Service Tax on Commercial Training or Coaching Centre

[Submitted by Mr. Madhukar N Hiregange. FCA, DISA(ICAI)]

 

India due to its educated, qualified work force has thrust itself on the world scene and threatens to take over the place of being the leader in technical education from the USA. Large amount of vocational and need based courses whether in India or abroad have made their presence felt which are outside the normal curriculum. Further the assistances to those taking up professional course in colleges and universities have also been felt. The opening up of the country has also led to areas of employment increasing at leaps and bounds and the need to acquire new skills for the same has resulted in hundreds of coaching and training centres coming up. The Government of India has now been looking closely at educational institutions that claim the charitable and philanthropic causes by tracking the end use. In course of time these services may also be a subject matter of Service Tax as education is in most cases a commercial activity.

 

Date of applicability: 1-7-2003         

Rate of Service Tax: From 1.7.2003 - 8%

From 10.9.2004 onwards - 10% Service Tax and 2% of Service Tax as Education Cess.

Definitions:

Section 65 (26) "commercial training or coaching" means any training or coaching provided by a commercial training or coaching center.

Section 65 (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.

Section 65 (105) (zzc) defines taxable services as any services provided to any person, by a commercial training or coaching centre in relation to commercial training or coaching;

 

Coaching means the instructions and advise for athletics, academics or games. Training means development of a habit, thoughts or behavior by discipline and instructions. It may also be with the objective of giving proficiency of efficiency.

Service provider: Commercial Coaching or Training Centre which means Institute or establishment providing commercial training or coaching

Excluded service provider: a) Individuals b) Institutes, establishment, which provide coaching and training resulting in a certificate or diploma recognized by law, are outside the scope of this levy even if they provide commercial course also.

Taxable services: Any service provided to any person, by a commercial training or coaching center in relation to commercial training or coaching such as tutorials; coaching centers; institutes; distance learning institutions; postal coaching who provide any coaching in lessons, subjects for examinations, competitive examinations are liable.

Meaning of Commercial Training and Coaching: means any institute or establishment providing training or coaching commercially 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;

Excluded services: Services of training in the field of sports; Pre-school coaching; Any educational service provided by institute or establishment issuing any certificate or diploma or degree or any educational qualification recognized by law in force in India.

Export of Services:  This falls under Rule 3(2), which sets out that the service to be called an export of service should be performed at least partially outside India. Further that the delivery of the service should be outside India and the amounts should be received in convertible foreign exchange. If a resident provides such services he need not pay the service tax. Further he would be admissible for the rebate of inputs tax as well as input services credit in cash under either Notification 11 or 12/ 2005.

In case of training/ tuitions provided over the internet where the establishment is in India but the students are outside India, whether it can be said that the service is provided constructively outside India is a matter which requires clarity either by way of a Circular or a judicial decision. However if part of the coaching is provided outside India the exemption is clearly available as it meets the other criterion.

 

Value of taxable service: Gross amount charged by the service provider for such services rendered by him. It has been clarified that the cost of Study Materials cannot be deducted. However if the same is standard saleable materials then the deduction should be available under Notification 12/2003.

Reimbursements: As far as this service is concerned, there is no specific clarification regarding deduction of reimbursements. However the TA/  DA incurred while traveling would be available as deduction.

Exemptions available:

General Exemption:

Notification 16/2002: The services provided to the United Nations or any International Organization is exempt.

Notification 4/2004: The services to the developer and the units of the Special Economic Zone are exempt

Notification 21/2003: The services provided for which the payment is received in Convertible foreign currency is also exempt provided that the same is not repatriated.

Notification 12/2003: Notification 12/2003: General exemption to the value of goods or materials sold along with a service, provided no credit of duty paid on such goods and material sold, has been taken or where such credit has been availed by the service provider, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials. The question could be whether the study material can be deducted. It has been clarified that only standard study materials, which are priced would be allowed to be deducted and non standard study material would not be eligible.

Specific Exemption:

Notification 24/2004 dtd 10.9.2004: Exemption is provided to vocational training institute and recreational training institutes providing vocational training and recreational training as per the definition given in the notification.

Notification 10/2003 dtd 20.6.2003: Exemption to services provided by a commercial training or coaching center, becoming part of a course leading to degree, diploma etc., provided the fees are not paid to such Commercial or coaching center and is paid directly the university or institution who issues the said degree, diploma etc.

Notification 14/2004 - dt. 10.9.2004: Exemption to taxable services provided to a client by commercial concerns in relation to education in so far as procurement of goods or services which are inputs for the client, provision of services on behalf of the client or services incidental or auxiliary to the same.

Notification 6/2005 dt.1.3.2005: The small service provider exemption is available to the commercial coaching and training centers provided that they do not provide any "branded services". If working as franchisees or otherwise of another person then they would be liable. Example could be NIIT, APTEC and Tally coaching centers.

However if on own and previous years taxable services provided is less that Rs.4 Lakhs then in the current year on total receipts upto Rs. 4 lakhs the services are exempt.

Credits available:

Input service, which falls in the same category of service for which invoice or bill is issued on or after 16-8-2002 or in any other case on the invoice or bill or challan, which is issued on or after 14-5-2003 provided there is the payment of the value of input service and service tax payable as indicated on the face of the invoice or bill or challan is made.

Credit of Inputs and Capital Goods under the provision of Cenvat Credit Rules w.e.f. 10-9-2004. Main input could be paper, which suffers duty @16.32 %, printing inks and adhesives.

Resolved issues:

• Postal/correspondence coaching is covered under this category

• Schools and institutes which provide extra coaching for examination to their students not covered under the ambit of service tax as they are institutions issuing certificates as hence out of service tax ambit as per clarification no 59/8/2003 dtd 20.6.2003

• Such institutions that conduct crash courses for the same purpose and Services provided by institutes imparting pre-school certificates would also be not covered.  

• Computer Training is taxable after 1.7.04.

• Training and coaching provided at the service receivers premises if it is provided by the service provider it is covered under the scope of levy.

There is no case law development in this service.

This article has made an attempt to highlight the various aspects of the service tax on this category as understood by the paper writer.