R. Kumar, B.Com. MBA (Finance)
1. The higher education and school education are exempt from service tax since the inception of the old service tax regime. For example, under the business auxiliary service head, activity of job work in relation to education was exempt, under the commercial coaching or training services, pre-school coaching/training or any educational qualification recognised by law was exempt; under outdoor catering service head, service relating to mid day meal scheme for school were exempt ; under rent a cab service head, definition of cab did not include motor vehicles provided to an educational body other than commercial coaching or training centre. Apart from those, auxiliary services (e.g. catering, hiring buses etc.) and renting of premises activities are also exempt from service tax. Vocational courses are also covered in the Negative List and so not taxable. Charitable institutions running charitable activities (only defined and not all) are also not covered in service tax applicability.
Private institutions running foreign education courses, institutes which provides direct placement services, colleges and institutes not running courses recognised by Indian Law or running courses which are not part of curriculum of the recognised course by Indian Law are covered in the service tax net and therefore auxiliary services and even renting of premises would be taxable to these institutions.
2. In the Finance Act 2012, for the first time term “service” has been defined in the act : [Sec. 65b(44)]. “Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include;
(a) An activity which constitutes merely,
(i.) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii.) Such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of Article 366 of the Constitution, or
(iii.) A transaction in money or actionable claim
(b) A provision of service by an employee to the employer in the course of or in relation to his employment.
(c) Fees taken in any court or tribunal established under any law for the time being in force.
The educational services provided by educational institutions clearly fall within the ambit of definition of Service.
2.1 Meaning of Education : The term “Education” has not been defined in the Service Tax Laws. So, here we‘ll go by the dictionary meaning (i.e. www.dictionary.com) and general meaning of this term.
1. The act or process of imparting or acquiring general knowledge, developing the powers of reasoning and judgment, and generally of preparing oneself or others intellectually for mature life.
2. The act or process of imparting or acquiring particular knowledge or skills, as for a profession.
3. A degree, level, or kind of schooling: a university education.
4. The result produced by instruction, training, or study: to show one’s education.
5. The science or art of teaching; pedagogies.
2.2 Sec. 66D – Entry I in Negative list:
2.2.1 Pr-school education and education up to higher secondary school or equivalent
ü All play schools, crèches, nursery schools, pre-primary schools are covered here and no service tax is chargeable on such services.
ü All schools providing schooling upto higher secondary or equivalent are covered here and no service tax is chargeable on such services.
2.2.2 Education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force;
ü Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered here and no service tax is chargeable on such services.
2.2.3 Education as a part of an approved vocational education course
Before implementation of Finance Bill 2013
ü Approved vocational education courses have been specified in section 65B of the Act. These are –
i.) A course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training offering courses in designated trades notified under the Apprentice Act, 1961
ii.) A modular employable skill course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment.
iii.) A course offered by an Institute affiliated to the National Skill Development Corporation set up by Government of India.
After implementation of Finance Bill 2013
i) A course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council of Vocational Training, offering courses in designated trades notified under the Apprentice Act, 1961.
ii) A modular employable skill course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment.
Notification No. 13/2013-Service Tax dated 10 September 2013
Amends Notification No. 25/2012-ST dated June 20, 2012 to exempt services from payment of service tax provided by National Skill Development Corporation (“the NSDC”) set up by the Government of India, a Sector Skill Council (“the SSC”) approved by the NSDC, an assessment agency approved by the SSC or the NSDC and a training partner approved by the NSDC or the SSC in relation to National Skill Development Programme implemented by the NSDC or a vocational skill development course under National Certification and Monetary Reward Scheme any other Scheme implemented by the NSDC.
Commentary (Issue & Results):
As education is one of the fundamental rights, Government adopted the policy to exempt pre-school, higher secondary school and other recognized education from levy of service tax by including these services in negative list. Apart from this, services provided by or to an educational institutions by way of auxiliary educational services as well as renting of immovable property are exempted from service tax under entry 9 of Notification 25/2012-ST dated 20.06.2012.
With effect from 01.04.2013, exemption was withdrawn for services i.e. renting of immovable property provided by an educational institution. The reason was given for this amendment in the explanatory notes explaining the amendments made by Finance Act, 2013. Further this is clearly spelled out in the heading of Notification 3/2013-ST dated 01.03.2013 that effected the amendment, which is as follows;
“Renting of property by educational institutions, copyright for cinematographic films, restaurants, transportation of goods by rail, road and waterways and for charities —Notification No. 25/2012-S.T. amended”
There was a question raised that whether the same will be applicable with respect to auxiliary education services. It is very clear with the Notification that the intention is to restrict exemption only with regard to renting of immovable property services only provided by educational institutions to outsiders but not with respect to auxiliary educational services provided by educational institutions. On plain reading of the amended entry, it is very clear that services provided by educational institutions be it be auxiliary educational services or renting of immovable property services are not exempted.
The Finance Ministry clarified Vide Circular No.172/7/2013–ST New Delhi, 19th Sep, 2013 that “auxiliary educational services” like hostels, canteen and school buses will not attract 12 per cent service tax.
The Central Board of Excise and Customs (CBEC) further said that “By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax,”.
This clarification was issued in response to queries raised by several educational institutions. The Central Board of Excise and Customs (CBEC) further said there are many supplementary services or “auxiliary educational services” which have been defined in the exemption notification. Such services, the Central Board of Excise and Customs (CBEC) said, provided to an educational institution are exempt from service tax. Citing an example, transport services provided by a transport operator to a school to ferry students are exempt by virtue of the exemption notification. In addition to the services mentioned in the definition of “auxiliary educational services”, other examples would be hostels, housekeeping, security services and canteen, the Central Board of Excise and Customs (CBEC) added.
The Central Board of Excise and Customs further added that “Thus, the apprehensions conveyed in the representations submitted by certain educational institutions and organisations have no basis whatsoever. These institutions and organisations are requested not to give credence to rumours or mischievous suggestions.”.
The author is reachable at [email protected]