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. Issues: (i) Whether the appellant is liable to service tax for commercial training or coaching services; (ii) Whether the appellant is liable to service tax for consultancy services rendered through CIDC/ONGC arrangement; (iii) Whether the appellant is liable to service tax for renting of immovable property; (iv) Whether penalties under sections 77 and 78 of the Finance Act, 1994 are sustainable or whether exemption under section 80 applies.Issue (i): Liability for service tax on commercial training or coaching services provided by the appellant.Analysis: The statutory definitions of 'commercial training or coaching' and 'commercial training or coaching centre' exclude institutes issuing qualifications recognised by law and require vocational training to enable trainees to seek employment or self-employment immediately after training. The appellant's training was found to be skill upgradation of already employed construction workers and supervisors, fees were collected/reimbursed via CIDC, and the appellant did not satisfy conditions of Notifications relied upon by it (Notification dated 10.09.2004, 20.06.2003 and 29.04.2010), including registration under the Skill Development Initiative Scheme and specification of approved modular courses.Conclusion: The appellant is liable to service tax on commercial training or coaching services; exemption notifications relied upon by the appellant do not apply.Issue (ii): Liability for service tax on consultancy services for work performed under the CIDC–ONGC agreement.Analysis: Consultancy services were provided by the appellant and amounts were received from CIDC as consultancy fees. Payment of service tax by CIDC on the gross amount charged to ONGC does not absolve the appellant of its liability to pay service tax on amounts it received; the appellant could have availed Cenvat Credit under the Cenvat Credit Rules, 2004 but did not do so.Conclusion: The appellant is liable to service tax on consultancy fees received from CIDC; the demand for service tax on consultancy services is sustainable.Issue (iii): Liability for service tax on renting of immovable property services.Analysis: The appellant received amounts described as rent from CIDC for subletting surplus premises. Liability for service tax on renting of immovable property is not negated by non-ownership; receipt of rent for letting the property attracts service tax and the appellant was not entitled to small service provider exemptions.Conclusion: The appellant is liable to service tax on renting of immovable property; the demand for such service tax is sustainable.Issue (iv): Sustainability of penalties imposed under sections 77 and 78 of the Finance Act, 1994 and applicability of section 80.Analysis: Section 77 penalises contraventions and section 78 penalises failure to pay tax for reasons of fraud, collusion or wilful mis-statement. Section 80 (as in force prior to 14.05.2015) exempts penalty if the assessee proves reasonable cause for failure. The Commissioner imposed penalties without considering appellant's bona fide belief and reasons invoked, and did not record reasons to establish fraud, collusion or wilful mis-statement.Conclusion: Penalties under sections 77 and 78 are not sustainable; appellant is entitled to benefit under section 80 and the penalties are set aside.Final Conclusion: The tax demands for commercial training/coaching, consultancy services and renting of immovable property are upheld and recoverable with interest, while penalties under sections 77 and 78 are quashed; the appeals are allowed in part.Ratio Decidendi: Where an entity provides services that do not meet the specific conditions for exemption notifications, liability to service tax arises on the service provider notwithstanding tax charged by an intermediary, and penalties under sections 77 and 78 cannot be imposed where the assessee establishes reasonable cause under section 80 or where no reasoned finding of fraud, collusion or wilful mis-statement is recorded.