T.K. Jayaraman, Technical Member. - This appeal has been filed against the Order-in-Appeal No. 8/2007 (V-II) ST, dated 20-8-2007, passed by the Commissioner of Central Excise and Customs (Appeals), Visakhapatnam.

2. Heard both the sides in the matter.

3. The appellants are imparting training to students for appearing in various competitive examinations. The services mainly "Commercial Training and Coaching" are liable to service tax with effect from 1-7-2003. They collected an amount of Rs. 81,74,000 from the students appearing for EAMCET for the year 2003 and the coaching duration was from April to July 2003. The appellants rendered training course to Group-I candidates sponsored by Social Welfare Department of Andhra Pradesh. According to the Department, there was some short payment of service tax as the appellants deducted an amount of Rs. 8,500 towards the Mess charges out of the gross amount received. In view of the above, the proceedings were initiated against the appellants. The Original authority demanded the following amounts :-

(i)Service Tax amount of Rs. 2,02,800.

(ii)Interest under section 75 of the Finance Act, 1994.

(iii)Penalty of Rs. 100 per day for delayed payment under section 76 of the Act; and

(iv)Penalty of Rs. 2,05,000 under section 78 of the Act.

4. The appellants were aggrieved over the Order-in-Original and approached the Commissioner (Appeals). The appellants urged several legal contentions before the Commissioner (Appeals). The point urged was that for the amount received by the appellants prior to the introduction of service tax, namely 1-7-2003, the service tax is not leviable. Another point urged was that the service tax is not leviable on ‘Mess Charges’ for Group-I Competition coaching. The Commissioner (Appeals) relying on the Board’s Circular No. 65/14/2003 dated 5-11-2003, gave a finding that the order of the lower authority is correct. He has extracted the following guidelines of the Board’s Circular :-

"...where the value of taxable service has been received in advance for a service which become taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis."

The logic of the Commissioner is that though the payment for coaching was received before 1-7-2003 (the date on which this service became taxable), part of the coaching was provided after 1-7-2003. Therefore a service provider should pay service tax for the value of taxable service. As regards the Mess Charges, the Commissioner has reasoned that the service tax is liable to be paid on the gross amount and there is no provision made in the said section for claiming any abatement. In view of this, he has upheld the order of the lower authority. The appellants are highly aggrieved over the impugned order of the Commissioner (Appeals).

5. The learned Advocate urged the following points :-

(i)The learned Advocate invited our attention to rule 6(1) of Service Tax Rules, 1994 and also the amendment to the said rule with effect from 9-7-2004 by adding the following Explanation :-

"Explanation.-For the removal of doubt it is hereby clarified that in case the value of taxable service is received before providing said service, service tax shall be paid on the value of service attributable to the relevant month, or quarter, as the case may be."

Further our attention was also invited to the Board’s Circular dated 5-11-2003. It was pointed out that the supporting legislation which creates tax liability cannot be retrospective. This Circular and Amending Rule are beyond the purview of the substantive Act and no operational guidelines should be introduced, which are contrary to the Substantive Legislation. He relies on the Apex Court judgment rendered in the case of State of Orissa v. Tata Sponge Iron Ltd. [2007] 8 SCC 189.

(ii)As regards the inclusion of the Mess charges, it was urged that the said inclusion is beyond the purview of the service tax provisions. Since