Separately Sold Study Material And Student Fee Waivers Not Taxable To Service Tax: CESTAT New Delhi

The New Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 6 July held that coaching institutes do not have to pay Service Tax on the value of study material sold separately or on scholarships and fee concessions granted to students. Service Tax applies only to the coaching fee actually collected from students and not to amounts that the institute never charged or recovered.

Judicial Member Binu Tamta and Technical Member P.V. Subba Rao allowed an appeal filed by FIIT JEE Limited and set aside the Service Tax demand raised on the value of course material supplied to students and scholarships and fee waivers granted by the institute. The Bench observed:

“Similar view has been taken by the Tribunal in the case of Carrier Point Infosystems Limited versus Commissioner of CE, Jaipur-I, where it has been held that scholarship/fee waiver given to meritorious or economically backward students is in form of discount/rebate, which is not includible in taxable value of the coaching services and if such scholarship is used for further advertisement of assessee's business, it cannot be held to be additional consideration and the service tax is payable on gross amount actually collected by the students. Following the same principle, we hold that fee waiver/scholarship provided to students is not chargeable to service tax.”

The Department alleged that FIIT JEE had supplied study material only to enrolled students and that the material formed an integral part of the coaching service. It argued that FIIT JEE should include the value of such material in the taxable value under Section 67 of the Finance Act, 1994 (which provides the basis for valuation of taxable services).

It also argued that FIIT JEE provided the same coaching services to all students and, therefore, should pay Service Tax on the full course fee even where it granted scholarships or fee concessions.

Rejecting the Department's submissions, the Tribunal held that settled law already covered the issue of study material. It held that coaching institutes sell books, course material or study kits independently when they issue separate invoices and maintain documentary evidence for such sales. Such transactions constitute sales of goods and cannot form part of the taxable value of coaching services.

The Bench relied on its decision in Cerebral Learning Solutions Private Limited, which the Supreme Court had affirmed, to hold that separately sold study material cannot be included in the taxable value of coaching services.

It also referred to its earlier decisions in Resonance Eduventures Private Limited and Carrier Point Infosystems Limited to hold that scholarships and fee waivers granted to students are in the nature of discounts or rebates and do not amount to additional consideration for coaching services. The Bench held that both issues were already settled by judicial precedents.

Further, it rejected the Department's argument that identical coaching services required FIIT JEE to pay Service Tax on the full course fee for every student. It held that fee concessions do not change the valuation principles under Service Tax law and that tax can be demanded only on the amount actually received from students.

Accordingly, the CESTAT set aside the impugned order and allowed FIIT JEE's appeal, holding that both issues stood covered by settled precedents.

Appearance for the Appellant: Shri Deepak Thackur and Ms. Shubhangi Gupta, Advocates.

Appearance for the Respondent: Shri Mahboob Ur Rehman, Authorised Representative.