Hostel Charges Collected by Coaching Institutes Not Liable to Service Tax: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that hostel charges collected by coaching institutes for providing residential accommodation to students are not liable to service tax.

Roy’s Institute of Competitive Examination Pvt. Ltd., the appellant, is a coaching centre offering both residential and non-residential courses. During the period in question, students enrolled in residential courses were required to stay in the institute's hostel, and the total course fee covering tuition and hostel charges was taxed. For non-residential students, hostel accommodation was optional and billed separately.

The department issued a show cause notice and confirmed a demand of Rs. 35.86 lakhs in service tax, alleging that hostel charges collected from non-residential students were part of commercial training and coaching services and thus taxable. Aggrieved by the order, the appellant approached the Tribunal.

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The appellant’s counsel argued that the accommodation services provided to non-residential students were optional, had no connection to the course fee, and were billed independently. They relied on CBEC Circular dated 28.02.2007, which clarified that residential accommodations like hostels and boarding houses are exempt from service tax. They also referred to judicial decisions holding that residential services cannot be classified under coaching or training services.

The revenue counsel argued that the hostel services were part of the overall offerings of the coaching institute and thus fell within the scope of taxable services under the category of commercial training and coaching.

The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that hostel services provided by the appellant were independent of the coaching services and purely residential in nature. The tribunal further observed that the accommodation was optional for non-residential students and was not included in the course fee.

Relying on prior rulings, including Aditya College of Competitive Exam v. CCE, the tribunal held that such hostel charges are not taxable under the Finance Act, 1994, as they fall outside the definition of commercial training and coaching services.

The tribunal ruled that there was no legal basis for levying service tax on hostel charges collected separately from students and set aside the demand of Rs. 35.86 lakhs. The appeal on this issue was allowed.

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