MARCH 17, 2009

By Vijay Kumar, Editor-in-Chief, TIOL

WE had carried several orders recently on the issue of service tax on “commercial training or coaching” which involved some of the top private educational institutions of India.

These are some of those cases:-

1. WIGAN & LEIGH COLLEGE (INDIA) LTD - 2007-TIOL-1852-CESTAT-BANG

2. M/s MAGNUS SOCIETY - 2008-TIOL-1812-CESTAT-BANG

3. ADMINISTRATIVE STAFF COLLEGE OF INDIA, HYDERABAD - 2008-TIOL-2007-CESTAT-BANG

4. CENTRE FOR DEVELOPMENT OF ADVANCED COMPUTING - 2008-TIOL-2011-CESTAT-BANG

5. INSTITUTE OF CHARTERED FINANCIAL ANALYSIS OF INDIA, HYDERABAD & THE ICFAI UNIVERSITY, DEHRADUN - 2008-TIOL-2036-CESTAT-BANG

6. M/s ICFAI - 2009-TIOL-32-CESTAT-DEL

7. INDIAN INSTITUTE FOR PRODUCTION MANAGEMENT - 2009-TIOL-45-CESTAT-KOL

8. PASHA EDUCATIONAL TRAINING INSTITUTE, HYDERABAD - 2009-TIOL-288-CESTAT-BANG

And we will be carrying another one tomorrow.

In all these cases, the issues were whether the coaching or centre is commercial, or vocational or charitable etc,

But does the “commercial training or coaching centre" include an educational institution?

"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.

No part of a provision of a statute can be just ignored by saying that the Legislature enacted it not knowing what it was saying.

Where an expression is used by the legislature, the court must assume that the legislature deliberately used that expression and that it intended to convey some meaning thereby.

The institute should provide commercial training or coaching

Obviously the legislature has found a difference between training and coaching – certainly they don't mean the same thing, if they do, there was no need to put both the words in the definition. The cardinal principle of interpretation of laws is that words should be understood as they are; nothing should be added, nothing should be deleted. The legislature wanted to tax training and coaching.

What is the difference between training and coaching and there have been many definitions for these two as understood in general and by experts. The table below will highlight some of the major differences.

Beyond training and coaching, there is a higher concept called education. These are concepts which have come to being understood in recent times.

There used to be a customs Training School, where officers were ‘trained'. Now you have a “National Academy of Customs, Excise and Narcotics” (NACEN) which is not a training or coaching institute but an academy. The institutes that produce teachers were earlier called Teacher Training Colleges; now they are called “colleges of education”. The degree they gave was called BT – Bachelor of Training; now they are called B.Ed – “Bachelor of Education”. With growing trends, society has understood the difference between these activities and perhaps gave more avenues for the government to levy Service Tax.

But here it must be understood that what is taxed is training or coaching and not education.

Training is more a physical activity. It involves repeating a task so that the trainee becomes perfect. There is a saying in academic circles that animals are trained and men are educated. An athlete is trained when he is made to perform the task repeatedly. Coaching involves a higher understanding of the task and the person. In a police training school, lower level policemen are trained in physical activities, use of firearms etc, whereas in a police academy, senior officers are educated on the laws, the social problems of policing etc. You cannot call the National Police Academy a training institute. Will Service Tax be levied on the National Police Academy if it collects fees from foreign countries to “train” policemen?

You can train a person to salute and by repeated exercises, he may learn to give a smart salute but to teach him why he should salute requires a teacher well versed with the laws, not a trainer. The point is, the difference between training and education and the law proposed to tax only training not education.

In industrial organisations, the similar programme is called “training” for the workers whereas it is “development” for the managers. A worker will be trained to handle a machine but a manager will be educated to handle the workers, finance, laws etc., And there is a gulf of difference between the two.

Even in the academic field, the difference between an Industrial Training Institute (ITI) and an Engineering college is clearly understood. An ITI trains while an IIT educates.

It is very clear that the legislature never meant to tax education, it wanted to tax only training or coaching and by any stretch of imagination, it cannot be said that the courses like MBA can be called as training or coaching. It is plain education. If the Parliament wanted to tax education it would have mentioned education along with training and coaching in the definition. It could have been commercial training or coaching or education!

In the Malappuram District Parallel College Association case - 2006-TIOL-35-HC-KERALA-ST, the Kerala High Court agreed, “even if the State is not able to finance higher education as required under the Directive Principles of State Policy under article 41 of the Constitution, it should not deny and discourage opportunities for education by adding cost to it in the form of tax on education which will certainly disable the economically weaker sections from pursuing higher studies.”

When the Addl. Solicitor General of India submitted that so many educational institutions are mushrooming and education is carried on as business and therefore, there is no illegality or even impropriety in levying tax on such educational institutions, the Court observed, “ this malady has to be corrected only by levying income-tax on the institutions and not by licensing the institutions to collect service-tax from students. In fact section 10(22) of the IT Act which granted blanket income-tax exemption for educational institutions is now deleted and exemption is provided with moderation in section 10(23C) of the said Act. Of course, section 11 of the IT Act which provides cover to large number of tax evaders under the guise of charity will continue to protect educational institutions as charity includes education also. If education is run on business lines, then solution is to amend section 11 and other relevant provisions of the IT Act withdrawing the exemptions to institutions and Government can simultaneously provide financial aid to beneficiaries which will put an end to misuse of income-tax provisions.”

The Court further observed, “Tax on education, particularly when the incidence of tax is passed on to the beneficiaries, that is, the students, is a regressive legislation and has to be condemned, more so, when large number of poor people seek salvation through education and employment.”

Nothing more really needs to be said. No modern Welfare State should tax EDUCATION.

TAILSPARK: One of my colleagues has an MBA from a private university. When she came to know that her alma mater was my client, she wanted me to charge a hefty fee from them as they had charged her a few lakhs for that MBA. I told her that if they had paid Service tax, her education would have been 12% costlier.