Education, coaching and training have become an expensive affair and many children from the poor families can't afford it. The lack of education and training leads to unemployment and if any organisation is imparting coaching and training to economically weaker section of the society, the same is to be encouraged. All donation and charity towards this cause are also to be appreciated and encouraged.
Section 65 (27) of the Finance Act, 1994 defines "commercial training or coaching centre" 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 but does not include pre-school 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"
Charitable institutions operate in a varied number of fields like health, education, development, promotion of religion etc for the benefit of society and work on the principles of no-profit no-loss.
Since no fees or charge is collected by these institutions from their students, they were not required to pay any service tax under commercial training or coaching service. But a dispute arose as to whether such charitable institutions were required to pay service tax on the donations or grant-in aid received by them.
Recently, a presentation was made to the central board of excise and customs on behalf of the affected charitable institutions, seeking clarification, whether donations and grants-in-aid received from different sources by a charitable foundation imparting free livelihood training to the poor and marginalised youth, will be treated as 'consideration' received for such training and subjected to service tax under 'commercial training or coaching service'.
After examining this issue in detail the central board of excise and customs, recently vide Circular No. 127/9/2010-ST dated 16.08.2010clarified that the important point here is regarding the presence or absence of a link between 'consideration' and taxable service. It further stated that it is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to service tax. The board further clarified that between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. Thus in such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.
This clarification issued by the board although states that in the absence of link between 'consideration' and taxable service, no service tax can be levied on such donations or grant-in aid. The manner of determining the value in service tax is defined as per Rule 3 of the Service Tax (Determination of Value) Rules, 2006 and accordingly, the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined by the service provider in such a manner as equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration.
It further states that where the value can't be determined, the service provider shall determine the equivalent money value of such consideration, which shall, in no case be less than the cost of provision of such taxable service. However, one only hopes that such clarifications don't lead to confusion in other areas in days to come.