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Applicability of service tax on examination fee

CA. Firoz (Practice) (30 Points)

02 May 2012

A Ltd is authorised agency for conduct of professional examination in India on behalf of University at London. All the fee including registration charges, study material charges, examination charges etc. are collected by A Ltd in India and A Ltd is free for charging any fee in India from students. However all materials such as study material, examination material, issue of certificates to qualified students etc shall be delivered to A Ltd by University and they raise invoice for the same on the basis of details of students provided by A Ltd. Now I want to know whether service tax shall be applicable on the invoices raised by A Ltd in India, if yes, under which service. Whether service tax shall also be applicable on the invoices received from University in India? Please reply with quoting notification and circular nos.

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V.MASTHANVALI (ACCOUNTS EXECUTIVE) (89 Points)
Replied 28 May 2012

2. COMMERCIAL NATURE OF INSTITUTE

The first issue arises from the very name i.e. Commercial training or coaching center’. Many service providers argue that the word ‘commercial’ appearing in the aforementioned phrase, suggests that to fall under this definition, the establishment or the institute must be commercial (i.e. having profit motive) in nature. It is argued that institutes which are run by charitable trusts or on no-profit basis would not fall within the phrase commercial training or coaching center and none of their activities would fall under the taxable service. This argument is clearly erroneous. As the phrase ‘commercial training or coaching center ‘has been defined in a statute, there is no scope to add or delete words while interpreting the same. The definition commercial training or coaching center has no mention that such institute must have ‘commercial’ (i.e. profit making) intent or motive. Therefore, there is no reason to give a restricted meaning to the phrase. Secondly, service tax, unlike direct taxes, is chargeable on the gross amount received towards the service charges, irrespective of whether the venture is ‘profit making, loss making or charity oriented’ in its motive or its outcome. The word “Commercial” used in the phrase is with reference to the activity of training or coaching and not to the nature or activity of the institute providing the training or coaching. Thus, services provided by all institutes or establishments, which fulfills the requirements of definition, are leviable to service tax.