COMMERCIAL TRAINING OR COACHING SERVICES

Commercial training or coaching services are brought under the Service Tax net by the Finance Act, 2003, w.e.f. 1-7-2003 vide Notification No. 7/2003, dated 20-6-2003. The services shall be taxed, if provided by a commercial training or coaching centre.

Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer to -'Payment of Service Tax'.

'Commercial training or coaching services'

The definition of 'commercial training or coaching' has been given under clause (26) of section 65. That is:

“commercial training or coaching means any training or coaching provided by a commercial training or coaching centre".

Nowadays, the private tutorial, coaching centers, vocational institutes, are mushrooming throughout the country, which provide training/ coaching. To tab such private tutorials and coaching centres within the ambit of service tax, ‘commercial training or coaching services' are brought under the service tax. Accordingly, now, w.e.f. 1-7-2003, the commercial coaching and training services provided by institutes that prepare applicants for Board examinations and competitive exams like entrance examinations for Indian Institute of Technology-joint Entrance Examinations/ Pre Medical Tests, Civil Services exams etc. are chargeable to service tax.

Taxable service

The definition of taxable service provided by a commercial training or coaching centre has been given under sub-clause (zzc) of clause (105) of section 65. That is:

“any service provided "to any person, by a commercial training or coaching centre in relation to commercial training or coaching".

(1) Service tax is leviable on postal coaching

Yes, the Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I) has clarified that service tax is leviable on any coaching or training provided by an institution on commercial basis. Therefore, the coaching provided by postal means would also be covered under the service tax and the charges, including the postal charges collected for rendering this service would be subjected to service tax.

(2) Service tax is leviable on institutes providing commercial coaching in addition to recognized degree courses

No, some institutes like colleges, apart from imparting education for obtaining recognized degrees/ diploma/ certificates, also impart training for competitive examinations, various entrance tests, etc. The Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I) has clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.

(3) Individuals going to houses to impart tuition/coaching would be chargeable to service tax

No, the Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure 1) has clarified that service tax is on institutions/ establishments. Therefore, only those service providers are covered under the service tax who have some establishment for providing commercial coaching or training i.e. institutional coaching or training. Thus, individuals providing services at the premises of a service receiver would not be covered under service tax.

(4) Tuition Bureau is covered under the service tax

Yes, the Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure 1) has clarified that if coaching or training center provides commercial coaching by sending individuals to the premises of service receivers, such services would be chargeable to tax, as in this case, the individuals are rendering services on behalf of an institution.

(5) Free summer training/in house training provided by employers to their employees are covered under service tax net

No, the Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure 1) has clarified that in case employers provide any free training themselves, no service tax is chargeable. However if an employer hires an outside commercial coaching or training center for imparting some training to its employees, then the payment made by the said employer to such coaching center will be chargeable to service tax".

(6) Coaching imparted to students of 1-9 or degree exams are taxable service

Yes. The CBEC in answer to question no. 1.4 of the 'Frequently asked questions on Service Tax' issued in October 2003 has stated, "the coaching imparted to students of standard I to 9 is taxable" and in answer to question no. 1.5 it is stated, "the commercial coaching given to the students to prepare them for university degree exam is liable for service tax.

Liable to pay service tax

Service tax is liable to be paid when commercial training or coaching services are provided by a 'commercial training or coaching centre'.

(1) 'Commercial training or coaching centre'

The definition of 'commercial training or coaching centre' has been given under clause (27) of section 65. That is:

"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 pre-school 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".

The definition of commercial training or coaching centre is very specific. It includes any institute or establishment, commercial vocational institutes, coaching centers and private tutorials are covered under the ambit of commercial training or coaching centre, however, an individual who provides training or coaching will not be covered, as individual cannot be regarded as institute or establishment, therefore, not liable to pay service tax. Further an institute or establishment should provide commercial training or coaching, the word 'commercial' indicate that such training or coaching must be provided for the purpose or with the motive to earn profit. Therefore, if any organization like trust, society etc. are providing training or coaching for the welfare of the people and not to earn profit, it will not be covered within the ambit of service tax.

It is not necessary that training or coaching must be only related to study or any course, it may be in respect of any subject or field (other than sports), therefore, training provided by vocational institutes will also be covered in the present context of service tax, however temporary exemption has been granted to vocational institutes etc. as discussed at the end. However, the creches, which provide preschool coaching/ training, have been kept out of the ambit of service tax. Similarly, the school, institute etc. which provide diploma or degree under the law is also out of the ambit of service tax.

Commercial training or coaching services are liable to be charged to service tax

Commercial training or coaching services are liable to be charged to service tax when provided to -

§ any person

§ in relation to commercial training or coaching

(1) 'any person'

The term 'person' has not been defined in the context of service tax. But, the term 'person' has been defined as "person shall include any company or association or body of individuals, whether incorporated or not" [clause (42) of section 3 of General Clauses Act, 18971. In the present context, any person refers to any individual to whom the coaching, training is imparted by a commercial training or coaching centre.

Value of taxable services for charging tax

The value of taxable services in relation to services provided by a commercial training or coaching centre shall be the gross amount charged by such centre from any person for services in relation to commercial training or coaching [section 67]. The words 'gross amount' are used in contrast to the 'net amount', therefore, no abatement shall be allowed in respect of administrative/ office expenses incurred in respect of such services.

Explanation 1 has also been added to section 67, which provides that, for the removal of doubt, in respect of only certain specific services, it is declared that certain amount shall be part of value of taxable services and certain amount shall not be part of the value of taxable services, but nothing has been specified in respect of commercial training or coaching services.

(1) Cost of study materials etc. is part of the value of taxable service

Yes, the Government has issued Notification No. 12/2003-ST, dated 20-62003, w.e.f. 1-7-2003 (appended as Annexure IV in the 'Payment of Service Tax') by giving a general exemption from the service tax levy on so much of the value of all the taxable services, which is equal to the value of goods and materials sold by the service provider to the recipient of service, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. The aforesaid Notification No. 12/2003 has been amended w.e.f. 10-9-2004, vide Notification No. 12/2004-ST, dated 109-2004, and now, w.e.f. 10-9-2004 the abatement under the aforesaid Notification shall be available if no credit of duty paid on such goods and materials sold, has been taken under the provisions of the CENVAT Credit Rules, 2004 (which has been discussed in the 'credit of service tax and excise duty') or where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.

While explaining the scope of exemption under aforesaid Notification No. 12/2002, the Government in para 2.9.1 of its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure V in the 'Payment of Service Tax') has also clarified, "This exemption would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoice. It is also clarified that in case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard textbooks, which are priced. Any study material or written text provided by such institute as a part of service which does not satisfy the above criteria will be subjected to service tax".

(2) Value of taxable service where lump-sum payment is received prior to 1-7-2003 but the entire or part of service is provided on or after 1-7-2003

The Government in its Circular No. 65/14/2003, dated 5th November 2003 (discussed and appended as Annexure VII in the - 'Payment of Service Tax') has clarified that "where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis". Accordingly on the services rendered on or after 1-7-2003 for which the lump-sum payment has been received prior to 1-7-2003 (i.e. prior to the date of imposition of levy on taxable service), the value of taxable service shall be worked out on pro rata basis.

Exempted commercial training or coaching services

(A) Exemption to vocational institute etc.: The Government, w.e.f. 1-7-2003, had exempted, the taxable service in relation to commercial training or coaching from the whole of the service tax vide Notification No. 9/2003, dated 20-6-2003 (appended as Annexure II), provided to any person by

(a) a vocational training institute;

(b) a computer training institute; or

Initially the exemption was granted for a limited period and was valid only up to 29th February, 2004, however, by Notification No. 1/2004-ST, dated 4th February, 2004 (appended as Annexure IV), such exemption was further extended up to 30th June, 2004. The Government has not renewed or extended the exemption, therefore, it has automatically lapsed and tax becomes payable for the services rendered after 30th June, 2004.

As per the Explanation appended to the aforesaid Notification No. 9/2003, for the purpose of said Notification,

(i) "vocational training institute" means a commercial training or coaching centre which provides vocational coaching or training that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching;

(ii) “computer training institute" means a commercial training or coaching centre which provides coaching or training relating to computer software or hardware;

(iii) “recreational training institute" means a commercial training or coaching centre which provides coaching or training relating to recreational activities such as dance, singing, martial arts, hobbies.

The Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I) had clarified that because of the aforesaid Notification No. 9/2003, dated 20-6-2003, the vocational coaching and training services provided by typing and shorthand institutes, TV/vehicle repair training institutes, tailoring institutes, industrial training institutes, foreign language institutes, computer-training centers, hobby classes, institutes teaching martial arts, painting, dancing, etc. would not be chargeable to service tax.

