Setback to ICAI: DGGI issues ₹157.79 Cr Service Tax Demand SCN to on CA Course related Fees [Read ICAI Annual Report]

In a major setback to the Institute of Chartered Accountants of India ( ICAI ), the Directorate General of Goods and Services Tax Intelligence ( DGGI ) had issued a show cause notice of a service tax demand of ₹157.79 crore related to fees collected for Chartered Accountancy ( CA ) course in financial year 2018-19. The Institute of CAs disclosed this in the recently released Annual Report and expressed the opinion that it is not liable to service tax and filed writ petition No. 3957/2019 in High Court of Delhi in April 2019. Additional Director General, DGCEI, Kochi had filed a Counter affidavit against the aforesaid writ petition in October 2019, in the case pending decision at the High Court.

The demand pertains to the service tax obligations arising from the collection of registration and training fees for CA courses, which, according to DGGI, qualify as taxable services under previous tax regimes.

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The development comes at a time when ICAI, which has been instrumental in the growth of accounting standards and professional development in India, is celebrating its 75th anniversary. The tax demand, however, casts a shadow on its festivities, raising questions about compliance practices in the organisation that has been a beacon of accounting excellence in the country.

According to the DGGI, fees collected from students for various training programs, coaching classes, and other allied services fall under the category of "commercial coaching and training services" as defined by earlier tax laws. The DGGI's audit revealed that ICAI allegedly failed to pay the appropriate service tax on the sums collected for these services for a significant period, dating back to the pre-GST era.

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ICAI has consistently maintained that the services it provides are aimed at public welfare, with a focus on training and certifying accounting professionals, which it argues should not be treated as commercial activities. The institute has cited its statutory nature and educational focus as a basis for its stance. However, the tax authorities have taken a stricter interpretation of the tax regulations, arguing that ICAI's activities fall under the purview of taxable services.

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In the statement, ICAI indicated its intention to contest the tax demand. It stressed that the services provided are educational in nature and thus should not attract service tax. ICAI officials have expressed confidence in challenging the notice through appropriate legal channels, stating that they have always operated in compliance with existing laws and regulations.

It was stated in the report that, “In financial year 2018-19,The Institute received two show cause notices of ₹ 15,797 lakhs from the Additional Director General, Goods and Service Tax Intelligence for payment of service tax on annual fee, certificate of practice fee, entrance fee, Seminar Fees and Coaching Class Fees etc. The Institute is of the opinion that it is not liable to service tax and filed writ petition No. 3957/2019 in High Court of Delhi in April 2019. Additional Director General, DGCEI, Kochi filed a Counter affidavit against the aforesaid writ petition in October 2019 against which the Institute filed a rejoinder affidavit in December 2019. Due to Covid-19 pandemic, the matter being adjourned from time to time was heard in July 2022 wherein Hon'ble High Court gave directions that the respondent should file the Counter Affidavit within four weeks and rejoinder affidavit thereafter.”

Notably, the next hearing of the matter is scheduled on 21st November, 2024.

This tax demand against ICAI highlights the ongoing scrutiny faced by educational and professional institutions regarding tax liabilities, especially in sectors traditionally considered exempt from taxation.

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With the Institute planning to take legal recourse, the matter is likely to move to the courts, where its outcome could have significant implications not only for the institute but also for other similar bodies across the country.

To Read the full text of the Notification CLICK HERE

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