Commercial training and coaching service was introduced as taxable Service in Budget 2003 with a view to bring within ambit the coaching institutes and training centers which either provide coaching classes for examinations or unrecognized courses in various areas.

However the schools, institutes, collages offering courses that lead to awarding degrees/diplomas were kept out of the Service Tax net. Also the universities established under Central Act or State Act, institutes recognized by UGC as universities or deemed universities and institutes granting recognition like AICTE, Medical Council of India, Bar Council of India etc. were not a part of Service Tax net.

The use of the word ‘commercial’ in these definitions has led to certain consequences. A view has been taken that the term ’commercial’ appearing in various definitions implies that the institute must be run with a profit motive to fall under the taxable service. A number of taxpayers interpreted that only Commercial Coaching were liable to pay Service Tax. In order to clarify the legislative intent, the definition of the taxable service is being suitablely amended, in the present budget through insertion of an Explanation, to clarify that the word ‘commercial’ means any training or coaching that is provided for a consideration irrespective of the presence or absence any profit motive. This amendment is being carried out retrospectively (from July 2003) so as resolve the disputes pending at different levels of the dispute adjudication system.

One another amendment introduced in the same Services vide the Notification No. 03/2010-ST dated 27.02.2010 before such amendment the exemption from service tax on ‘Commercial training or coaching service’ extended to vocational training institutes vide notification No. 24/2004-ST dated 10.09.2004 but now vide Notification No. 03/2010-ST the same is being limited by introducing a new definition of vocational training institutes. Service tax exemption will be available only to industrial training institutes or industrial training centers affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered under Schedule I of the Apprentices Act, 1961. The List figuring under Schedule I of the Act covers engineering as well as non-engineering skills/trades (Notification No.3/2010-ST, dated 27th February, 2010 refers).

In the case of Ahmedabad Management Association (STO 2009 CESTAT 280) Hon’ble Tribunal held that the training programms conducted by AMA cannot be called as commercial training or coaching as AMA is not a commercial concern ;the purpose of the training is not commercial; the objective of the AMA in conducting the programms is not commercial and whatever extra income is earned, it is flowed back into the association and is used for public purpose ;the programms conducted by the AMA can be considered as continuing education programms and not as commercial training or coaching and No specific skills which prepare candidates for a particular job or an examination are imparted. The diploma programms/courses conducted by AMA amount to education or continuing education and not commercial training or coaching.

After such change in the present Budget the question which now is arises that what would be the consequences about the cases which has already been decided on the basis of non-profit organization. Commercial training or coaching institutes which provides service without the motive of earnings profit are not liable to Service Tax. On light of the present amendment in Budget 2010 Charitable institutions offering courses on basis of no Profit or Loss basis will also be covered within the ambit of Service Tax net which have been given retrospective effect from July 2003.