Commercial Training or Coaching Service – Clarity of taxability only after issue of exemption notifications

By TIOL Budget Team

NEW DELHI, MAR 01, 2011: CLAUSE 27 of Section 65 of the Finance Act, 1994 reads as follows:

(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;

Now a major amendment is made in the taxability of services provided by the commercial training or coaching centres. For this purpose, sub Clause 3 of Clause A of Section 71 of the Finance Bill 2011 proposes an amendment to Clause 27 of Section 65 of the Finance Act, 1994 as follows:

‘(3) in clause 27 the portion beginning with the words ‘but does not include' and ending with the words ‘time being in force' shall be omitted.

The effect of this amendment is that the portion in the red font above is deleted and the new provision would read as follows:

(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.

The TRU in its DO letter dated February 28, 2011 has clarified this aspect at paragraph 3.3 as follows:

3.3 Commercial Training or Coaching Service [section 65 (105) (zzc)]: The scope of the service is proposed to be expanded to include all coaching and training that is not recognized by law irrespective of whether the institute is providing any other course(s) recognized by law.

This is further explained in Annexure B to this TRU letter as follows:

3. Commercial Training or Coaching Service [section 65 (105) (zzc)]:

3.1 The levy in its present form keeps outside its purview unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law. Thus two identical courses may be treated differently merely because one of the institutes also conducts another course that is recognized by law. This anomaly is proposed to be corrected by subjecting all such unrecognized education to tax.

3.2 In the Finance Bill the definition of “commercial training coaching centre” has been amended. Suitable exemption will be given after the enactment of the Finance bill to preschool coaching and training and to coaching or training relating to educational qualifications that are recognized by law.

With the proposed amendment to the definition of ‘commercial training or coaching centre', the Government wants to bring into tax net activities related to “ unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law”.

This statement itself appears to be ambiguous. On the one hand it is stated that scope of this service is proposed to be expanded to include all coaching and training that is not recognized by law irrespective of whether the institute is providing any other course(s) recognized by law. While on the other, it is stated that ‘unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law' will be brought into tax net. However, the TRU further states that ‘a suitable exemption will be given to pre-school coaching and training and also to coaching or training relating to educational qualifications that are recognized by law'.

Now, what does the Government mean by ‘unrecognized education'? There are institutions which are imparting higher education (post graduate diploma courses) but do not have any affiliation with UGC or AICTE. In effect, these courses do not get the ‘recognition under law'. These institutions have hitherto benefited by favourable judgments from CESTAT regarding the taxability of their activity of imparting such higher education on the basis of these institutions being administered by ‘trusts' or ‘societies'.

However, by inserting an explanation under clause (zzc) of sub-section 105 of section 65 through Finance Act, 2010, they (CESTAT judgments) were sought to be nullified and these institutions were brought into the purview of the tax net. But now a further amendment is proposed in the current Finance Bill (as stated above) and the explanations given by TRU in its DO letter only add to the confusion.

Unfortunately, the contours of this amended version of this taxable service will get clarity only when the Government comes out with the proposed exemption notifications.