The Government, w.e.f. 10-9-2004, has again issued an exemption Notification and exempted the taxable service in relation to commercial training or coaching from the whole of the service tax vide Notification No. 24/2004, dated 10-9-2004 (appended as Annexure V), provided to any person by

(a) a vocational training institute; or

(b) a recreational training institute,

Explanation. -For the purposes of this notification,

(i) "vocational training institute" means a commercial training or coaching centre which provides vocational training or coaching that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching;

(ii) "recreational training institute" means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies.

In fact, the exemption, which was there earlier, has been restored except, in case of computer training institute.

In other words, the said exemption was not available for the period from 1st July 2004 to 9th September 2004.

(B) Exemption to associate training or coaching centre: The Government, w.e.f. 1-7-2003, has exempted the taxable service in relation to commercial training or coaching from the whole of the service tax vide Notification No. 10/2003, dated 20-6-2003 (appended as Annexure III), provided to any person which form an essential part of a course or curriculum of any other institute or establishment, leading to issuance of any certificate or diploma or degree or educational qualification recognised by law for the time being in force. However, this exemption shall not be applicable if the charges for such services are paid by the person (i.e. students) undergoing such course or curriculum directly to the commercial training or coaching centre.

It appears that the purpose of granting exemption under the aforesaid Notification No. 10/2003 to those commercial training or coaching centres which providing training or coaching to the students of Institutes (like Institute of Chartered Accountants of India) that confer degree/ certificate recognized by law and not covered under the service tax and such commercial training or coaching centre have been recognized by such Institute providing training or coaching to their students on their behalf. However, by appending the conditions that students must pay the entire fee to the institute that confer degree/ certificate, the purpose of the exemption is defeated. When these institutes conferring degree/ certificate are not covered within the ambit of service tax then how an associate commercial training or coaching centre could be taxed for providing training or coaching to students of such Institutes on their behalf in case if fee is not paid to the commercial training or coaching centre but paid directly to such institutes which are not even covered within the ambit of service tax. In the opinion of the author, if the conditions mentioned in the aforesaid Notification No. 10/2003 are fulfilled then even in the absence of the said notification there cannot be any service tax.

It has been seen that many times institutes conferring the degree/ certificate recognize by law also authorized some private commercial training or coaching centre to impart training/ coaching to their students for some purpose, in that case these commercial training or coaching centre also charges some fee from the students as fixed by the aforesaid institutes, in that situation exemption should have been granted under the aforesaid Notification No. 10/2003 to give real benefit of the exemption.

(C) General Exemption: The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f, 1-3-2003. The reader may note that detailed discussion about aforesaid exemptions along with relevant notifications have been given in the 'Exemption from whole of Service Tax - Some Cases'.

N.B. The readers may note that provisions, procedures and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate.

Annexure I

Clarification on the scope of the term for levy of service tax

[Circular No. 59/8/2003 [F. No. B3/7/2003-TRU], dated 20-6-2003, relevant extracts]

2.2 Vocational training and coacing centres

2.2.1 Commercial coaching and training services provided by institutes that prepare applicants for Board examinations and competitive exams like entrance examinations for Indian Institute of Technology-joint Entrance Examinations/Pre Medical Tests, Civil Services exams etc. are chargeable to service tax. However, services in relation to commercial coaching and training, provided by,

(a) vocational training institute;

(b) computer training institute; and

have been exempted from service tax w.e.f. 1st July, 2003 vide Notification No. 9/2003-Servtice Tax dated 20th June, 2003. Therefore, vocational coaching and training services provided by typing and shorthand institutes, TV/vehicle repair training institutes, tailoring institutes, industrial training institutes, foreign language institutes, computer-training centers, hobby classes, institutes teaching martial arts, painting, dancing etc would not be chargeable to service tax. This exemption would remain in force upto 29th February, 2004.

2.2.2 Institutes like the Institute of Chartered Accountants of India some time hire the services of other institutes to impart some part of training (like language or computer training) to the students undertaking courses for obtaining recognized degrees/ diplomas (like Chartered Accountancy) from their institute. Whereas institutes the Institute of Chartered Accountants of India will not be chargeable to service tax because they confer qualifications recognized by law, the institutes or centers providing such part of training may be otherwise under service tax net. Vide notification No. 10/2003-Service Tax, dated 20th June, 2003, exemption has been provided w.e.f. 1st July, 2003 to such services rendered by commercial training or coaching centers from service tax which form an essential part of the course or curriculum leading to issuance of recognized certificate, diploma, degree or any other educational qualification. The exemption is subject to the condition that the receiver of such service (for example, student) makes payment for the entire course or curriculum to the institute or establishment issuing such certificate, diploma etc. and not to the commercial coaching or training center.

