The Customs, Excise and Service Tax Appellate Tribunal recently ruled that standalone hostel accommodation services provided by coaching centres/ educational institutions are exempt from service tax and that revenue-sharing arrangements between coaching institutes and franchisors do not constitute taxable services [Roy’s Institute of Competitive Examination Private Ltd. vs. Principal Commissioner of Service Tax, Kolkata].
Therefore, the tribunal set aside service tax demands totaling ₹1.22 crore against Roy’s Institute of Competitive Examination Private Limited (RICE).
The Kolkata-based competitive exam coaching institute faced multiple service tax demands totaling ₹1,25,29,172 with interest and penalties for the period 2011-12 to 2015-16. The case was argued by Chartered Accountant Rajarshi Dasgupta for the coaching institute, while Authorized Representative RK Agarwal appeared for the tax department.
The largest dispute involved hostel fees charged to students in non-residential courses. While residential course students paid inclusive fees with service tax, non-residential students were separately charged for optional accommodation.
“The stand-alone hostel charges collected for non-residential courses have no connection with Commercial Training and Coaching services,” ruled the two-member bench comprising Judicial Member Ashok Jindal and Technical Member K Anpazhakan.
The tribunal cited Board Circular No DOF/334/1/2007-TRU which exempts residential accommodation like hostels from service tax under the exclusion clause of renting immovable property services.
A significant portion related to the institute’s franchise agreement with CMC Limited. Under this arrangement, Roy’s institute collected student fees, handed the entire amount to CMC, which then returned 75% as the institute’s revenue share.
“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 tribunal observed.
The decision relied on the Supreme Court ruling in Commissioner of Service Tax Vs Inox Leisure Ltd. which had held that establishing that revenue sharing doesn’t necessarily constitute taxable service provision.
The tribunal addressed various demands on educational materials.
It ruled that sale of newspapers (Jibika Dishari and Swabhumi), admission forms, prospectus and magazines (RICE Times) constitute sale of goods, not taxable services.
Regarding ₹34.35 lakh in library subscription and development fees, the tribunal found these services were optional with no connection to coaching courses.
“There should always be a nexus between the amount collected and services rendered,” the tribunal emphasized.
It also rejected the revenue’s use of extended limitation period, noting the institute acted on bonafide belief based on judicial precedents. Without proving fraud or wilful suppression, demands can only be raised for 12 months.
Thus, it set aside the tax demands of ₹35,86,321 for hostel services, ₹25,50,658 with respect to revenue sharing, ₹60,97,878 for educational materials and ₹10,000 for registration penalty.
Source #BAR AND BENCH
