Facts of the Case

The respondent, Dewsoft Overseas Private Limited, was engaged in providing educational courses in areas such as language skills, computer applications, and entrepreneurship. Until March 2009, the respondent provided training through online and offline modes, including authorized training centres, and paid service tax on the component of online education. With effect from April 2009, the respondent changed its business model and began supplying only course material in the form of CDs, DVDs, e-books, and power-point presentations, without any interactive sessions or training through centres. On this basis, the respondent stopped collecting and paying service tax. Six show cause notices were issued covering the period from 2007-08 to 2012-13 proposing service tax demand under the category of Commercial Training and Coaching Service and Franchise Service. An Order-in-Original dated 30.06.2014 confirmed substantial service tax demands along with interest and penalties for all periods.

Issues Involved

Whether service tax was leviable after April 2009 when the respondent allegedly ceased rendering services and only sold educational material, whether the CESTAT was correct in holding that post-2009 activity amounted to sale of goods and not provision of service, and whether any substantial question of law arose from the CESTAT’s findings.

Petitioner’s Arguments

The Revenue contended that the respondent continued to provide services even after April 2009 and that sale of CDs and DVDs necessarily involved accompanying support services. It was argued that the business model change was only superficial and that service tax continued to be payable on the entire consideration received by the respondent.

Respondent’s Arguments

The respondent submitted that after April 2009 no training services were rendered, no interactive sessions were conducted, and no authorized training centres were operated. The activity was limited to sale of recorded course material, which constituted sale of goods and attracted VAT, thereby excluding service tax. It was further submitted that for subsequent years 2013-14 and 2014-15, similar demands were decided in the respondent’s favour and were not challenged by the Department.

Court Order / Findings

The Delhi High Court observed that the CESTAT had undertaken a detailed factual examination of the respondent’s business model, balance sheets, and records and had clearly found that post April 2009 the activity was confined to sale of goods and did not involve rendering of services. The Court noted that service tax and VAT are mutually exclusive and that levy of one excludes the other. It was further observed that for later years the Department itself had accepted that no service tax was payable. The Court held that whether services were rendered post-2009 was purely a factual determination and that no substantial question of law arose from the CESTAT’s conclusions. Accordingly, the Revenue’s appeal was held to be devoid of merit.

Important Clarification

The Court clarified that where an assessee demonstrably shifts from providing taxable services to sale of goods, service tax cannot be levied merely on assumptions of incidental support unless there is evidence of an independent service being rendered. Findings of fact by the CESTAT based on detailed appreciation of evidence would not warrant interference in appeal unless a substantial question of law arises.

Final Outcome

The appeal filed by the Revenue was dismissed. The order of the CESTAT modifying the service tax demand by upholding tax liability only up to the period 2008-09 and setting aside demands for the period thereafter was affirmed, and all pending applications were disposed of.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/PMS02122025SERTA272025_165932.pdf

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