Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Cst, New Delhi on 25 August, 2008
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. II Service Tax Appeal No. 235 of 2006 [Arising out of the Order-in-Original No. 09/RK/2006 dated 28/02/2006 passed by The Commissioner of Service Tax, New Delhi. ] For Approval and signature : Honble Shri S.S. Kang, Vice President Honble Shri Rakesh Kumar, Member (Technical) 1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Dewsoft Overseas Pvt. Ltd. Appellant Versus CST, New Delhi Respondent
Appearance Shri P.K. Sahu, Advocate for the appellant.
Shri Amit Jain, Authorized Representative (DR) for the Respondent.
CORAM:Honble Shri S.S. Kang, Vice President Honble Sh. Rakesh Kumar, Member (Technical) DATE OF HEARING : 26/06/2008.
DATE OF DECISION: 25/08/2008.
Order No. ________________ Dated : ,,,,,,,,,,,_____________ Per. Rakesh Kumar :-
The Appellants provide Computer education via online and Real time centres. The real time centres are the traditional computer coaching centres, some of which are owned by the Appellants and the remaining are managed through franchisees, who represent the Appellants and run the coaching centres at various places in India on the basis of the concepts of business operation and knowhow provided by the Appellants, on payment of certain fee to the Appellants. The main activity of the Appellants, however, is online computer education through the medium of internet i.e. through an interactive website. The main point of dispute is as to whether the activity of providing online computer training is classifiable as commercial Training or Coaching under Section 65 (27) of the Finance Act, 1994 and on this basis exempt from service tax under Notification No. 9/2003-ST dated 20/06/03, as claimed by the Appellant or this activity is classifiable under heading online information and data base access and/or retrieved service defined under Section 65 (75) of the Finance Act, and chargeable to service tax accordingly. The other point of dispute is with regard to the real time training/coaching centres managed through franchisees and the same is whether the franchise fee being received by the Appellants from their franchisees is liable to service tax under Franchise Service as defined under Section 65 (47) of the Finance Act, 1994.
1.1 The Commissioner by the impugned order has decided both the issues against the Appellants and
(a) has confirmed the Service tax demand of Rs. 3,07,47,922/- against the Appellants under Section 73 (1), read with Section 66 and 68 of the Finance Act, alongwith interest at the applicable rate on this amount as per the provisions of Section 75, in respect of online computer training for the period from 16/07/01 to 06/10/03 by classifying this activity as online information and data base access and/or retrieved services ;
(b) has confirmed service tax demand of Rs. 17,560/- under Franchise Services under Section 73 (1) of the Finance Act, read with Section 66 and 69 of the Act, alongwith interest on this amount at the applicable rate under Section 75 of the Act ;
(c) has imposed penalty of Rs. 500/- under Section 75A and penalty of Rs. 200/- per day under Section 76 of the Act for non-payment of service tax, whose demand has been confirmed, till the payment of this amount ; and
(d) has imposed penalty of Rs. 1,000/- on the Appellant under Section 77 of the Act and penalty of Rs. 6,14,95,844/- and Rs. 35,120/- under Section 78 of the Act.
2. Heard both the sides.
2.1 Shri P.K. Sahu, Advocate, the learned counsel on behalf of the Appellants made the following submissions :-
(1) The services of online computer training/courses being provided by the Appellants is much more that the service of mere online access or retrieval of information or data base. The service being provided by the Appellants is e learning online education through an interactive website and it is nothing but commercial training or coaching through electronic media.
(2) The Appellants provide online courses like Certificate in Web Designing and office automation; certificate in client/service application development; certificate in NET Technologies; certificate in c programming; certificate in Java basic; certificate in Tally, certificate in bluetooth, Diploma in Software Development, Diploma in Web application, Diploma in Computer applications etc., Providing these courses involves not only providing online access to the reading material but also conducting online test and issuing the certificate.
(3) As per TRUs letter dated 07/07/01 and Boards Circular No. 50/11/2002-ST dated 18/12/02, e-commerce transaction, and the service of Electronic Access to Securities Information (EASI), provided by Central Depository Services India Ltd. (CDSL) to its customers are not covered by online information and, data base access and/or retrieved services. Therefore online computer training/courses through electronic medium would not be covered by online information and data basis, access and/or retrieved service.