2.2.3 Certain doubts have been raised in case of commercial coaching and training. In this regard, the following is clarified, -

Whether service tax is leviable on postal coaching: It is clarified that service tax is leviable on any coaching or training provided by an institution on commercial basis. Therefore, the coaching provided by postal means would also be covered under the service tax and the charges, including the postal charges collected for rendering this service -would be subjected to service tax.

Whether service tax is leviable on institutes providing commercial coaching in addition to recognized degree courses: Some institutes like colleges, apart from imparting education for obtaining recognized degrees/ diploma/ certificates, also impart training for competitive examinations, various entrance tests etc. It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.

Whether individuals going to houses to impart tuition/ coaching would be chargeable to service tax: It is clarified that service tax is on institutions/ establishments. Therefore, only those service providers are covered under the service tax who have some establishment for providing commercial coaching or training i.e. institutional coaching or training. Thus, individuals providing services at the premises of a service receiver would not be covered under service tax. However, if coaching or training center provides commercial coaching by sending individuals to the premises of service receivers, such services would be chargeable to tax, as in this case, the individuals are rendering services on behalf of an institution.

Whether free summer training/in house training provided by employers to their employees are covered under service tax net: It is clarified that in case employers provide any free training themselves, no service tax is chargeable. However if an employer hires an outside commercial coaching or training center for imparting some training to its employees, then the payment made by the said employer to such coaching center will be chargeable to service tax.

Annexure II

Exemption from service tax on services provided by a vocational/computer/recreational training institute

Notification No. 9/2003-ST [F. No. B3/7/2003-TRU], dated 20-6-2003

(a) a vocational training institute;

(b) a computer training institute; or

to any person, from the whole of the service tax leviable thereon under subsection (2) of section 66 of the said Act.

Explanation. -For the purposes of this notification,

(i) “vocational training institute" means a commercial training or coaching centre which provides vocational coaching or training that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching;

(ii) "computer training institute" means a commercial training or coaching centre which provides coaching or training relating to computer software or hardware;

(iii) "recreational training institute" means a commercial training or coaching centre which provides coaching or training relating to recreational activities such as dance, singing, martial arts, hobbies.

2. This notification shall come into force on the 1st day of July, 2003 and shall remain in force upto and inclusive of the [30th day of June, 2004]1 .

Annexure III

Exemption from service tax on services provided by commercial training or coaching centre for specified purposes

Notification No. 10/2003-ST [F. No. B3/7/2003-TRU], dated 20-6-2003

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by a commercial training or coaching centre, in relation to commercial training or coaching, which form an essential part of a course or curriculum of any other institute or establishment, leading to issuance of any certificate or diploma or degree or educational qualification recognised by law for the time being in force, to any person, from the whole of the service tax leviable thereon under sub-section (2) of section 66 of the said Act:

Provided that this exemption shall not be applicable if the charges for such services are paid by the person undergoing such course or curriculum directly to the commercial training or coaching centre.

2. This notification shall come into force on the 1st day of July, 2003.

Annexure IV

Extension of exemption from service tax on services provided by a vocational/computer/recreational training institute

Notification No. 1/2004-ST [F. No. 354/16/2004-TRU], dated 4-2-2004

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in the Notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 9/2003-Service Tax, dated the 20th June, 2003, published in the Gazette of India, vide GSR 500(E), dated the 20th June, 2003, namely:

In the said notification, in para 2, for the figures, letters and words "29th day of February, 2004", the figures, letters and words "30th day of June, 2004", shall be substituted.

Annexure V

Exemption from service tax on services provided by a vocational/recreational training institute

Notification No. 24/2004-Service Tax [F. No. B2/8/2004-TRU], dated 10-9-2004

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided in relation to commercial training or coaching, by,

(a) a vocational training institute; or

(b) a recreational training institute,

to any person, from the whole of the service tax leviable thereon under section 66 of the said Act.

Explanation. -For the purposes of this notification,

(ii) “recreational training institute" means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies.