Coaching Centres Gets Big Relief | Tribunal Says "No Service Tax On Hostel & Revenue Sharing"

RICE coaching institute wins Rs 1.22 crore tax case. Tribunal says hostel fees and revenue sharing not taxable under service tax law.

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NEW DELHI: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) gave a very important decision. The tribunal said that coaching centres or educational institutions that provide hostel accommodation separately do not have to pay any service tax on that service.

Also, when coaching centres and franchisors share revenue, it does not mean they are giving any taxable service.

The tribunal cancelled total service tax demands of Rs 1.22 crore against Roy’s Institute of Competitive Examination Private Limited (RICE), a well-known coaching centre in Kolkata.

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RICE was facing tax demands of Rs 1,25,29,172 along with interest and penalties. These demands were for the period from 2011-12 to 2015-16. Chartered Accountant Rajarshi Dasgupta argued the case for RICE, while RK Agarwal appeared on behalf of the Service Tax Department.

The biggest issue in this case was about hostel fees taken from students who joined non-residential courses. In these courses, hostel accommodation was optional and charged separately. On the other hand, students in residential courses paid a combined fee that already included service tax.

In its ruling, the two-member tribunal bench — Judicial Member Ashok Jindal and Technical Member K Anpazhakan — clearly said:

“The stand-alone hostel charges collected for non-residential courses have no connection with Commercial Training and Coaching services.”

The tribunal also referred to Board Circular No DOF/334/1/2007-TRU, which clearly says that providing hostel accommodation (residential type) is not liable for service tax. It comes under the “renting of immovable property” exclusion.

Another major issue was related to RICE’s franchise agreement with CMC Limited. As per the agreement, RICE collected all student fees and then gave it to CMC. CMC later returned 75% of the amount to RICE as their share.

Here too, the tribunal said that such an arrangement does not mean any taxable service is being provided.

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It said:

“For the purposes of levy of service tax there should be a service provider and service recipient relationship. If the same is not present, the basic question of levy of service tax does not arise.”

The bench also referred to a Supreme Court judgment in Commissioner of Service Tax Vs Inox Leisure Ltd. In that case, the top court had said that revenue sharing does not always mean there is a service being provided.

Coaching Centres Gets Big Relief | Tribunal Says "No Service Tax on Hostel & Revenue Sharing"

The tribunal also looked into some smaller tax demands on items like:

Sale of newspapers like Jibika Dishari and Swabhumi
Admission forms, prospectus, and magazines like RICE Times

On this, the tribunal said these are simply sale of goods, not services, and cannot be taxed under service tax.

The tribunal also examined a charge of Rs 34.35 lakh for library subscription and development fees. These services were optional and had no link with the coaching services, so they were also not taxable.

The bench strongly said:

“There should always be a nexus between the amount collected and services rendered.”

The Service Tax Department had also used the extended limitation period to make tax demands. But the tribunal rejected this, saying RICE acted in good faith based on earlier court judgments. The department also could not prove there was any fraud or wilful suppression.

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So, the tribunal said that in such cases, tax demands can be raised only for the past 12 months, not beyond that.

In the end, the tribunal cancelled the following tax demands: