Case nº Ruling No. AAR/ST/14/2016 in Application No. AAR/44/ST-1/10/2015 of AAR Cases, May 06, 2016 (case In Re : Choice Estates And Constructions Ltd. Vs)

Judge:For Appellant: Shri Jose Jacob, Advocate and For Respondents: Shri Amreesh Jain, AR
President:V.S. Sirpurkar, Chairman, S/Shri S.S. Rana and R.S. Shukla, Members
Defense:Finance Act, 1994 - Section 66E
Resolution Date:May 06, 2016
Issuing Organization:AAR Cases

Court Information AAR Cases
Citation 2016 (45) STR 480 (AAR)
Judgment Date 06-May-2016
Party Details In Re : Choice Estates And Constructions Ltd. Vs 
Case No Ruling No. AAR/ST/14/2016 in Application No. AAR/44/ST-1/10/2015
Judges V.S. Sirpurkar, Chairman, S/Shri S.S. Rana and R.S. Shukla, Members
Advocates For Appellant: Shri Jose Jacob, Advocate and For Respondents: Shri Amreesh Jain, AR
Acts Finance Act, 1994 - Section 66E

Ruling:

1. M/s. Choice Estates and Constructions Limited (hereinafter also referred to as applicant) is a Public Limited Company having its registered office at Kochi. Applicant proposes to enter into a Partnering Agreement with Choice Foundation, a society registered under Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 to combine their mutual areas of expertise for the setting up and operation of an educational institution at Thiruvalla in Kerala. As per said Agreement, applicant would be responsible for the entire infrastructural requirement of the educational institution while Choice Foundation would be responsible for the entire academic aspect and related requirements of the educational institution. The agreement is for a term of thirty years and it has been agreed between the Parties that any revenue generated from the project, during the term, will be shared by the parties in the ratio agreed in the Agreement. For this purpose, the entire revenue relating to the school will be received in a joint account operated by the applicant and Choice Foundation jointly and revenue share would be drawn from this account by the applicant and Choice Foundation.

2. Applicant submits that they along with Choice Foundation are partnering together to providing education services up to Higher Secondary School, which is a service mentioned in the Negative List under Section 66D(1) of the Finance Act, 1994; that the service falls within the Negative List, therefore, the revenue share relating to such service taken by both the applicant and Choice Foundation, is also not liable to Service Tax. Applicant inter alia submits that they along with Choice Foundation propose to jointly provide educational services to students; that in consideration to educational services, fees is paid by students, which is equally shared between the applicant and Choice Foundation. Applicant further submits that service recipient in the present case is the student and service providers are the applicant and Choice Foundation jointly; that no service is provided inter se between the applicant and Choice Foundation; that construction of building by the applicant and its maintenance are in the nature of self-service, thus not liable to Service Tax.

3. Applicant has raised following questions before this authority:

• Whether Service Tax is applicable on the revenue share relating to the applicant

• Whether Service Tax is applicable on the revenue share relating to Choice Foundation

• Whether Service Tax is applicable on the fees collected from the students

• If answer to any of the above questions is yes, then whether the applicable Service Tax can be recovered from the student

4. Revenue inter alia submits that the proposed "Partnering Agreement" between the applicant and M/s. Choice Foundation is that the applicant shall, on an exclusive basis, undertake construction and infrastructure development of the scheduled property in accordance with the architectural design and specifications provided by Choice Foundation within 30 days from the effective date and ensure the upkeep and maintenance of the infrastructure so developed for the Educational Institution during the term of the agreement; that the inference also from the "partnering agreement" is that M/s. Choice Foundation shall be responsible for the overall Management and Operation of the Educational Institution from an academic perspective; that Choice Foundation shall on an exclusive basis undertake day-to-day administration and operation of the Educational Institution, including but not limited to obtaining affiliation certification, recruiting academic staff, determine the curriculum and other academic activities to be undertaken, etc.; that applicant is proposing to construct the Civil Structure of the same which appears to be taxable; that as per 4.1.b of the said proposed "Partnering Agreement", the nature of constructions and the materials used shall be sole discretion of M/s. Choice Estates who shall be entitled to appoint its own architects, engineers, contractors, sub-contractors, workmen of all types and all other personnel for construction and completion of the building to be constructed by M/s. Choice Estates; that the inference from here again is that many kind of service providers and service will be involved which will be taxable as per the different provisions; that as per Para 5 (Revenue Share) of the "Partnering Agreement", the revenue will be shared equally between the parties; that as these natures of activities are not essentially related to imparting of education, it appears that the same is also subject to levy of Service Tax. Further, the exemption hitherto available to services provided by way of renting of immovable property to educational institutions stands withdrawn, with effect from 1-10-2014.

5. In order to appreciate the facts of the case, it is important to go through the relevant portions of "Partnering Agreement" submitted by the applicant which has been relied upon by the applicant as well Revenue. They are as under:

WHEREAS -

I. Choice Foundation is engaged in the running of premier educational institutions in the state of Kerala.

II. Choice Estates is engaged in the business of partnering with educational institutions for taking up the infrastructural requirement of such...

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