Customs, Excise and Gold Tribunal - Tamil Nadu
Great Lakes Institute Of Management ... vs Cst on 2 January, 2008
ORDER P. Karthikeyan, Member (T)
1. M/s. Great Lakes Institute of Management, Chennai (GLIM), conducts Post Graduate Programme in Management (PGPM), a 12 months full time programme and Executive MBA, a part time course. GLIM has academic and research collaborations with Illinois Institute of Technology, Chicago, Yale University, USA and Nanyang Technological University, Singapore. Following investigation into the activities of GLIM, the department came to a tentative conclusion that GLIM is a "commercial training or coaching centre" for the purpose of the Finance Act, 1994 (''the Act"). It appeared to be an establishment providing commercial training or coaching for imparting knowledge or lessons on any subject or field other than sports as defined in Clause (26) of section 65 of the Act. The diploma/degree issued by GLIM is not recognised by law. All India Council of Technical Education (AICTE) has not recognised the institute. It was observed that during the year 2004-05 GLIM had earned excess income over expenditure of Rs. 84,41,777 and had transferred Rs. 80 lakhs to its infrastructure project fund. After due process of law, the Commissioner (Service Tax) vide his order in original No. 14/07 dated April 30, 2007, concluded that GLIM imparted commercial training or coaching as defined in section 65(26) of the Act. He found that the institute being a licensee under Section 25 of the Companies Act, 1956 and being granted the status of a public charitable trust under the Income-tax Act, 1961 did not alter the character and classification of service provided by the institute. The institute was a "not for profit" organisation under the Income-tax Act. But that fact was not relevant for the Finance Act, 1994. He also rejected the plea of the institute that it was "a vocational training institute" as the institute did not impart training which equipped the students with any particular skill to take up a vocation like typing or tailoring. He demanded from GLIM service tax of Rs. 1,44,05,390 and education cess of Rs. 2,39,112 on a value of Rs. 14,70,51,997 for the training or coaching service provided by it during the period April 1, 2004 to July 31, 2006. He also imposed penalties under sections 76, 77 and penalty equal to the service tax demanded under Section 78 of the Act. The order also demanded interest on the service tax demanded in terms of Section 75 of the Act.
2. The subject appeal is directed against this order of the Commissioner. The following submissions have been taken in the appeal. The appellant is involved in the promotion of best academic practices both from India and abroad, to offer the State of the art world class management education to the students in India. The institute is not a commercial venture. It has been approved as a "not for profit" organisation in terms of Section 25 of the Companies Act and registered as a public charitable trust under Section 12AA of the Income-tax Act. The entire proceeds of the institute are accordingly used for the development of education and no part of the money received is distributed as dividends or profits to the shareholders. The courses offered are similar to those offered by the IIMs of India. It is argued that the unambiguous statutory definition appearing in section 65(26) of the Act laid emphasis on training or coaching provided by a commercial training or coaching centre. As GLIM is not a commercial venture, it does not fit in the definition in section 65(26). The Commissioner erroneously held that a charitable organisation had to provide services free of cost. The order was passed in violation of the judicial discipline inasmuch as he ignored the various judicial authorities cited before him. The funds raised are ploughed back into expanding the infrastructure of the organisation to provide better services to the student community thereby benefiting the industry and society. No part of the surplus could be distributed to the shareholders as dividend or as profit. Therefore, the findings that the institute is engaged in commercial activity is incorrect. The service is intended to tax such institutions which prepared students for Board examinations and competitive examinations such as IIT, civil service examination, etc., for whom education is a business. The Commissioner overlooked the instructions in the Board's Circular dated November 1, 2006 to the effect that the totality of the activity and object of the existence of the institution determined whether it was a commercial institute or not. The circular was issued to clarify that IITs and IIMs existed to impart education and the fact that they charged fees for assisting recruitment of personnel by companies did not make them commercial concerns and therefore "manpower recruitment agencies". Commissioner wrongly held that only public educational institutes which conferred recognised degrees (not profit-generating educational institutes) are not to be taxed in terms of the Board's Circular. GLIM imparted similar education as IIMs which are not taxed. An alternate plea is that the institute provided vocational training which is exempted from service tax in terms of Notification No. 9/03-ST. There was no deliberate attempt to evade service tax and demand should not have been raised invoking the larger period. Penalty imposed is not justified. They failed to follow the formalities under bona fide belief that their activities did not constitute taxable service. They deserve the benefit of Section 80 of the Finance Act, 1994 and penalty should not have been imposed on them.
