2007 (9) TMI 40 - AT - Service Tax

Charitable trust not liable for service tax on recruitment agency services. Appeal allowed, penalties set aside.

The Tribunal held that the appellants, registered as a charitable trust and not a commercial concern, were not liable for service tax under the category ... Manpower recruitment agency - commercial concern - charitable organisation - predominant object test - plough back of surplusManpower recruitment agency - commercial concern - charitable organisation - plough back of surplus - Whether the appellants are a commercial concern and therefore liable to service tax as a manpower recruitment agency for the period in dispute - HELD THAT: - The Tribunal examined the corporate objects, registrations and conduct of the appellants and found they are registered under the Societies Registration Act and as a charitable trust, hold certificates under the Bombay Public Trusts Act and Section 12-A of the Income-tax Act, and do not distribute profits to members on dissolution. The court applied the test that a body whose predominant object is charitable does not lose that character merely because some surplus arises; surplus ploughed back for the organisation's objects preserves charitable character. The CBEC circular treating institutions whose principal activity is to impart non-profit education as not being commercial concerns was applied by analogy. Earlier decisions (including those discussing the predominant object test and that an eleemosynary element is not essential) were relied on to hold that charging fees or undertaking occasional services for non-members does not convert the appellants into a commercial concern where surplus is used for the institution's objects. On these grounds the Tribunal concluded the appellants do not satisfy the statutory requirement of being a commercial concern and thus are not taxable as a manpower recruitment agency for the period in dispute. [Paras 5, 7, 11, 12, 13]Appellants are not a commercial concern and therefore not liable to service tax as a manpower recruitment agency for the period October 1998 to March 2003; impugned order set aside.Final Conclusion: The appeal is allowed and the demand and penalties set aside on the ground that the appellants are not a commercial concern and hence not leviable to service tax as a manpower recruitment agency; no finding recorded on other contentions such as limitation. Issues Involved:1. Liability of service tax as a 'manpower recruitment agency.'2. Definition and applicability of 'commercial concern.'3. Charitable status and exemption from service tax.4. Interpretation of relevant sections and precedents.Detailed Analysis:1. Liability of Service Tax as a 'Manpower Recruitment Agency':The appellants were engaged in conducting examinations for recruitment for various organizations and were charged with service tax under the category of 'manpower recruitment agency' as defined in Section 65(40) of the Finance Act, 1994. The Commissioner of Central Excise (Appeals) upheld the demand of service tax amounting to Rs. 1,00,60,498/- along with penalties under Sections 75A, 76, 77, and 78 of the Finance Act, 1994, for the period from October 1998 to March 2003. The appellants contended that they were not a commercial concern and hence not liable to service tax.2. Definition and Applicability of 'Commercial Concern':The appellants argued that they were not a commercial concern as per Section 65(68) of the Finance Act, which defines 'manpower recruitment agency' as 'any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment of manpower, to a client.' They emphasized that they did not distribute profits to any member and were registered under the Societies Registration Act, 1860, which prohibits profit distribution on dissolution. The Tribunal noted that the appellants were registered as a charitable trust and exempt from income tax under Section 11 of the Income-tax Act, 1961.3. Charitable Status and Exemption from Service Tax:The Tribunal referred to several judicial precedents to determine the charitable status of the appellants. In the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association, the Supreme Court held that an organization with a predominant charitable purpose does not lose its character merely because it earns some profit. Similarly, in Trustees of Tribune Trust, the Privy Council held that charging fees does not negate the charitable nature of an organization if the profits are ploughed back for charitable purposes. The Tribunal also cited the CBEC Circular F.No. 137/71/2006-CX, which clarified that institutions like IITs or IIMs, which charge fees but do not aim to make a profit, are not commercial concerns.4. Interpretation of Relevant Sections and Precedents:The Tribunal examined the definition of 'commercial concern' under various taxable services in the Finance Act, 1994, and concluded that a commercial concern is primarily engaged in activities with financial gain as an objective. The Tribunal relied on the decision in CCE v. Employ Me, where it was held that an organization collecting fees but not operating for profit was not a commercial concern. The Tribunal also referred to the decision in BCCI v. CCE, where BCCI was not considered a commercial concern despite earning revenue from advertising activities, as it was a charitable institution under the Income-tax Act.Conclusion:The Tribunal concluded that the appellants were not a commercial concern and therefore not liable to service tax under the category of manpower recruitment agency services. The appeal was allowed, and the impugned order was set aside without addressing other arguments such as limitation.(Pronounced in Court on 6-9-2007)