CESTAT Mumbai Quashes Service Tax Demand Against Jamnalal Bajaj Institute On Student Placement Fees

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 6 May held that educational institutions facilitating campus placements cannot attract service tax under “Manpower Recruitment or Supply Agency Service” where employers or recruiting entities pay no consideration and institutions collect placement-related fees only from students.

Judicial Member Ajay Sharma and Technical Member A.K. Jyotishi allowed the appeal filed by Jamnalal Bajaj Institute of Management Studies and set aside the order of the Commissioner (Appeals), Mumbai, which had imposed service tax liability on placement-related fees collected from students. The Bench observed:

“The statutory definition of 'taxable service' under Section 65(105)(k) contemplates a service provided to a client, namely an employer or prospective employer, in relation to recruitment or supply of manpower. The charging provision, therefore, inherently requires a service provider-client relationship where the consideration flowing from such client (i.e. the employer).”

The dispute arose from proceedings relating to the period 2006-07 to 2007-08. The department issued a show cause notice demanding Rs.5.33 lakh in service tax along with interest and penalties by classifying placement activities undertaken by the institute as “Manpower Recruitment or Supply Agency Service” under Section 65(105)(k) of the Finance Act, 1994.

The Adjudicating Authority dropped the demand after relying on the Tribunal's decision in Motilal Nehru Institute of Technology vs. CCE, Allahabad [2011 (22) STR 565 (Tri.-Del.)].

The Commissioner (Appeals), however, reversed the order after holding that the earlier decision constituted only an interim order. The Commissioner also relied on the CBEC Circular dated 23 August 2007 and held that institutions such as IITs and IIMs attracted service tax on campus placement activities.

Challenging the order, the institute argued that the Tribunal's final decision in Motilal Nehru National Institute of Technology had conclusively settled the issue. According to the institute, the Tribunal had already held that placement facilitation by educational institutions would not amount to manpower recruitment service when institutions collected consideration from students instead of recruiting companies.

Accepting the contention, the Tribunal held that Section 65(105)(k) required a service provider-client relationship in which the client must be an employer or prospective employer.

The Bench noted that the institute merely facilitated interaction between students and prospective employers and did not undertake recruitment on behalf of employers. It also stated that recruiting companies paid no consideration to the institute. It held:

“The appellant collects placement-related fees from students and no consideration is received from recruiting companies. The appellant merely facilitates interaction between students and prospective employers without undertaking recruitment on behalf of such employers.”

Relying on Motilal Nehru National Institute of Technology, the Tribunal held that students could not qualify as “clients” within the meaning of the taxable entry. It further held that the CBEC Circular dated 23 August 2007 applied only to situations where institutions charged placement fees to recruiting companies and not where institutions collected fees from students. The Bench stated:

“The students cannot be regarded as 'clients' within the meaning of the taxable entry and no consideration flows from the employers. There is also no service rendered to an employer in relation to recruitment or supply of manpower. Consequently, the essential ingredients of the taxable entry are absent, and the activity cannot be brought within the ambit of the said service.”

The Bench reiterated that taxing statutes require strict interpretation and held that executive circulars cannot expand the scope of a charging provision. It further observed:

“Unless the activity of the appellant squarely falls within the four corners of the provision, no tax can be levied by stretching the language of the provision or by relying upon executive circulars. Therefore the reliance placed by the Revenue on Circular dated 23.08.2007 is misplaced, as executive instructions cannot override or expand the scope of the charging provision.”

Accordingly, the CESTAT set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Shri M.Dwivedi, Advocate

For Respondent: Shri S.B.P.Sinha (AR)