NEW DELHI, MAY 22, 2013: IN Instruction No. 137/132/2010-ST dated 11.05.2011, CBEC clarified that Flying Training Institutes providing training for obtaining Commercial Pilot Licence (CPL) and on Aircraft Engineering Institutes for obtaining Basic Aircraft Maintenance Engineer Licence (BAMEL) would clearly come in the category of coaching centres as laid out in the Section 65(27) of the Finance Act ibid (either prior to or after Budget 2011) and therefore would be taxable.

This instruction and the consequent Show Cause Notice are challenged before the Delhi High Court by Indian Institute of Aircraft Engineering.The petitioner is an Aircraft Maintenance Engineering Training School approved by the DGCA for providing Aircraft Maintenance Engineering (AME) training and conducting examination as per the course approved by the DGCA under the Aircraft Act, 1934 (the Act) and the Aircraft Rules, 1937 (the Rules) and the Civil Aviation Requirements (CAR) issued by the DGCA under Rule 133B of the Rules.

The High Court observed that Section 65(27) as it stood till 30th April, 2011 excluded from the domain of commercial training or coaching centres, 'training centres or establishments issuing any certificate or diploma or degree or any educational qualification recognized by law'.Even after 30th April, 2011, though the part of Section 65(27) making such exclusion has been deleted but the Notification dated 25th April, 2011 supra issued in exercise of powers under Section 93 of the Finance Act has exempted 'coaching or training leading to grant of a certificate or diploma or degree or any educational qualification which is recognized by any law from the whole of Service Tax leviable under Section 66 of the Finance Act'.

The High Court wondered what could be the reason for exempting from payment of service tax those training or coaching centres, even though commercial, whose certificate/degree/diploma/qualification is 'recognized by law'. The only plausible reason, according to us, can be to exclude from ambit of service tax those training or coaching centres which are otherwise regulated by any law in as much as recognition of certificate/degree/diploma/qualification conferred by such training or coaching centres will necessarily entail regulation by the same law of various facets of such training or coaching centres.

What is 'recognized by law'?: The expression 'recognized by law' is a very wide one. The legislature has not used the expression “conferred by law” or “conferred by statute”. Thus even if the certificate/degree/diploma/qualification is not the product of a statute but has approval of some kind in 'law', would be exempt. The High Court was of the view that the Act, the Rules and the CAR, having provided for grant of approval to such institutes and having laid down conditions for grant of such approval and having further provided for relaxation of one year in the minimum practical training required for taking the DGCA examination, have recognized the Course Completion Certificate and the qualification offered by such Institutes. The certificate/training/qualification offered by Institutes which are without approval of DGCA would not confer the benefit of such relaxation. Thus, the certificate/training/qualification offered by approved Institutes, has by the Act, Rules and the CAR been conferred some value in the eyes of law, even if it be only for the purpose of eligibility for obtaining ultimate licence/approval for certifying repair/maintenance/airworthiness of aircrafts. The Act, Rules and CAR distinguish an approved Institute from an unapproved one and a successful candidate from an approved institute would be entitled to enforce the right, conferred on him by the Act, Rules and CAR, to one year relaxation against the DGCA in a Court of law. The inference can only be one, that the Course Completion Certificate/training offered by such Institutes is recognized by law.

The High Court further observed, An educational qualification recognized by law will not cease to be recognized by law merely because for practicing in the field to which the qualification relates, a further examination held by a body regulating that field of practice is to be taken. Immediate instance can be given of the qualification in the field of law. Though by amendment of the recent years, the right to practice law on the basis of the said qualification has been made subject to clearing/passing a Bar Exam to be held by the Bar Council of India, the same does not make the qualification of law not recognized by law. The recognition accorded by the Act, Rules and CAR supra to the Course Completion Certificate issued by the Institutes as the petitioner cannot be withered away or ignored merely because the same does not automatically allow the holder of such qualification to certify the repair, maintenance or airworthiness of an aircraft and for which authorization a further examination to be conducted by the DGCA has to be passed/cleared.

Held : the Instruction aforesaid holding the petitioner to be assessable to Service Tax is contrary to Section 65(27) and the Notification dated 25th April, 2011. Accordingly the said Instruction and the show cause notices given to the petitioner are quashed.

(See 2013-TIOL-430-HC-DEL-ST)