Leviability of Service Tax on Flying Training School and Aircraft Maintenance Engineering Institutes - CBEC Clarifies
BOARD received representations seeking clarifications regarding leviability of service tax on Flying Training Institutes providing training for obtaining Commercial Pilot License (‘CPL') and on Aircraft Engineering Institutes for obtaining Basic Aircarft Maintenance Engineer License (‘BAMEL'). CPL and BAMEL are granted by Directorate General of Civil Aviation (‘DGCA') after conducting required examinations.
These institutes have sought to cover their activity under the exemption clause provided in the definition of ‘commercial training or coaching centre' as laid down in section 65(27) of the Finance Act, 1994, as it stood prior to the amendment in Budget 2011. Board examined the issue and clarifies as follows:
a. The flying institutes / academies are approved by the DGCA and in fact figure in the website of the DGCA as well. But that does not automatically translate into the courses being conducted by them getting the status of 'recognized by law', since for that to happen, there has to be a statutory backing which is not the case here. The fact that the training imparted by the academies is taken into consideration by the DGCA does not make the course certificate statutory in nature.
b. The procedure for granting of a CPL (Commercial Pilot License) entails clearing of an exam that is conducted by the CEO (Central Examination Organisation) of the DGCA, The test has a proper syllabus that is laid down in the DGCA website. The license is granted as per Aircraft Act 1934 read with Aircraft Rules (Rule 38 of the Rules ibid lay down the Licensing Authority for granting of the licenses shall be the Central Govt.). Thus, there is no statutory recognition of the course being provided by the flying academies.
(If granting of CPL entails clearing of an exam conducted by the Central Examination Authority of the DGCA and the test has a proper syllabus prescribed by the DGCA and the license is granted as per Aircraft Act 1934, then how can you conclude that the course which leads to granting of such a license, as not having any statutory recognition? – this is outrageous)
c. In fact the closest that the relationship between the academies and the DGCA comes is something that has been outlined in Notification No. 10/2003 dated 20th June 2003. It exempts the taxable services being provided by a commercial coaching / training centre in relation to commercial coaching that forms an essential part of a course or a curriculum being offered by any other institute or establishment leading to issue of a degree or qualification recognized by law for the time being in force. However, the said exemption is subject to the condition that the exemption shall not be applicable if the charges towards the course are being paid directly to the coaching centre in question. Thus, in the current case, it can be argued that the flying academies are providing coaching that ultimately culminates in issuing of the CPL by the DGCA (even though that is not a guarantee in as much as it is subject to clearing the exam). This, CPL is definitely recognized by law. Thus, it may appear that the exemption is operative; however, the flying academies are hit by the exclusion clause of the above notification since the charges are paid by the trainees the coaching academies directly.
(The validity of the proviso to the Notification No. 10/2003-ST itself appears to be doubtful in as much as it treads beyond the statute as it stood prior to the amendment through Budget 2011 – how does it matter who pays to whom so long as the certificate is issued in accordance with law?)
d. Also relevant is the Circular No. 107/01/2009 - ST dated 28th Jan 2009 issued by the Commissioner (Service Tax) which clearly says:
"As all these institutions or establishment are either created or recognized in terms of the power conferred by statutes, they would fall in the category of institutes/ establishments which issues diploma or certificate recognized by the law for the time being in force..."
In the current case, the institutes in question do not fulfil this criterion, as neither are they created nor recognised by the statute.
e. Thus, the course certificates given by these academies cannot be held as "recognized in law" for the purposes of service tax exemption unless and until the course per se is specifically recognized by law which is not so in the current case. It may be added that there are several judicial pronouncements that lay down that the specific wording of law have to be interpreted strictly. Thus, the term "recognized by law" has to construe a direct nexus only between the degree/ certificate being awarded by the Coaching centre and the statute. Accordingly, the said institutes/academies would clearly come in the category of coaching centres as laid out in the pre-amended Section 65(27) of the Finance Act ibid (prior to Budget 2011) and therefore would be taxable.
(It is the course, which requires the statutory recognition and not the institutes providing such course.)
f. In the Finance Act, 2011, w.e.f., 01.05.2011, the definition of Commercial Training or Coaching service as provided under Section 65(27) has been amended to mean - "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". The exclusion clause available earlier on is now gone. However, vide Notification No. 33/2011 - ST dated 25.04.2011 exemption has been provided to two categories which are -
i) any pre-school coaching or training;
ii) any coaching or training leading to grant of a certificate or diploma or degree or any educational qualification which is recognised by any law for the time being in force;
(By virtue of this exemption notification, courses offered by these institutes are exempt because they lead to certificates recognized by law)
g. It is to also clarify that that the coaching being provided by Flying Training Schools and Aircraft Maintenance Engineering Institutes would also not come under the scope of the exemption provided under the second category of the exemption notification mentioned above for the same reasons as mentioned. It is also pertinent to mention that the intent of the changes in the definition of Commercial Training or Coaching service as made in Budget of 2011 is evident on perusal of the explanatory letter of JS (TRU-II) D.O.F.No. 334/3/2011 - TRU dated 28.2.2011 wherein at Para 3.3 it has been mentioned that - "The scope of the service is proposed to be expanded to include all the coaching and training that is not recognised by law, irrespective of whether the institute is providing any other course(s) recognised by law." Thus, the scope of the service has in fact been expanded.
(The nature of this expansion is explained further in the same TRU Circular at Annexure B Para 3 and further by Notification No. 33/2011-ST which followed thereafter – which certainly does not give the impression which is being created by the above clarification)
h. In addition, it may also be observed that the institutes do not fall under the exemption Notification No. 24/2004 (as amended), as the institutes' courses do not directly enable the trainee getting the requisite employment.
(Board is probably not aware of the ground realities in the Aviation sector where there is a shortfall of qualified commercial pilots and with proper course and valid certification, employment is guaranteed)
i. Therefore, the said institutes/academies would clearly come in the category of coaching centres as laid out in the Section 65(27) of the Finance Act ibid (either prior to or after Budget 2011) and therefore would be taxable. It is clarified that the contents of this instruction shall not override any statutory provisions. It is accordingly requested that immediate action may please be taken to safeguard revenue.
(One more Circular from the Board which will only help fill the coffers of advocates and tax consultants – they will only welcome more of such circulars from the Board)
CBEC Letter F. No. 137/132/2010 - Service Tax., Dated: May 11,2011