(4) Providing online education has become feasible because of internet connectivity. Well established educational institutions are adopting this method to extend the scope of distance education. Indira Gandhi National Open University (IGNOU) has taken initiative in launching online educational computer programmes are The Bachelor of Information Technology and Advanced Diploma in Information Technology are offered through a virtual campus initiative. In addition to IGNOU, www.e-gurukul.com; www.vidyarthi.com, www.classteacher. com etc. are providing interactive educational programmes online. TRU in its circular No. B-11/1/01-TRU dated 9/1/01 has given the examples of paid websites like www.taxindiaonline.com, www.cllonline.com etc. as the paid websites covered by online information and data base access and/or retrieved service but it has not mentioned educational websites like www.e-gurukul.com etc. as covered by this service.
(5) Importing knowledge or education is different from mere disseminating information/data, which alone is taxable under entry online information and database access and/or retrieved service. Education is the result produced by instruction, training and study. The Appellants are using internet as the medium for instruction and other related activities. Therefore the basket of services provided by the Appellants cannot fall under the taxable category of online information and data base retrieved and/or retrieval service.
(6) The Commissioner is on wrong footing where he holds that interactive process involved in importing online education is also covered under the category online information and database access and/or retrieved services. The interactive process of communication is out of the purview of this entry.
(7) Since the essential character of the activity of online computer training/courses is imparting computer education, not mere online data excess or retrieval, in accordance with the provisions of Section 65A (2), this activity is correctly classifiable as commercial training or coaching, not as online information and data access and/or retrieval and since notification 9/2003-ST dated 20/06/03 exempts the taxable services provided in relation to commercial training or coaching by a computer training institute, to any person, no service tax is payable by the Appellants in respect of online computer courses.
(8) In respect of traditional/conventional computer courses, no franchise service is being provided by the Appellants to anybody, as the no evidence has been produced by the Revenue that the franchises were not providing similar service of other franchisors.
(9) The show cause notice answerable Additional Commissioner has been wrongly issued by the A.C. (anti-evasion) and the same was adjudicated by the Commissioner without any jurisdiction.
(10) The quantum of demand in respect of online computer courses has been wrongly worked out by including payments which had never been received by the Appellants.
2.2 Shri Amit Jain, the learned Departmental Representative, made the following submissions.
(1) What is taxable under Section 65 (105) (Zh) is the service provided to a customer, by any person, in relation to online information and database access or retrieval or both, in electronic from through computer network, in any manner. The scope of the words in relation to, as explained by Honble Supreme Court in para 46 of its judgment in case of Tamilnadu Kalyam Mandapan vs. CCE, Chennai, reported in 2006 (3) STR 260 (S.C.) is very wide and therefore even online Information and database retrieval through an interactive website in connection with teaching purposes would be covered by this entry. For an activity to be covered under the entry online information and database access and/or retrieval, what is necessary is that information is provided online through computer network, even if the website is interactive.
(2) There is no exclusion of interactive, access as the words in relation to in Section 65 (105) (Zh) are very wide.
(3) Shri Rishi Sehdev, M.D. of the Appellant Company has accepted that as per his understanding the service of online computer courses being provided by his company is taxable and for this reason, in addition to basic charge, an amount equal to the service tax chargeable, was being collected from the customers, but the same was not being paid to the Department.
(4) As regards the Franchise service, all the conditions in the definition of Franchise service are satisfied as the burden of proving that the fourth condition in the definition of Franchise Service is not satisfied in this case is on the Appellants, which has not been discharged.
(5) The show cause notice dated 24/08/04 has been correctly issued by the Assistant Commissioner as at that time Section 73 provided for issue of Show Cause Notice by Assistant/Deputy Commissioner only. It is only in 2005 that the, words Assistant/Deputy Commissioner were replaced by Central excise officers. The show cause notice has been correctly adjudicated by the Commissioner as at that time notification No. 30/05-ST dated 10/08/05 was in force which prescribed the powers of adjudication of various central excise officers.
(6) The service tax demand in respect of online computer courses has been correctly calculated.
3. We have carefully considered the submissions from both the sides. The Appellants conduct what they call online computer courses and besides this also operate Real time centre for computer courses/training and while some of such traditional coaching centres are operated by the Appellants themselves, others are operated by franchisees. The main points of dispute are-
(a) Whether the activity of conducting online computer course is covered by the entry commercial training or coaching and on this basis exempt from service tax under Notification No. 9/03-ST dated 20/6/03, or whether the same is covered by the entry online Information and Database Access and/or retrieved and on this basis liable to service tax ; and
(b) Whether in respect of real time computer courses, the activity of giving Franchise to other persons for conducting course, for which the Appellants receive some consideration from the Franchisees, is covered by the definition of Franchise Service under Section 65 (47) read with Section 65 (105) (ZZe) of the Finance Act, 1994.
The period of dispute is from 01/07/01 to 06/10/03. The online information and database access and/or retrieval service had become taxable w.e.f. 01/7/01 and commercial training or coaching had become taxable w.e.f. 01/7/03. Section 65A of Finance Act, 1994 regarding classification of services had come into force w.e.f. 14/5/03.
4. Before going into the first point of dispute, it is necessary to examine the exact nature of the activity of conducting what the Appellants call online computer courses.
4.1 The Appellants provide courses/training in computer hardware and software and online computer courses involve teaching/coaching through an interactive website. The clients not only have to access to the lessons but they can also interact with experts and other students through e-mail and chat and besides this they can also give online test and get a certificate, if they pass the test. The online computer courses have all the features of traditional computer classes and only the difference is medium. The users can subscribe for online courses through a referrer, who is a person already using online education facilities of the appellants and the subscription for online computer courses is Rs. 6,000/- per subscriber, in which the subscriber gets unlimited education alongwith 35MB of Web space and online tools for a period of one year from the date of registration.
4.2 The competing entries for the above activity are online information and data access and/or retrieval service defined under Section 65 (75) of the Finance Act, 1994 and commercial training or coaching service as defined under Section 65 (27) of the Act.
4.2.1 Online information and data access/or retrieval service which is taxable since 01/7/01 is defined under Section 65 (75) of the Act as providing data or information, retrieval or otherwise, to a customer in electronic form through a computer network and the taxable service with regard to online information and Data Base access or retrieval has been defined as service provided to a customer by any person in relation to online information or data base access or retrieval or both, in a electronic form through a computer network in any manner. The word data has been defined under Section 65 (36) of the Finance Act, 1994 read with Section 2 (1) (o) of the Information Technology Act, 2000, as representation of information, knowledge, facts, concepts or instructions, which are being prepared or have been prepared in a formalized manner, and is intended to be processed, is being processed or has been processed in a computer system or a computer network, and may be in any form (including computer print outs, magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of a computer. The word information has been defined under Section 65 (53) of the Finance Act, 1994, read with Section 2 (1) (v) of the Information Technology Act, 2000 as including data, images, sound, voice, codes, computer programmes, software and data bases or micro film or computer generated micro fiche. The word electronic form with reference to information, has been defined under Section 65 (39) of the Finance Act, 1994, read with Section 2 (1) (r) of the Information Technology Act, 2000 as any information generated, sent, received or stored in media, magnetic, optical, computer memory, micro film, micro fiche or similar devise.
4.2.2 Commercial training or coaching centre has been defined under Section 65 (27) of the Act as any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lesson, on any subject or field, other than sports, with or without issuance of certificate and includes coaching or tutorial classes but does not include pre-school coaching or training centre or any institute or establishment, which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force. Under Section 65 (105) (zzc), the taxable service with regard to commercial or training centres has been defined as any service provided to any person by a commercial training or coaching centre in relation to commercial training or coaching. The definition of commercial training or coaching centre does not mention the media used for this purpose and in fact as per the Board Circular No. 59/8/2003 dated 20/6/03 even the correspondence courses are covered by this entry.
4.3 According to Revenue, the Appellants activity of providing online computer courses is nothing but online information and data base retrieved access or retrieval service, even if the website through which the courses are conducted is interactive. On the other hand, the contention of the Appellants is that they are providing e-education service and that except for the medium there is no difference between the online computer courses and the traditional real time computer courses being provided by them.
4.4 The activity of providing online computer courses is not simply providing online access to data or information. What is being provided to the clients is online lessons on various topics in computer hardware and software and besides this, the clients are also provided the facility of online interactive chat with other students, faculty and external experts and the clients can also give online test. Thus the essential character of service being provided is online training or coaching or in other words e-education and not mere the facility of access or retrieval of data or information. Wikipedia, (http://en.wikipedia.org/wiki/E-learning) describes e-learning as under :-
E-learning is a type of education when the medium of instruction is computer technology. No in-person interaction may take place in some instances. E-learning is used interchargeably in a wide variety of contexts. In companies it refers to the strategies that use the company network to deliver training courses to employees. In the U.S.A., it is defined as a planned teaching/learning experience that uses a wide spectrum of technologies mainly internet to reach learners at a distance. Lately in most universities, e-learning is used to define a specific made to attend a course or programme of study, when the students, rarely, if ever, attend face-to-face for on-campus access to educational facilities, because they study online. In India, Indira Gandhi National Open University (IGNOU) Conducts on-line courses for its Students.Netvarsity.com, hosted by NIIT online Learning Ltd. offers 300 online computer courses. A variety of online courses are provided through websites like E-gurukool.com, classteacher.com etc. Thus online coaching or training classes through an interactive website is a well established mode of teaching/coaching and the only difference between traditional coaching and online coaching is the medium. Since in term of Boards instruction vide Circular No. 59/8/03 dated 20/6/03 correspondence courses are covered by commercial training or coaching, the online computer courses being organized by the Appellants through internet will also be covered by this entry. Moreover online coaching or teaching is an interactive process and the same cannot be compared with mere online information and database access and/or retrieval the difference between the two is same as the difference between teaching some students in a classroom and providing library access to the students. We, therefore, hold that the Appellants activity of providing online computer courses is covered by the entry commercial training or coaching.
4.4.1 Since the appellants are a Computer Training Institute engaged in organizing computer courses, they would be eligible for the benefit of service tax exemption under notification No. 9/03-ST dated 20 June 2003.
4.5 Next point to be decided as to whether in respect of real time computer courses i.e. the traditional computer courses, the activity of giving franchise to other persons for conducting computer courses for which the Appellants receive some consideration from the franchisees would attract service tax under entry franchise service or not.
4.5.1 During the period of dispute under Section 65 (47) the word Franchise had been defined as under - franchise means an agreement by which (i) franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not under a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved, (ii) the franchisor provides concepts of business operation to franchisee, including knowhow, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all knowhow to franchisee; (iii) the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and (iv) the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.
4.5.2 The word franchisor has been defined under Section 65 (48) of the Act as any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term franchisee shall be construed accordingly. Under Section 65 (105) (zze), the taxable service with regard to franchise has been defined as any service provided to a franchisee, by the franchisor in relation to the franchise. There is no dispute that the first, second, and third conditions are satisfied. In other words, the franchisee of the appellants have been granted representational right, the appellants as franchisor have provided the concept of business operations to their franchisees including knowhow, method of operation, managerial expertise, marketing technique, standards of quality control etc. and the appellants as franchisor receive a consideration from the franchisees. The Appellants, however, claim that no evidence has been produced by the Revenue that fourth condition is also satisfied i.e. the franchisee is under an obligation not to engage in providing similar services identified with any other persons. The Revenues contention on this point is that the Appellants, either during the investigation or during the adjudication proceedings have not produced any evidence to show that their franchisees were not providing similar service of other franchisors and in view of this, conclusion in this regard has to be drawn against the appellants. We do not agree with this plea of the Revenue. During the period of dispute, as per the definition of the word franchise as given in Section 65 (47), the franchise agreement, which attracted service tax was to satisfy four conditions, and if the Revenue wants to subject a person to service tax under this entry, the burden of proving that the agreement between that person and his client is a franchise agreement within the meaning of this term, as defined under Section 65 (47) of the Finance Act, 1994, would be on the Revenue. If the Appellants were not coming forward with the information with regard to condition No. 4, it was possible for Revenue to conduct enquiry with the franchisees for ascertaining as to whether in terms of their agreement with the Appellants, they are under an obligation not to engage in providing similar service identified with any other person. But no such enquiry has been conducted. In view of this, we hold that this activity of the Appellant is not covered by the definition of franchisee service as given in Section 65 (47) of the Finance Act, 1994 and therefore would not attract service tax.
5. In view of our above findings, the impugned order is not sustainable and the same is set aside. The appeal is allowed.
(Pronounced in open court on 25/08/2008) (S.S. Kang) Vice President (Rakesh Kumar) Member (Technical) PK