Centre For Development Of Advanced Computing v. The Commissioner Of Customs And Central Excise (appeals-ii)

T.K. Jayaraman, Member (T)

1. This appeal has been filed against the Order-in-Appeal No. 16/2006 (H-II) ST dated 15.09.2006 passed by the Commissioner of Customs & Central Excise (Appeals-II) Hyderabad.

2. Shri G. Shiva Dass, the learned Advocate appeared on behalf of the appellants and Shri S.K. Choudhary, the learned special counsel, for the Revenue.

3. We heard both sides.

4. The appellant Centre for Development of Advanced Computing referred to as C-DAC is a society registered under the provisions of Societies of Registration Act 1860. They are also registered under the Public Trust Act, 1950 and are under the administrative control of the Department of Information and Technology, Ministry of Communication and Information Technology. The appellant is exempt from payment of Income Tax under Section 35(i)(ii) of Income Tax and also under Section 12(A)(a) of Income Tax 1961 being a charitable trust. The appellant is also recognized as a Scientific Society under the Department of Information Technology, Ministry of Communication and Information Technology and Scientific & Industrial Research Organization by the Ministry of Science and Technology. It is urged that the appellant is engaged in the research, design and development of super computers (PARAM Computers), Information and Communication Technology, Electronics. C-DAC is also engaged in imparting training/education in Information Technology and related fields. The appellant was given the mandate to build up and mobilize high quality research and development manpower in advanced computing within the shortest possible time, which is a part of their R&D activity. The appellants, in order to fulfill the objectives as enshrined in their Memorandum of Association are also imparting education in the field of software and hardware leading to the issuance of various diplomas such as Diploma in Advanced Computing, Diploma in Systems & Software Development, Diploma in Embedded Systems Design. The minimum qualification that is required to enroll in any of these courses is a B.Tech or BE from any recognized university.

5. Revenue issued a show cause notice dated 4.10.2005 for the period from 01.07.2004 to 31.03.2005 alleging that the appellant had provided the services of Commercial Training or Coaching in respect of courses conducted in the field of computer software and hardware. It was urged that the appellant primarily engaged in the research, design and development of state of art advanced computing systems so as to realize the internationally competitive products in terms costs, performance and quality. It was a non-profit organization and therefore it was not a commercial concern and they were not commercial establishments. They were exempt from Income Tax Act. It was also submitted that even if is assumed that the appellant is providing services covered under commercial coaching and training, the services are not liable to service tax since the same were fully exempt under Notification 24/2004 dated 10.09.2004. The extended period cannot be invoked. This was also urged. However, the Joint Commissioner rejected the submissions and confirmed the demands. But, he granted cum-tax benefit and reduced the demand to Rs. 14,53,036/- (Rupees fourteen lakhs fifty-three thousand and thirty-six only) from 15,67,000/- (Rupees Fifteen lakhs and sixty-seven thousand only). The appellants approached the Commissioner (Appeals). The Commissioner (Appeals) confirmed the order of the Original Authority.

6. The appellants are highly aggrieved over the impugned order. It was strongly urged by them that they are not providing any commercial training or coaching service. Our attention was directed to the definitions of Commercial Training or Coaching Centre in Section 65(26) and (27) and also the Boards Circular dated 20.06.2003 in which the scope of levying of service tax under the commercial training or coaching was explained. It was stated that in the light of the circular indicated the commercial training or coaching service has a very limited coverage and covers only the services provided by the coaching institutes and tutorials engaged in preparing students for appearing in various examinations. An institution providing high level of training and coaching and training was never intended to be covered under the taxable service of commercial training and coaching. It was stated that the Boards circular makes it clear that only centres which are training and coaching students for various examinations and which receive consideration are coming under the category. An institution which is providing very advanced training in a field cannot be called as a commercial coaching and training centre. Moreover, much emphasis was laid on the profit motive. As the appellant is a society registered under the Societies of Registration Act, there is absolutely no profit motive even the Income Tax Department has granted registration under Section 12(A)(a) the income derived is completely exempt from Income Tax. Our attention was also invited to the Memorandum of Association which states that the purpose of the society is to impart education. Clause 4 of the memorandum reads as follows:

