CESTAT Rules, Service Tax Not Leviable On Hostel Fees Received For Non-Residential Courses In Coaching Institute
Pranav B Prem
In a significant ruling, the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that hostel fees collected by coaching institutes for non-residential courses are not liable to service tax under the category of Commercial Training or Coaching Services. The Bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) delivered this decision in an appeal filed by M/s Roy’s Institute of Competitive Examination Pvt. Ltd., challenging a demand confirmed by the Service Tax department.
Background
The appellant, Roy’s Institute of Competitive Examination Pvt. Ltd., offered both residential and non-residential coaching courses. Students enrolled in residential courses were mandatorily required to stay in hostels provided by the institute, and the course fees for such programs included hostel charges. Service tax was duly paid on the entire fee in such cases.
However, for non-residential courses, accommodation was optional and provided subject to availability. Hostel charges for these students were collected separately and not included in the course fees. Accordingly, the appellant did not charge service tax on these stand-alone accommodation charges.
The department issued a demand of ₹35.86 lakhs, alleging non-payment of service tax on hostel fees received from students in non-residential courses. The appellant contested this demand on the ground that such services fall under the exemption for residential accommodation and are not part of the taxable coaching service.
Tribunal’s Observations and Findings
The Tribunal took note of the fee structure and found that hostel accommodation for non-residential students was offered independently and not bundled with the course. The accommodation charges were separately billed and availed only by students who opted for it. The Tribunal concluded that the service in question was a stand-alone residential accommodation and not part of commercial coaching services.
Relying on Circular No. DOF/334/1/2007-TRU dated 28.02.2007, which clarified that residential facilities like hostels and boarding houses were excluded from the scope of renting of immovable property services, the Tribunal held that the stand-alone hostel charges would not fall under Commercial Training or Coaching Services defined under Section 65(105)(zzc) of the Finance Act.
The Tribunal held: "Even if any student, who does not avail this service, would continue to avail the course offered by the Appellant and therefore, the question of payment of service tax does not arise."
It was further noted that similar views were taken in Aditya College of Competitive Exam V. CCE, Visakhapatnam [2009 (16) S.T.R. 154 (Tri. - Bang.)], where charges for mess and hostel facilities were excluded from service tax as they had no nexus with training or coaching services. Accordingly, the Tribunal set aside the service tax demand of ₹35,86,321/- raised on this ground.
Related Issues Also Decided
While addressing this core issue, the Tribunal also adjudicated on other contentions:
Revenue Sharing with CMC Ltd: The department had demanded ₹25.50 lakhs as service tax under Business Support Services on the revenue share received from CMC Ltd. However, the Tribunal found that the agreement was on a principal-to-principal basis and not a service provider-recipient relationship. Since CMC had already paid service tax on the full amount collected from students, and there was no provision of independent services by the appellant to CMC, the Tribunal ruled that the demand was not sustainable.
Sale of Newspapers, Forms, and Magazines: A demand of ₹60.97 lakhs was raised on items like newspaper sales (Jibika Dishari and Swabhumi), forms, prospectuses, and the institute’s magazine (RICE Times). The Tribunal held that these were transactions in goods and could not be subjected to service tax. Accordingly, these demands were also set aside.
Library Subscription and Charges: The Tribunal observed that library usage was optional and could not be linked to coaching services. The library services were provided akin to standalone public libraries, with separate invoices raised and no service tax charged. Thus, the demand on this count too was held to be unsustainable.
Other Minor Demands: The appellant had already accepted shortfalls related to accrual accounting, miscellaneous receipts, and improper registration. These were paid before the show cause notice, and the Tribunal ruled that no penalties were imposable since there was no suppression or fraud.
Extended Limitation Period: The Tribunal also rejected the invocation of the extended limitation period, holding that the appellant acted under a bona fide belief supported by legal precedents and had disclosed all relevant facts.
Verdict
In conclusion, the Tribunal allowed the appeal filed by the coaching institute, setting aside the major service tax demands, including those on hostel fees, revenue share with CMC Ltd., and sales of printed materials. The ruling reaffirms the principle that optional residential accommodation provided by coaching institutes cannot be clubbed with coaching services for the purpose of levying service tax, and such standalone services fall under the exempted category.
Appearance
Mr. Rajarshi Dasgupta, Chartered Accountant for the Appellant
Shri R. K. Agarwal, Authorized Representative for the Respondent
Cause Title: M/s. Roy’s Institute of Competitive Examination Private Limited V. Principal Commissioner of Service Tax-I, Kolkata
Case No: Service Tax Appeal No. 75230 of 2016
Coram: Hon’ble Shri Ashok Jindal [Member (Judicial)], Hon’ble Shri K. Anpazhakan [Member (Technical)]
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