TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 385
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by the impugned Judgment held that the impugned provisions of the Act authorising levy of Service Tax on Parallel Colleges are arbitrary and violative of Article 14 of the Constitution of India. But it was made clear that the Judgment is rendered on the peculiar facts applicable to the Parallel Colleges in the State of Kerala and it cannot be treated as declaring the Section unconstitutional, in so far as any other category of educational institution or training centre is concerned. Thus, the respondents in the writ petitions were prohibited from demanding registration or service tax for the services rendered by the writ petitioners, their members and other Parallel Colleges in the State of Kerala. 3. We heard the learned Standing Counsel Shri John Varghese and Shri Thomas Mathew Nellimoottil, learned Standing Counsel for the appellants in the appeals. Heard, Shri P.K. Vijayamohanan, Shri P.C. Joseph Pazheparambil, Shri S.A. Razack learned counsel appearing for the respondents. 4. Learned Standing Counsel Shri John Varghese raised the following contentions. It is submitted that as far as the levy of tax is concerned, it is up to the Central Government to introduce Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dying in the colleges affiliated to Universities and private students who take coaching in parallel colleges to write the examination, which according to the learned Counsel is actually not correct. According to the learned Counsel there are several Parallel Colleges which charge heavy fees also. Therefore, the activity is of a commercial nature and therefore, there is no legal embargo in collecting Service Tax. 7. These arguments have been met by the learned counsel for the respondents by pointing out that any legislative measure will have to come within the constitutional scheme and it should not be violative of Article 14 of the Constitution of India. It is submitted that this Court has ample power to consider whether the introduction of the measure is arbitrary and discriminatory. The learned counsel for the respondents also relied upon various decisions of the Hon'ble Supreme Court to contend that the scope of judicial review is not limited and this Court will be free to examine whether the measure can be supported in the light of the provisions of the Constitution of India. 8. The learned counsel for the respondents explained that the colleges run by the responden....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of India as rightly found by the learned Single Judge. 10. We will now refer to the relevant provisions, namely, Sections 65(26), 65(27) and 65(105)(zzc) of the Act and explanation to the same. "Commercial training or coaching" under Section 65(26) means any training provided by a commercial training or coaching centre. Section 65(27) gives the meaning of "commercial training or coaching centre". The above provisions are extracted below : "65(26): "commercial training or coaching" means any training or coaching provided by a commercial training or coaching centre; (27) "commercial training or coaching centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force; (105) "taxable service" means any service provided or to be provided :- (zzc) to any person, b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e students appear for the same examination and get the same certificate". In para 11, it is averred that Parallel Colleges are performing an important function as far as education is concerned. It is explained that the fee charged from the students is not regulated by any statutory instructions nor governed by any Government instructions. 13. In the counter affidavit filed in W.P.(C). No. 3617/2005 by the respondents (appellants in W.A. 926/2006) it is stated in para 3 as follows : "...........Though the services provided by regular colleges and parallel colleges are identical in nature, both the institutions are functioning on certain criteria/conditions. Private tutorial colleges are not governed by any law. Commercial Coaching is taxable due to the reason that it is on commercial basis. Since regular colleges (aided or unaided) are affiliated to University/Board, such institutions do not come into the ambit of Service Tax." 14. In the counter affidavit filed by the respondents in W.P.(C). No. 28334/2004 from which W.A. No. 680/2006 arises, it is stated in para 2 that the term 'parallel college' is used to denote "those institutions which give coaching to private stu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e coaching in parallel colleges to write the same examinations. It is also held that the main reason why many students cannot join regular colleges affiliated to Universities is economical. Further on account of limited number of seats available in the affiliated colleges, the less brilliant students will have to look for coaching elsewhere and they end up in parallel colleges. It is also well-known fact that the interior and remote areas of the State, poor students even if eligible for admission in regular colleges cannot afford out-station-study and they will naturally go to parallel colleges. Accordingly, it was held that in most cases, students landing in Parallel Colleges are less fortunate ones who are compelled to join Parallel Colleges for economic reasons. They are also eligible for bus fare concession as per the order of the State Government and finance benefits are provided to SC and ST community students studying in parallel colleges also and thus, the State Government also treats the students in affiliated colleges and parallel colleges as part of the same class. 17. It was also held that in any case there cannot be any distinction between students undergoing pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....difference in treatment is an invidious discrimination ........." An earlier decision in Allied Stores of Ohio v. Bowers (358 US 522, 526-527) was relied upon, wherein it was held that "the States have a very wide discretion in the laying of their taxes. ................ It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value." In the other decisions cited by learned counsel Shri John Varghese, of the U.S. Supreme Court, the very same principles have been reiterated. The next decision relied upon is that of the Apex Court in Shri Ram Krishna Dalmia's case (AIR 1958 SC 538), wherein it has been held that "a law may be constitutional even though it relates to a single individual, if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself." It was held therein further that "there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the Constitutional principles." 21. The law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Co. [(1996) 3 SCC 709)]. A challenge to any statutory provision on the ground of the classification being discriminatory and violative of Article 14 of the Constitution, can be successfully met on the principle of reasonable classification having nexus to the object of the Act sought to be achieved (see : State of Bombay v. F.N.Balsara [AIR 1951 SC 318 : 1951 SCR 682 : (1951) 52 Cri LJ 1361] and Budhan Choudhry v. State of Bihar [AIR 1955 SC 191 : (1951) 1 SCR 1045 : 1955 Cri LJ 374]. However, the legislature enjoys a greater latitude for classification in the field of taxation (see : Steelworth Ltd. v. State of Assam [1962 Supp (2) SCR 589 : (1962) 13 STC 233], Gopal Narain v. State of U P. [AIR 1964 SC 370] and Ganga Sugar Corpn. Ltd. v. State of U.P. [(1980) 1 SCC 223 : 1980 SCC (Tax) 90 : AIR 1980 SC 286]). No legislation can be declared to be illegal, much less unconstitutional on the ground of being unreasonable or harsh on the anvil of Article 14 of the Constitution, except, of course, when it fails to clear the test of arbitrariness and discrimination which would render it violative of Article 14 of the Constitution. (See : Steelworth Ltd. (1962 Supp (2) SCR 589 and McDowel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Apex Court relied upon by Shri P.K. Vijayamohanan, learned counsel appearing for the respondents in certain appeals. He relied upon the following observations in para 10 of the decision of the Apex Court in Sube Singh and Others v. State of Haryana and Others [(2001) 7 SCC 545] : "At the cost of repetition, it may be stated here that no material was placed before us to show the basis of classification of the existing structures on the lands proposed to be acquired." There, the policy of the Government to exclude lands having structures thereon from acquisition, was under challenge under Article 14 of the Constitution. It was held that the provisions are not reasonable and are arbitrary and discriminatory. This is relied upon to contend that in the present case also no material has been placed to show the basis of classification. 27. The State of Kerala v. Haji K. Haji K. Kutty Naha and Others (AIR 1969 SC 378) is the decision of the Apex Court where the constitutional validity of Kerala Building Tax Act, Section 4 and Schedule was considered. It was held that the provision will go against the Constitution and is ultra vires. In para 3 it was held that "if the Act infring....
X X X X Extracts X X X X
X X X X Extracts X X X X
....centre" requires a close scrutiny, as to whether the distinction sought to be drawn by the learned counsel for the appellants are applicable or not. Going by the same, the following aspects are relevant: (a) any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate will come within the meaning; (b) it includes coaching or tutorial classes; (c) It does not include: (i) pre-school coaching and training centre; and (ii) any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force. 32. We are told that parallel colleges are sought to be included under the first limb of the above section on the plea that they are having tutorial classes. But it is clear that in the light of the stand taken in the counter affidavits filed by the appellants that they have understood parallel colleges as having the similar system like regular colleges wherein students are appearing for the same University examinations, and get the same certificates and they ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that is imported by the Parliament into the provision. In fact, going by the Explanation to Section 105(zzc), another situation is provided therein that "where training or coaching is imparted for consideration and whether or not such centre or institute is registered as a trust or a society or similar other organisation under any law for the time being in force and carrying on its activity with or without profit motive, it will come within the expression "commercial training or coaching centre". The same is also important while considering the sustainability of the arguments raised by the learned counsel for the appellants. We are, therefore, of the view that such a distinction as sought to be drawn by the learned Standing Counsel for the appellants, cannot be imported into the provision. 35. Therefore, what is important to consider is that if the institution is one wherein students are being prepared for acquiring qualification, certificate or diploma or degree which is recognised by law in force, then the same will come within the second limb of the exclusion clause under Section 65(27). The important distinction is thus drawn based on the fact of recognition by law for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... will not be violative of the statute. This is especially so since other activities by coaching centres alone are taken care of under the first limb. 38. The learned Single Judge's conclusion even though vehemently attacked by the learned counsel for the appellants pin point on certain important aspects. It was found that the students of the two streams, namely, students studying in the colleges affiliated to the University and private students are having no distinction between them. The main reason for many of the students not joining regular courses is economic and limited number of seats available in the affiliated colleges. These aspects are well-known. It is in that context, we will have to judge whether the conclusion that the students landing in parallel colleges are less fortunate ones, who are poorer to one joining regular courses. We find no reason to take a different view on those aspects. As far as the State are concerned, such colleges are established because of various factors like, catering to the needs of students, who cannot be accommodated in the regular colleges. Large number of students are coming out every year after passing Plus Two examinations and it i....