3 During hearing learned Counsel for the appellants relied on the following case law:
(i) Kerala State Ex-Service League v. CCE .
In the above decision, the Tribunal held that to tax the appellants it had to be seen if the same was making profits as a business concern. If the appellants established that they were not a commercial concern making any profits, then they could not be brought within the ambit of definition of "security agency".
(ii) Board of Control for Cricket in India v. Commissioner of Service Tax [2007] 8 VST 452 (CESTAT-Mum) : [2007] 7 STR 684 (Trib.-Mum).
It was held that the appellants were not a commercial concern following the judgment of the Supreme Court to that effect in the case of Secretary, Ministry of Information and Broadcasting, Government of India v. Cricket Association of Bengal . Also the appellant being a charitable institution under Income-tax Act, 1961 supported the above finding.
(iii) Institute of Banking Personnel Selection v. Commissioner of Service Tax, Mumbai [2008] 12 VST 508 (CESTAT-Mum) ; [2007] 8 STR 579 (Trib.-Mum).
Tribunal held that mere charging of fees will not alter the position that the appellant-institute is not a commercial concern. An organisation that does not declare dividend or distribute surplus/profits to its share holders, trustees and/or members, but ploughs back the surplus money for the purpose of an object of the organisation would be a charitable organisation if the object thereof is charitable in nature.
(iv) Dr. Jivaraj Mehta Smarak Health Foundation and Medical Centre v. CC, Mumbai and Ahmedabad .
Held, merely because some fees charged for the service, it would not make any institution a commercial institution as commercial activity has distinct connotation. Appellant's institution running on no profit no loss basis, hence, cannot be stated to be engaged in any commercial activity.
(v) Collector of Cus., Madras v. Murugappa Chettiar Research Centre .
Held, merely because some fees is charged for the service rendered would not make an institution a commercial institution.
(vi) Commissioner of Central Excise v. Employ Me [2008] 12 VST 428 (CESTAT-B'lore) ; [2006] 4 STR 303 (Trib.-Bang).
It was held that though the youth paid some fees to respondents for training that could not be treated as consideration given by a client. This fee was definitely not a consideration given by a client to the man power recruitment agency. A commercial concern meant a concern engaged in any activity with profit-motive. Revenues understanding that profit motive was not necessary for a commercial concern was not at all correct.
(vii) ICFAI, Hyderabad v. CCE, Hyderabad [2007] TIOL 811 (CESTAT-Bang).
The Tribunal granted waiver of demands, in one case around Rs. 19 crores and in another case above Rs. 9.43 crores, among others. The Tribunal took into account the argument that the amount collected as fee by the assessee was funded back for the purpose of education and therefore, there was no commercial coaching service involved.
(viii) Administrative State College in India v. CCE [2007] TIOL 613 (CESTAT-Bang).
The Tribunal granted full waiver in this case since the Government of India has recognised the appellant's activity as non-commercial one. The appellants are rendering training to the candidates selected by the Central Government and State Government. Stay granted as the organisation is not a profit generating organisation.
4. The learned SDR submits that the institute collects huge amounts as fees from students and earns considerable sums as profit every year. Therefore, the subject activity is commercial training or coaching attracting service tax. He reiterates the findings rendered by the Commissioner.
