GREAT LAKES INSTITUTE OF Vs. CST

JUDGEMENT

(1.) M /s. Great Lakes Institute of Management, Chennai (GLIM), conducts Post Graduate Programme in Management (PGPM), a 12 months fulltime programme and Executive MBA, a part time course. GLIM has academic and research collaborations with Illinois Institute of Technology, Chicago, Yale University, USA and Nanyang Technological University, Singapore. Following investigation into the activities of GLIM, the department came to a tentative conclusion that GLIM is a 'commercial training or coaching centre' for the purpose of Finance Act, 1994 (the Act), It appeared to be an establishment providing commercial training or coaching for imparting knowledge or lessons on any subject or field other than sports as defined in Clause 26 of Section 65 of the Act. The diploma/degree issued by GLIM is not recognized by law. All India Council of Technical Education (AICTE) has not recognized the institute. It was observed that during the year 2004 -05 GLIM had earned excess income over expenditure of Rs. 84,41,777/ - and had transferred Rs. 80 lakhs to its infrastructure project fund. After due process of law, the Commissioner (Service Tax) vide his order in original No. 14/07 dated 30.04.07, concluded that GLIM imparted commercial training or coaching as defined in Section 65(26) of the Act. He found that the institute being a licensee under Section 25 of the Companies Act, 1956 and being granted the status of a public charitable trust under the Income Tax Act, 1961 did not alter the character and classification of service provided by the institute. The institute was a 'not for profit' organization under the Income Tax Act. But that fact was not relevant for the Finance Act '94. He also rejected the plea of the institute that it was 'a vocational training institute' as the institute did not impart training which equipped the students with any particular skill to take up a vocation like typing or tailoring. He demanded from GLIM service tax of Rs. 1,44,05,390/ - and education cess of Rs. 2,39,112/ - on a value of Rs. 14,70,51,997/ - for the training or coaching service provided by it during the period 1/4/04 to 31/7/06. He also imposed penalties under Sections 76, 77 and penalty equal to the service tax demanded under Section 78 of the Act. The order also demanded interest on the service tax demanded in terms of Section 75 of the Act.

(2.) THE subject appeal is directed against this order of the Commissioner. The following submissions have been taken in the appeal. The appellant is involved in the promotion of best academic practices both from India and abroad, to offer the state of the art world class management education to the students in India. The institute is not a commercial venture. It has been approved as a 'not for profit' organization in terms of Section 25 of the Companies Act and registered as a public charitable trust under Section 12AA of the Income Tax Act. The entire proceeds of the institute are accordingly used for the development of education and no part of the money received is distributed as dividends or profits to the stake holders. The courses offered are similar to those offered by the IIMs of India. It is argued that the unambiguous statutory definition appearing in Section 65(26) of the Act laid emphasis on training or coaching provided by a commercial training or coaching centre. As GLIM is not a commercial venture, it does not fit in the definition in Section 65(26). The Commissioner erroneously held that a charitable organization had to provide services free of cost. The order was passed in violation of the judicial discipline in as much as he ignored the various judicial authorities cited before him. The funds raised are ploughed back into expanding the infrastructure of the organization to provide better services to the student community thereby benefiting the industry and society. No part of the surplus could be distributed to the stake holders as dividend or as profit. Therefore, the findings that the institute is engaged in commercial activity is incorrect. The service is intended to tax such institutions which prepared students for Board examinations and competitive examinations such as IIT, civil service examination etc, for whom education is a business. The Commissioner overlooked the instructions in the Board's Circular dated 01/11/06 to the effect that the totality of the activity and object of the existence of the institution determined whether it was a commercial institute or not. The Circular was issued to clarify that IITs and IIMs existed to impart education and the fact that they charged fees for assisting recruitment of personnel by companies did not make them commercial concerns and therefore 'manpower recruitment agencies'. Commissioner wrongly held that only public educational institutes which conferred recognized degrees (not profit generating educational institutes) are not to be taxed in terms of the Board's Circular. GLIM imparted similar education as IIMs which are not taxed. An alternate plea is that the institute provided vocational training which is exempted from service tax in terms of Notification No. 9/03 -ST. There was no deliberate attempt to evade service tax and demand should not have been raised invoking larger period. Penalty imposed is not justified. They failed to follow the formalities under bonefide belief that their activities did not constitute taxable service. They deserve the benefit of Section 80 of the Finance Act, 94 and penalty should not have been imposed on them.

(3.) DURING hearing Ld. Counsel for the appellants relied on the following case law: