2025 (3) TMI 270 - AT - Service Tax

State university operating distance education through Learning Centers exempt from service tax under educational services

M/s Punjab Technical University Versus Commissioner of Central Excise, Ludhiana

CESTAT Chandigarh held that a state university operating distance education programs through Learning Centers and Regional Centers was not liable for ... Taxability of service - classification of services - education services - franchise service. Whether the service alleged to have been rendered by the appellants to RCs/LCs can be termed as ‘Education Service’ as claimed by the appellants? - HELD THAT:- Punjab Technical University is a body created under Punjab Technical University Act, 1996; they have 494 affiliated colleges; in terms of the decision taken in the seventh meeting of the Boards of Governor in the year 2001, the appellants have started implementing Distance Education Programme (DEP); for this purpose, they have established Learning Centers (LCs) and Regional Centers (RCs) to coordinate/ control the learning centers and have entered into a Memorandum of Understanding with them. In terms of the Agreement, the fee is collected by the LCs from the students in the form of Demand Drafts drawn in favour of “The Registrar” of the appellant; the total revenue collected is distributed as per the agreed share of the appellant RCs and LCs, which is in the range of 28/32.2/37%, 18/20/22% and 45/47.5/50% respectively; however, Authorization Fee and Additional Authorization Fee collected is entirely retained by the appellant. On going through the clauses of the Agreement, we find that the appellant retains the core functions; eligibility for admission of the students, syllabus and qualification of the teachers, setting of question papers and examination time-table and award of degree/ diploma is decided by the appellant; LCs/ RCs are responsible for appointment of teachers, classroom coaching & practical training as per the syllabus, conduct of examinations; LCs/ RCs may advertise/ canvas about the courses in the university. The services as regards education fall in the Negative List. It is also found that these Notifications provide exemption for Auxiliary Education Services also. Exemption is also extended to services to education by way of Renting of Immovable Property also. In such circumstances, it is not understood as to why such exemption is not available to the appellant-university, which is established by an Act of State Legislature to propagate education. CBEC vide Circular No.172/7/2013-ST dated 19.09.2013 clarifies the kind of exemptions available to the services rendered in relation to education. Whether the service alleged to have been rendered by the appellants to RCs/LCs can be termed as ‘Franchise Service’ as alleged by the Revenue? - HELD THAT:- The definition of “Franchise” involves trademark, service mark, trade name or logo (or any such symbol); learned Counsel for the appellants submits that the expression “any such symbol” should be read with the preceding words and should not be extended beyond. The principal of ejusdem generis is agreed, it is found that the name of the university being used by LCs/ RCs cannot be taken to be a trademark, service mark, trade name or logo (or any such symbol). A reading of the MOU does not give an understanding that it is Franchise Agreement. There are force in the argument of the learned Counsel for the appellants that even if it is a Franchise Service, it would be exempt in terms of the Notification discussed above as they are rendered in relation to education. This Bench while deciding the case of Swift Institute of Engineering and Technology [2019 (4) TMI 1151 - CESTAT CHANDIGARH] held that the appellant-university is not rendering any Franchise Service. The position of Swift Institute of Engineering and Technology and the LCs/ RCs in the impugned case is comparable. In fact, the position of the LCs/ RCs is on a better footing inasmuch as they are conducting courses approved by the appellant-university, who also award degree/ diploma. The learned Commissioner has grossly overlooked the fact that the appellant university is in total control of the fees, the curriculum and award of degree/ diploma. The LCs/ RCs cannot operate independently just by using the name of the university in the respective area assigned to them - the entire proceedings are based on a grave misconception on the part of Revenue. There is no clarity in the approach of the department vis a vis the serviced provider, service rendered and the consideration in the impugned case. In case the appellant-university is alleged to have rendered any service, say Franchise Service to the LCs/ RCs, they should have received some consideration towards the same. In fact, the university is not getting any consideration from the LCs/ RCs. It is the appellant-university who are paying the LCs/ RCs by way of a percentage of the revenue - It is very clear from the facts of the case and the MOU that the appellant-university is using the services of LCs/ RCs in discharging their statutory function of spreading education. Service tax, if any, is leviable on the LCs/ RCs. However, this is not the case of the Department. Conclusion - i) The appellants are rendering services related to education, which is exempt from service tax. ii) The alleged service is also exempted under Entry No. 39 of Notification No. 25/2012-ST, dated 20.06.2012, as amended and Notification No. 6/2014 – ST dated 11.07.2014 during the relevant period. Appeal allowed. Whether the appellants are rendering any taxable service to the RCs/LCs? - HELD THAT:- ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:(i) Whether the service provided by the appellants to Regional Centers (RCs) and Learning Centers (LCs) can be classified as 'Education Service' as claimed by the appellants.(ii) Whether the service provided by the appellants to RCs and LCs can be classified as 'Franchise Service' as alleged by the Revenue.(iii) Whether the appellants are rendering any taxable service to the RCs and LCs.ISSUE-WISE DETAILED ANALYSIS(i) Education Service ClassificationThe appellants, Punjab Technical University (PTU), argue that they are providing an education service exempt from service tax under the Finance Act, 1994. The relevant legal framework includes Section 66D of the Finance Act, which lists services related to education as part of the Negative List, exempting them from service tax. The appellants are established under the Punjab Technical University Act, 1996, and their activities include awarding degrees and diplomas, which are recognized by law.The Court found that PTU's activities fall under the Negative List and are exempt from service tax. The Court noted that the appellants are better placed than other educational institutions as they are established by an Act of the State Legislature, and their services are in relation to education, which is exempt from service tax.(ii) Franchise Service ClassificationThe Revenue contends that PTU is providing Franchise Service to RCs and LCs, which is taxable under the Finance Act. The definition of 'Franchise' involves granting representational rights to sell or provide services identified with the franchisor. The Revenue relied on the Tribunal's previous decision in PTU's own case, which classified the service as Franchise Service for the period before 01.07.2012.The Court disagreed with the Revenue's classification, noting that the definition of Franchise Service involves elements such as a trademark or logo, which are not present in PTU's arrangements with RCs and LCs. The Court emphasized that the MOU between PTU and RCs/LCs does not grant representational rights that would constitute a franchise agreement.(iii) Taxable Service RenderingThe Court examined whether PTU is rendering any taxable service to RCs and LCs. The Court found that PTU retains control over the core functions of education, such as setting the syllabus, conducting examinations, and awarding degrees. The RCs and LCs are involved in logistical support and do not operate independently. The Court concluded that PTU is not engaged in a commercial activity and is not rendering a taxable service to RCs and LCs.SIGNIFICANT HOLDINGSThe Court held that PTU is not providing Franchise Service to RCs and LCs, and the services rendered are exempt from service tax as they relate to education. The Court emphasized that the services fall under the Negative List and are exempt under Section 66D of the Finance Act, 1994, and relevant notifications.The Court stated, 'There is no service rendered by the appellant-university. Therefore, it cannot be categorized as any taxable service. The services rendered by them cannot be termed as Franchise Service by no stretch of imagination.'The Court concluded that the appellants are rendering services related to education, which is exempt from service tax, and allowed the appeals with consequential relief.