5. We have carefully considered the case records and the submissions by both sides. The issue to be decided in this case is whether the coaching of students for the PGPM course or part time students in the Executive MBA course come within the "commercial training or coaching" as envisaged in Section 65(26) of the Finance Act, 1994 as amended. Sections 65(26) and 65(27) read as follows:
(26) 'commercial training or coaching' means any training or coaching provided by a commercial training or coaching centre ;
(27) 'commercial training or coaching centre' means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force;
6. In the impugned order the Commissioner has held that the appellants provide commercial training or coaching as defined in section 65(26) of the Act. He does not find that GLIM is otherwise a commercial training or coaching centre. We find from the records that GLIM was registered as a company in the year 2004 with a seed capital of Rs. five lakhs raised as subscription of 50,000 equity shares of Rs. 10 each. One Shri A. Mahendran subscribed 49,400 shares and six others subscribed the remaining 600 shares. As per the Memorandum of Association (MOA) of GLIM, the main objects of the company are to establish and run educational institutions, coaching students for various post graduate, graduate, undergraduate courses and to promote related research and disseminate knowledge through publications, workshops, etc. The MOA also sets out incidental or ancillary objects to the attainment of the aforesaid main objects. These include entering into collaboration with domestic and foreign institutions for facilitating imparting of education, to raise funds by way of subscription from members, donations, grants, etc., and investing such funds in shares, securities or other form of movable or immovable properties. As per the MOA no portion of the income or property shall be paid or transferred by way of dividend, bonus or otherwise to members of the company or anybody else through such members. If at all any remuneration or other benefit in money is paid to any member/members, the same will be with the prior approval of the Central Government. Such approval shall be required also for appointment of any member to any office under the company. On dissolution of the company any property available after settling the dues owed by the company shall be transferred to such other institution or institutions having objects similar to the company. If the surplus cannot be donated in the above fashion, the same would be spent towards some charitable objects or in default, by order of the jurisdictional High Court.
7. On January 7, 2005, GLIM has been issued licence under Section 25 of the Companies Act, 1956, on the condition that it shall act as per the provisions of the MOA and that its income would be spent solely to promote the objects set forth in the MOA. This allows the company not to use the word "limited" in its name. From the audited balance sheets furnished by the appellants it had a surplus income of Rs. 84,41,777 as on March 31, 2005. Corresponding figures for 2006 and 2007 are respectively Rs. 1,23,99,470 and Rs. 1,11,43,292. Most of these surplus amounts earned have been transferred to campus infrastructure project fund of the appellants. This fund has grown to Rs. 2,55,00,000. We find that fair amounts of profit were earned by the appellants through its activities in the last three fiscal years. Mainly owing to this surplus, the Commissioner found that GLIM is engaged in commercial training or coaching. He also observed that the status of the appellants as a commercial coaching or training centre or not is not relevant and the commercial nature of the coaching or training is critical in deciding the exigibility to tax of the activity engaged in by GLIM. We do not find ourselves in agreement with this finding.
8. What is subject to tax is commercial training or coaching provided by a commercial training or coaching centre. We find that the certificates for MBA or PGPM issued to the students on successful completion of these courses are not recognised by law. Therefore, the appellant is not an establishment exempt from service tax for the reason that it issues a certificate or diploma or degree recognised by law. GLIM conducts courses in association with a couple of Universities in the USA and Nanyang Technological University, Singapore. Several members of faculty attached to renowned universities such as Stanford, Harward and MIT train the students receiving coaching at GLIM. In a short period of its existence, GLIM has to its credit, the enviable achievement of 100 per cent of its students getting placements in choice companies with pay packets ranging from Rs. 9.3 lakhs per annum to Rs. 17 lakhs per annum in the last year. The appellants have been closely associated with top management of leading companies in various sectors of industry such as Infosys, Tata Sons and Pepsi who interacted with their students. GLIM aims to mould itself into a center of excellence in consonance with its avowed objective. The provision of education by an institution will attract service tax only if the institution is a commercial concern. A commercial concern is run with the sole object of making profit. In the case of the appellants, no individual gains any profit by its operations. The MOA clearly spells out that no income earned by the company shall be paid by way of dividend, bonus or otherwise by way of profit to any member of the company or to anybody else through the members. If any surplus remains when the company is wound up, it shall be transferred to another institution run for the same object as the company or for some charitable object. These facts indicate that GLIM is not a commercial concern and therefore, training or coaching rendered by it is not liable to service tax as "commercial training or coaching".
