2026 (1) TMI 326 - AT - Service Tax

Construction workers' skill-upgradation training, consultancy fees, and rental receipts treated as taxable services; penalties waived, tax and interest upheld.

Training imparted by the appellant to existing construction workers under an arrangement with a government-recognized testing/certification agency was ... Levy of service tax - commercial training or coaching service - benefit of Notifications dated 20.06.2003 and 29.04.2010 - Benefit of Notifications dated 20.06.2003 and 29.04.2010 - Levy of service tax on consultancy services provided by the appellant - Levy of service tax on renting of immovable property services - Levy of interest and penalty. Levy of service tax - commercial training or coaching service - benefit of Notifications dated 20.06.2003 and 29.04.2010 - HELD THAT:- The ‘commercial training or coaching’ means any training or coaching provided by a commercial training or coaching centre. A ‘commercial training or coaching centre’ has been defined to mean, any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field with or without issuance of a certificate and includes coaching or tutorial classes, but does not include any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force - It is seen that the appellant provided commercial coaching/training of workmen under an agreement with CIDC which is an agency recognized by the government for testing and certification of skill of labour. The fees were collected by the CIDC and reimbursed to the appellant - The training imparted by the appellant does not enable the trainees to seek employment or undertake self employment directly after training since the appellant imparted training for skill up-gradation of existing construction workers and training of existing workmen and supervisors. The appellant, therefore, only enhanced the qualities of skills among the workers who were already employed. Benefit of Notifications dated 20.06.2003 and 29.04.2010 - HELD THAT:- The appellant does not satisfy the conditions set out in this Notification because a perusal of the Memorandum of understanding dated 02.03.2006 between CIDC and the appellant does not specify the courses to be undertaken for provision of services by the appellant. The appellant also did not provide any certificate/document that it was registered with the Directorate General of Employment and Training under the Skill Development Initiative Scheme - The appellant is also not entitled to the benefit of Notification dated 20.06.2003 as the appellant is not an Associate Training or Coaching Center of CIDC. Levy of service tax on consultancy services provided by the appellant - HELD THAT:- In this connection it needs to be noted that consultancy services were provided pursuant to an agreement between CIDC and ONGC. CIDC, however, assigned this work to the appellant and 90% to this fees received by CIDC from ONGC was paid to the appellant which were shown under the head ‘consultancy fees’. CIDC may have charged full service tax from ONGC, but that would not absolve the appellant from paying service tax on the amount received from CIDC towards consultancy - There is, therefore, no error in the finding recorded by the Commissioner on this issue. Levy of service tax on renting of immovable property services - HELD THAT:- The submissions advanced is that the appellant was not the owner of the property and so any income received from renting of property would not amount to renting and, therefore, no service tax would be leviable - It is not possible to accept this contention advanced by the learned counsel for the appellant. It is not material whether the appellant was the owner of the property or not. So long as it received rent towards letting of property to CIDC, it was liable to pay service tax on the amount of rent received. There is, therefore, no error in the order passed by the Commissioner. Levy of interest and penalty - HELD THAT:- As the appellant had not paid service tax, the Commissioner was justified in ordering it to be recovered with interest under section 75 of the Finance Act - The appellant would be clearly entitled to the benefit of section 80 of the Finance Act and no penalty can be imposed upon the appellant under section 77 of the Finance Act - The Commissioner has merely observed that the appellant deliberately suppressed facts of providing taxable services with wilful intent evade to payment of service tax. No reasons have been assigned by the Commissioner for coming to this conclusion. Penalty under section 78 of the Finance Act, therefore, cannot be sustained. The order dated 05.02.2013 passed by the Commissioner that has been challenged in Service Tax Appeal No. 57371 of 2013 and the order dated 31.10.2013 passed by the Commissioner that has been challenged in Service Tax Appeal No. 50907 of 2014 are maintained except to the extent that the penalties that have been imposed upon the appellant under sections 77 and 78 of the Finance Act are set aside - Appeal allowed in part. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the appellant's training activity was taxable as 'commercial training or coaching service', and whether exemption notifications relied upon by the appellant applied to the training provided. (ii) Whether service tax was payable by the appellant on consultancy fees received from an intermediary, despite service tax having been charged and paid on the gross amount by the intermediary to the ultimate client. (iii) Whether service tax on 'renting of immovable property service' was payable where the appellant sub-let premises despite not being the owner of the property. (iv) Whether penalties under sections 77 and 78 of the Finance Act, 1994 were sustainable, including applicability of section 80 (reasonable cause) and the requirement of reasons for alleging suppression/fraud etc. 2. ISSUE-WISE DETAILED ANALYSIS (I) Taxability of training and availability of exemptions Legal framework: The Court examined the statutory definitions of 'commercial training or coaching', 'commercial training or coaching centre', and 'taxable service' under the Finance Act, and considered the exemption notifications specifically invoked by the appellant (including the requirement that vocational training should enable employment/self-employment directly after training, and conditions relating to Modular Employable Skill courses and registration under the Skill Development Initiative Scheme). Interpretation and reasoning: On facts, the Court found that the training imparted was for skill upgradation of existing construction workers/workmen and supervisors, with fees collected by the associated body and reimbursed to the appellant. Such training did not enable trainees to seek employment or self-employment directly after completion, but merely enhanced skills of already employed persons. The Court further held that the conditions of the Modular Employable Skill course exemption were not satisfied because the relevant understanding documents did not specify qualifying courses and the appellant did not produce proof of registration with the competent authority under the Scheme. The Court also rejected the claimed exemption on the basis that the appellant was not established to be an 'Associate Training or Coaching Center' as asserted. Conclusion: The training activity was held taxable as commercial training/coaching, and the claimed exemptions were denied for failure to satisfy their conditions. The Court upheld the demand on this head. (II) Liability on consultancy fees despite tax paid by another entity on gross amount Legal framework: The Court proceeded on the basis that service tax liability attaches to the person providing the service and receiving consideration for it. Interpretation and reasoning: The Court found that consultancy services were effectively performed by the appellant (though the contract with the end client was through another entity), and 90% of the fees received from the end client were paid to the appellant as 'consultancy fees'. The fact that the intermediary charged and paid service tax to the Department on the gross amount billed to the end client did not, by itself, absolve the appellant of liability on the amount it received for providing the consultancy service. Conclusion: The Court sustained the finding that the appellant was liable to pay service tax on consultancy fees received from the intermediary, and upheld the demand on this head. (III) Service tax on renting/sub-letting of immovable property where appellant not owner Legal framework: The Court treated the taxable event as receipt of consideration towards letting/renting of immovable property for the relevant purpose, without making ownership a determinative condition. Interpretation and reasoning: The Court accepted that the appellant had taken premises on rent and sub-let surplus space for commercial purposes. It rejected the argument that tax could not be levied because the appellant was not the owner. The Court held that ownership was not material; so long as the appellant received rent for letting the premises to the other entity, it was liable to service tax on the rent received. Conclusion: The Court upheld service tax liability on the rent received from sub-letting and sustained the demand on this head. (IV) Interest and penalties under sections 77, 78, and applicability of section 80 Legal framework: The Court examined sections 77 (penalty for contraventions), 78 (penalty for non-payment due to fraud/collusion/wilful misstatement/suppression), and section 80 (pre-14.05.2015) which barred penalties under section 77 where the assessee proved 'reasonable cause'. Interpretation and reasoning: The Court upheld recovery of tax with interest under section 75 since service tax had not been paid. However, it found that the Commissioner imposed section 77 penalty merely on the basis of contravention, without considering the appellant's specific pleas of bona fide belief based on exemption notifications and its stated understanding regarding renting taxability. This entitled the appellant to section 80 protection, making section 77 penalty unsustainable. As to section 78, the Court held that the Commissioner's conclusion of deliberate suppression with intent to evade was unsupported by reasons; given the appellant's consistent bona fide explanation and the absence of reasoned findings establishing fraud/suppression etc., section 78 penalty could not be sustained. Conclusion: Interest was maintained, but penalties under sections 77 and 78 were set aside. The demands on all three service heads were otherwise maintained, and relief was granted only to the extent of deletion of penalties.