All the incomes, earnings, movable and/or immovable properties of the Society shall be solely utilized and applied towards the promotion of the objects only as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by was of dividends, bonus, profit or any manner, whatsoever to the members of the Society or to any person or person claiming through any one or more of the members. No member of the Society shall have any personal claim on any movable and/or immovable properties of the Society or make any profit, whatsoever, by virtue of his membership

7. Moreover, Circular No. 86/4/2006-ST dated 01.11.2006 issued by the Department in the context of applicability of service tax on IITs and IIMs under manpower recruitment or supply agency service. It is clarified that the commercial concern is an institution that is primarily engaged in commercial activities, having profit as the primary aim. It was urged that the same interpretation of commercial concern by the Board has to be applied here and this circular has been retained even after T.R. Rustagi committee undertook to read out the various other circular. Moreover, in many of the services, the phrase commercial concern had been substituted with any person in respect of various services w.e.f. 1.5.2006 but whereas that change has not been effected in respect of "Commercial Training or Coaching Centre." Therefore, it was urged that the term commercial has to be accorded specific significance.

8. The appellants are also registered under the Public Trusts Act and functioning under the administrative control of Department of Information and Technology, Ministry of Communication and Information Technology. They are granted exemption from payment of Income Tax. Therefore, the appellants cannot be called as the commercial centre or coaching centre. Further, reliance was placed on the following case-laws:

a) Board of Control for Cricket in India v. CCE 2007 TIOL CESTAT-Mum

b) Institute of Banking Personnel Selection v. Commissioner of Service Tax, Mumbai 2007 TIOL 1393 CESTAT MUM

c) Commissioner of Central Excise, Siliguri v. Mahabir International 2007 TIOL 1663 CESTAT KOL

d) Great Lakes Institute of Management Ltd. v. CST, Chennai 2008 TIOL 134 CESTAT MAD

e) CCE, Mangalore v. Employ Me 2008 (12) VST 428 (CESTAT-Bang.)

f) CC, Madras v. Murugappa Chettiar Research Centre

9. It was urged that the education is a broad term and coaching and training have a very narrow meaning. Education may include coaching and training but not vice versa. Further, our attention was invited to the Memorandum of Association to Clause 3 which is reproduced herein below:

3.1.1 To undertake in a selective, time bound and mission oriented basis, research, Design and Development of the state of the art advanced computing systems so as to realize internationally competitive products in terms of cost performance and quality.

3.1.2 To facilitate and promote specific actions and programs in the area of components, hardware and software that would result in upgradation of technologies required for advanced computing.

3.1.3 To evolve strategies and conduct, co-ordinate, and support research and development efforts in the country on advanced computing so as to (a) attain and maintain technological competence (b) enhance self-reliance and (c) reduce vulnerability in this strategic area.

3.1.4 To build up and mobilize high quality research and development manpower in advanced computing within the shortest possible time.

10. The courses offered are designed by their Academic Wing. The students are not coached or trained as per the curriculum prescribed by any other institute or board or to appear in any exam conducted by them except in cases of courses approved by AICTE. Even if it is assumed that the courses are not recognized by law, still they qualify as education, even if non-formal in nature. Merely, due to the lack of recognition, the process of education will not cease to be education and will definitely not become coaching or training. In any case, it was submitted that notification No. 24/2004 ST dated 10.09.2004 exempted taxable service provided by vocational training institute or recreational training institute in relation to commercial training or coaching. Even if is assumed that the appellant is engaged in providing commercial training or coaching, it is nothing but vocational training as it helps the trainee directly either to seek employment or to start self employment. Further, notification 24/2004 dated 10.09.2004 was amended vide notification 19/2005 ST dated 07.06.2005 effective from 16.06.2005 to specifically exclude the commercial coaching or training provided by a computer training institute, which evidences that the commercial coaching or training provided by a computer training was exempted prior to the said notification 7.6.2005. In view of the above submissions, it was strongly pleaded that no interest or penalty can be charged. It was stated that the appellant believed in a bona fide manner that they are not liable to pay any service tax under the category of commercial training and coaching service and scientific or technical consultancy. Even if it is assumed without admitting that the appellants are liable to pay service tax under these two categories it has to be appreciated that there was reasonable cause for the failure of the appellants to pay the service tax. In support of the above, the appellants rely on the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. The State of Orissa reported in. The above decision of the Apex Court was followed by the Tribunal in the case of Kellner Pharmaceuticals Ltd. v. CCE reported in.