9. "Commercial concern" is not defined in the Act. Now we will examine the case law submitted by the counsel for the appellants to see if they throw any light on the scope of this crucial expression. In Board of Control for Cricket in India [2007] 8 VST 452 (CESTAT-Mum) ; [2007] 7 STR 684 (Trib.-Mum), the Tribunal went by the judgment of the apex court in the case of Secretary, Ministry of Information and Broadcasting, Government of India v. Cricket Association of Bengal reported in [1995] 2 SCC 161 which had held that BCCI was not a commercial organisation. In Institute of Banking Personnel Selection [2008] 12 VST 508 (CESTAT-Mum); [2007] 8 STR 579 (Trib.-Mum), the Tribunal held that the institute set up with the object of planning, promoting and providing competent, well qualified and efficient cadres of personnel at various levels to banks and financial institutions in the country by conducting examinations for recruitment of clerks, officers and specialist officers did not become a commercial concern for the sole reason that it charged fees from the candidates. The institute was therefore held not liable to service tax under "manpower recruitment agency" service. In para 6 of the above decision, the Tribunal observed as follows:
6. In the case of Additional Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association , 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 trade in 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 organisation 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 produced below:
...The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where 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 [1975] 101 ITR 234, 256(SC) 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 the 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.
10. We find the ensuing observations of the Tribunal in the above order squarely apply to the subject case. As per CBEC Circular F. No. 137/71/ 2006-CX dated November 1, 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 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, it does not declare any dividend to its shareholders and ploughs back the surplus for the purpose and object of the organisation. 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.
11. In Kerala State Ex-Service League [2004] 173 ELT 434 (Trib.-Bang), it was decided that to hold the appellants to be a security agency, Revenue had to establish that it was a commercial concern making profits. Dr. Jivaraj Mehta Smarak Health Foundation and Medical Centre was decided relying on the decision of the Tribunal in Collector of Cus., Madras v. Murugappa Chettiar Research Centre , which had held that merely because some fee was charged for the service it would not make any institution a commercial institution, as commercial activity had a distinct connotation. In both the cases medical equipments were imported by research institutions and the research institutions were held to be not engaged in any commercial activity. In Commissioner of Central Excise, Mangalore v. Employ Me [2008] 12 VST 428 (CESTAT-B'lore) ; [2006] 4 STR 303 (Trib.-Bang), the Tribunal found that though the youth paid some fees to Employ Me for training, they did not make any profit out of their activity, so as to include it within the meaning of commercial concern. Respondent not being a commercial concern did not come under "manpower recruitment agency" liable to tax. A commercial concern meant a concern engaged in any activity with profit-motive.
12. We find that the appellants are recognised as a charitable organisation under the Income-tax Act, 1961. Though the appellants earned some surplus income from the activity of imparting education, we hold that activity they are engaged in is predominantly one of public utility benefiting eligible youth thereby sub-serving a much larger interest of providing useful talents to the industry and ultimately the economy of the country. No individual is gaining any monetary benefit out of the activity of GLIM. The appellants are housed in a small facility in Saidapet and propose to re-locate to spacious premises and own building to be constructed. They have already allocated most of the savings to achieve this objective. We find that the appellants are acting strictly in accordance with the MOA, imparting quality education which has received well deserved recognition.
13. Healthcare and education are social services essential to provide minimum quality of life to the people of a country. As the demand for these services cannot be met by the public sector alone, private sector fills the gap. For most of them in the private sector, health and education are lucrative business. However, we find that education in the instant case is not a business. The primary object of GLIM is to impart education. Profit making is not its main motive. The refrain of the several judicial authorities cited is that profit-motive characterises a commercial concern as against general public utility in the case of a charitable organisation. Therefore GLIM is not a commercial concern and the training or coaching provided by GLIM is not a commercial activity.
14. In the view we have taken of the issue on merits we do not consider it necessary to examine the question if the demand is time-barred. In the circumstances, we set aside the impugned order and allow the appeal filed by M/s. Great Lakes Institute of Management?