CBIC can’t modify scope of Exemption Notification

Held by Hon’ble CESTAT

in the matter of M/s Lakshya Education Solutions Pvt. Ltd. Vs The Commissioner (Appeals), Customs, Central Excise & Service Tax,

The Appellant is running a commercial training and coaching institute wherein study material is provided to the students in loose form binded through spiral binding. The Appellant discharged his service tax liability on coaching components. However, The Appellant claimed the benefit of exemption notification 12/2033-ST dated 30.06.2003 and did not pay any service tax on study material components. The Department issued SCN to the appellant stating that CBIC has issued a circular wherein it is clarified that the benefit of exemption notification shall be provided only with respect to study materials which are standard textbooks having MRP printed on the same. Therefore, The Appellant is not entitled to avail of the exemption notification.

Hon’ble CESTAT stated that exemption notification is issued by Central Government in the exercise of power given under section 93 of the Finance Act, 1994. Exemption notification is approved after obtaining approval from both houses of parliament. However, no power is extended to CBIC to modify the scope of the exemption notification. Therefore, conditions attached by CBEC to exemption issued by the Central Government are illegal, unauthorized, and of no effect.

Therefore, CBEC has no power to modify the scope of exemption notification issued by CBIC, and consequently, the impugned order is set aside.

1. Brief Facts of the case

M/s Lakshya Education Solutions Private Limited (“The Appellant”) is running a commercial training and coaching institute.
The coaching provided by the Appellant is chargeable to service tax and The Appellant has discharged his Service tax liability on the same.
However, no service tax was paid on the study material provided by the Appellant.
The Appellant provided study materials to the students in the form of loose sheets bound together in spiral binding and the same are provided on a continuous basis to the. They were not standard textbooks and no MRP was printed on them.
The Appellant claimed exemption on study material supply under Notification No. 12/2003-ST June 20, 2003 (“Exemption Notification”).
The department issued a show cause notice to the Appellant demanding service tax amounting to Rs. 5,89, 698/- stating that the exemption towards study materials is available only for standard textbooks which are having MRP printed.
For this demand, the department relied on paragraph 2.91 of CBEC’s Circular dated June 20, 2003, which stated “in case of commercial training and coaching institutes, the exemption in respect of study materials would be available only on the sale value of standard textbooks, which are priced. Any study material or written text provided by the study institute as a part of service which does not satisfy the above criteria will be subjected to service tax”.
The Show Cause notice was issued demanding service tax, interest, and penalty.
The Adjudicating Authority passed an order-in-original (OIO) confirming the demand and interest. However, no penalties were imposed.
Both the Appellant and department appealed against the OIO, wherein the Appellant challenged the imposition of demand and interest and the department challenged the non-imposition of penalty.
The Appellate Authority confirmed OIO and accepted Department’s Appeal and imposed the penalty of INR 10,000.
Therefore, The Appellant filed an appeal before the Hon’ble Custom, Excise and Service Tax Appellant Tribunal (“CESTAT”).

2. Legal Provision

Provisions in the discussion are reiterated below for ready reference:

The relevant extract of exempted notification is reiterated below:

“In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials.

…”

The relevant extract of the CBEC Circular replied upon by the department is as follows:

“2.9.1 …..It is also clarified that in the case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard textbooks, which are priced. Any study material or written text provided by the such institute as a part of service which does not satisfy the above criteria will be subjected to service tax.”

3. Analysis by CESTAT

Hon’ble CESTAT made the following analysis:

3.1 Analysis of Exemption Notification and circular issued by CBEC

A question that remains unanswered is whether the benefit of exemption notification is available to the appellant for the study material provided.
There is no dispute to the fact that study material was not standard textbooks printed with MRP but the same is material printed by the appellant and bound together by means of spiral binding.
CESTAT Clarified that under exemption notification, the exemption is available for the value of all the taxable services as is equal to the value of goods and materials sold by the service provider to the recipient subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials.
The exemption notification has not placed any restriction on the type of goods or services which are entitled to exemption. As long as there is documentary proof indicating the value of goods and services sold by the service provider, the exemption shall be available.
In the given case, the material in dispute is study material. Documentary evidence of the value of such supply is not in dispute.
The reason for denying the exemption was the CBEC Circular, which had restricted the entitlement of the exemption to only such materials that are standard textbooks have MRP.
Following such circular, Adjudicating authority and Commissioner (Appeals) has denied the benefit of the exemption notification.

3.2 Power to issue Exemption Notification

Hon’ble CESTAT highlighted that exemption notification is issued by the Central Government in the exercise of power given under section 93 of the Finance Act, 1994.
Exemption Notification is issued by the Central Government in the exercise of the powers conferred under Section 93 of the Finance Act.
Therefore, the Exemption Notification is a delegated legislation made under the power of granting exemption available to the Central Government and not to anybody else including to CBEC.
Whenever delegated legislation is framed, the same is placed before both houses of parliament and then reviewed by the “Committee on Subordinate legislation” of both houses.
The legislation is examined that to ensure that it is issued in consistent with the power delegated to the government by the law.
If the Committee finds that the subordinate legislation is not consistent with the main Act or is not within the powers delegated by the Act, the Committee asks the Government to modify the notification/rules which constitute the subordinate legislation.

3.3 Power of CBEC

The circular under discussion, issued by CBEC, is an administrative instruction issued by the CBEC to its own officers.
Power under Section 93 of the Finance Act was not been delegated to the CBEC.
Therefore, CBEC has no right to grant exemptions or modify the exemptions granted by the Central Government.
Therefore, the circular by the CBEC cannot modify the scope of the exemption notification.

3.4 Judgment in the matter of M/s Cerebral Learning Solutions Pvt. Ltd. versus CCE

Hon’ble CESTAT relied on precedence in the case of M/s Cerebral Learning Solutions Private Limited.
The matter decided in this judgment is as follows:
- The facts of the case are similar to the case under discussion wherein the Department issued a service tax demand for the supply of Study Materials which are not standard books with MRP.
- Hon’ble CESTAT held that the clarification issued in Board Circular is misconceived, clearly illegal, and contrary to the statutory exemption Notification.
- CBEC has no manner of power, authority, or jurisdiction to deflect the course of an enactment or the exemption granted. The power to grant exemption is exclusively given to the Central Government.
- This statutory provision provides no participatory role to the Board.
- CBEC has transgressed into the domain of central government by seeking to engraft restrictions on the generality and plenitude of the exemption granted by the Central Government. Such a course of action is clearly prohibited.
- Therefore, part of the clarification issued by CBEC which engrafts a condition on the exemption provided by the central government is illegal, unauthorized, and of no effect.
- No notice or cognition can be taken by any authority or such unauthorized exertions by the CBEC.
- If this illegal and unauthorized condition, imposed on the generality of exemption granted is ignored, as it must, the assessee/appellant is clearly entitled to the benefit of the exemption notification.
- Therefore, Assessee is entitled to relief.

4. Decision of Hon’ble CESTAT

On the basis of the above discussion, CESTAT stated that the impugned order passed denying the benefit of exemption notification relying on CBEC Circular cannot be sustained.
CBEC has no power to modify the scope of the exemption notification issued by the Central Government.
Accordingly, the appeal is allowed and the impugned order is set aside with consequential benefits, if any, to the appellant.