11. The learned special counsel reiterated the point that so long as the institution imparts training and receives consideration it should be classified within the ambit of commercial training or coaching centre. Profit motive is immaterial. Further, he reiterated the contentions in the impugned order.

12. On a very careful consideration of the issue, we find that the primary object of the appellant is doing research in advanced computing. They are also engaged in doing research on super computers and very advanced computation. Therefore, while this sort of institute which is mainly doing research activity in advance computing, incidentally can impart training in certain aspects of advanced computing for a consideration. That does not mean that it is a coaching or training institute. In our view, after going through the objectives in the Memorandum of Association, we are convinced that the appellants cannot be classified as commercial training or coaching centre. Moreover, the appellants are registered society and they are also a scientific society recognized by the Science and Technology, Department of the Government of India. The Income Tax Department has also given registration as a charitable society and the appellants are not liable to pay any income tax. In view of all these, it is very clear that the appellant is not a commercial training or coaching institute established with an aim to derive profit. The profit motive in our view is very very important while classifying an institution as commercial or training or coaching centre. In this connection, the case-laws relied on by the learned Counsel for the appellant are very relevant especially the decision of the Chennai Bench in the case of Great Lakes Institute of Management Ltd. v. CST, Chennai 2008 TIOL 134 CESTAT-MAD is very very appropriate. In any case, in the light of the Boards circular which has been quoted the said institute will not come within the purview of commercial training or coaching institute. We do not find enough justification on the part of the Revenue to invoke longer period in respect of an institution which is doing research in advanced computing and also which is under the Ministry of Science and Technology. Therefore, in our view the longer period cannot be invoked in the present case. We do not find any merit in the impugned order classifying the appellant as a commercial coaching or training centre. Their order has absolutely no merits, merely because they charge some fees for certain training in advanced computing. It cannot be called as Commercial Training or Coaching. Another point we want to emphasize is in coaching or training the level of intellectual activity is not of a very high order. For e.g. a person weak in mathematics requires coaching. He must be constantly asked to train himself in solving mathematical problems. Similarly, a person weak in spoken English should be given coaching. A coaching or training involves some element of repetition or drill. No doubt, they are also intellectual activities, but the level of intellectual activity in a commercial training or coaching is not that high. Because, in those cases the intentions are very clear. The student wants to pass some examination in the shortest possible time. He has to be trained to do an examination very well. Thats why, there is mushrooming growth of various private institutions imparting coaching in order to pass some entrance exam. Whereas in an institution like C-DAC the intellectual level of imparting training is of very high order, even the minimum qualification is either BE or B. Tech where the level of intellectual activity is very high. Repetitive activity is not encouraged. In those cases, a very high level of originality or original thinking and creativity are emphasized. We dont think that they are imparting courses which emphasize only rote learning. So, we have to distinguish between different types of institutions. An institution doing advanced research in computing and even imparting certain advanced courses cannot be equated with a commercial training or coaching centre. We want to emphasize that in respect of the present appellant the intellectual level in the activities imparted by the appellant institute is of a very high order. By no stretch of imagination the training conducted by the appellant institute can be called as either as commercial training or coaching. In view of this, it is not necessary on our part to examine the applicability of the notification which was claimed by the party. In our view the appellant institute can by no stretch of imagination be called as providing services of commercial training or coaching. In fine, we do not find any merit in the impugned order of the Commissioner (Appeals). We set aside the order and allow the appeal with consequential relief.