from Service Tax. Shri Anil Kumar in their written submission, dealt with the object of BCCI and whether the same stands fulfilled in terms of registration granted under the Tamilnadu Registration Act, 1961 as well as their registration under Section 12 of the Income-tax Act, 1961 i.e. where they are registered as charitable institution. However, the elaborate arguments placed on record, in support of above plea, as to whether the BCCI has been able to fulfil its obligation of promotion of sports or not or whether the sport is reduced to a mere amusement, are not being adverted to by us as not being relevant to the disputed issue involved. One thing becomes clear from the submission of Revenue that admittedly the appellant is a registered charitable institution for the purpose of income tax. Whether the activities undertaken by BCCI are contrary to the objects of memorandum of agreement or their registration under the Tamilnadu Registration Act, 1961 or their registration under Section 12 of Income-tax Act, 1961, as contended by learned Advocate for the Revenue, do not impress us in as much as we are only called upon to interpret the provisions of law relatable to the issue as to whether the various services, enumerated above, are covered by the definition of taxable service as a service provided by advertising agency.
6. One of the main criteria of definition of Advertising Agency is that the same should be a commercial concern. The expression 'Commercial Concern' does not stand defined under the Act. As such, for understanding the scope of the above expression, help has to be taken from other sources.
...
Though, the above decision was rendered not in the context of the disputed issue, and the dispute before Hon'ble Supreme Court was on altogether different point, the finding of status of BCCI, as arrived at by Hon'ble Apex Court cannot be ignored. The Hon'ble Supreme Court was dealing with an issue as to whether the telecasting right of Cricket Association which are commercial in nature are protected by fundamental guarantee of freedom of speech, and expression enshrined under Article 19(1)(a) of the Constitution. It was in that context that Hon'ble Supreme Court held that the BCCI is not a commercial concern in nature. In the present dispute also, the advertising agency is the one which is a "commercial concern" engaged in the various activities of the advertising. As already observed, the expression -commercial concern - does not stand defined in the act and as such, support can be derived from the above decision. The Hon'ble Supreme Court having held the same organization i.e. BCCI though, in a different context, being not a commercial concern, adopting of said finding from the above decision and applying the same to the definition of advertising agency would lead us to hold that BCCI is not a commercial concern. Having held that it has to be concluded that they do not fall under the definition of advertising agency and hence, any service provided by them would not be covered by the Service Tax in the area of advertisement. Further, the fact that it has been held to be charitable institution in terms of Income-tax Act, would also lend support to the appellants plea that the same is not an advertising agency.
12. In the light of the above, we conclude that the appellants are not a commercial concern and therefore not liable to service tax under the taxable head of manpower recruitment agency services. We, therefore, set aside the impugned order and allow the appeal without recording any finding on other arguments such as limitation.
(Pronounced in Court on 6-9-2007)