The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that amounts recovered from the separate sale of study material and fee waivers granted as scholarships to students cannot be subjected to service tax.
The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) while referring to the Tribunal’s decision in Cerebral Learning Solutions Pvt. Ltd. and noting that the ruling had subsequently been affirmed by the Supreme Court, observed that where documentary evidence establishes the separate sale and billing of study material, the value of such goods cannot be added to the taxable value of coaching services.
The dispute arose from an audit conducted by the Service Tax Department, which alleged that the appellant, a provider of commercial training and coaching services for competitive examinations such as JEE and NTSE, had short-paid service tax by excluding two components from the taxable value: (i) consideration received towards courseware, kits, and study material supplied to students, and (ii) the amount representing fee concessions and scholarships granted to eligible students. Based on these findings, multiple show cause notices covering different periods were issued, culminating in an Order-in-Original dated January 19, 2021, confirming the tax demands.
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The Department contended that the study material was supplied only to students enrolled in coaching programmes and formed an integral part of the coaching service. It argued that the value recovered towards such course material was intrinsically linked to the provision of commercial coaching services and therefore had to be included in the “gross amount charged” under Section 67 of the Finance Act, 1994. The authorities also alleged that the scholarships and fee concessions granted by the institute merely constituted a business promotion strategy and could not reduce the assessable value of taxable services.
Before the Tribunal, the appellant challenged both findings. On the issue of study material, it submitted that the matter was already settled by judicial precedents, including decisions in its own favour. It argued that the books and course material were sold under separate invoices with clearly identifiable values and that such material was also sold to persons who were not enrolled in its coaching programmes. Consequently, these transactions represented independent sales of goods and qualified for exemption under Notification No. 12/2003-ST.
The Tribunal further noted that earlier findings had already recognised that the appellant maintained separate receipts for books and study materials and had also sold them independently to non-registered students. Accordingly, it held that inclusion of the value of study material in the taxable service value was impermissible.
The Tribunal also examined whether service tax could be levied on the amount of fee waived by way of scholarships granted to students.
The Department had argued that since scholarship recipients attended the same classes, received the same study material, and were taught by the same faculty as other students, the taxable value should be determined on the full coaching fee irrespective of concessions granted.
Rejecting this approach, the Tribunal relied upon earlier decisions, including Resonance Eduventures Private Limited and Carrier Point Infosystems Limited, which held that scholarships and fee waivers constitute discounts or rebates rather than additional consideration for services. It observed that service tax is payable only on the amount actually collected from students and not on the notional value of fees that were never charged.
The Bench further clarified that even if scholarships serve promotional or marketing objectives, they do not become additional consideration liable to tax.
The Tribunal expressly disagreed with the Department’s argument that identical coaching services necessarily required identical taxable value. It held that the grant of scholarships or fee concessions does not alter the legal principle that service tax is chargeable only on the actual consideration received.
Finding that both issues had already been conclusively settled by binding precedents affirmed by the Supreme Court, the Tribunal held that the adjudicating authority’s order was contrary to established law. Consequently, it allowed the appeal and set aside the impugned service tax demands in their entirety.
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