GST on Mess Services provided by educational institutions

All about GST on Mess Services provided by educational institutions 

Question:- Whether mess services supplied by an educational institute to its students, faculty and staff is taxable under GST Act? 

Answer:-

Service Tax Regime:-

Notification No. 25/2012-Service Tax dated 20/06/2012 (Mega exemption) at sl. no. 9 had exempted the following services:-

“Services provided to or by an educational institution in respect of education exempted from service tax, by way of,-

(a)  auxiliary educational services; or

(b)  renting of immovable property;”

After being amended, the entry as it stood at the time of introduction of GST Laws in India was as under:-

(a) by an educational institution to its students, faculty and staff;

(b)  to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution;

Provided that nothing contained in clause (b) of this entry shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.”

Definition of Educational Institution:- “Educational institution” means an institution providing services by way of:

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course.

It is thus clear that during pre-GST period, the services provided by ‘educational institutions’ were exempted from service Tax.

GST Regime:-

Notification No. 12/2017, Central Tax (Rate) dated 28/06/2017 had notified a list of nil rated services and sl. no. 66 of the said notification contains as under:-

“Services provided-

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution; up to higher secondary:

Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.”

The term “educational Institute” has been defined in para 2(y) of notification No. 12/2017-Central Tax (Rate) as under:-

“educational institution” means an institution providing services by way of,-    

(i)  pre-school education and education up to higher secondary school or equivalent;       

(ii)  education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course;        

Difference in two tax regimes & scope of the exemption entry:-

Apparently the language of the exempted entry remained same.

It is worth to mention that entry 66 in Notification No. 12/2017, Central Tax (Rate) is not independent and is tagged with SAC Code 9992 in the column no.2 of the table. The said code stands for ‘education services”, whereas the entry in column no. 3 is not confined to “education services” and contains “Services provided by an educational institution to its students, faculty and staff”. Unlike in case of Notification No. 11/2017 Central tax, which contains a list of taxable services, code SAC provided in column 2 of the Notification No. 12/2017 are indicative only.

Thus it appears that the services at serial number 66 of is not confined to “education services” and is applicable to all the services provided by “educational institutions” (as defined) by an educational institution to its students, faculty and staff. It is also apparent that the exemptions provided to the educational institutions under omitted/repealed Service Tax laws remained unchanged in GST Laws.

That is why, in a press release dated 13/07/2017, CBEC announced that there is no change in tax liability relating to education and related services in the GST era. It is worth to reproduce the press release here:-

“There are some reports that GST@18% will be levied on annual subscription/fees charged for lodging in hostels. This is not true.  There is no change in tax liability relating to education and related services in the GST era, except reduction in tax rate on certain items of education.

It may be mentioned that services provided by an educational institution to students, faculty and staff are fully exempt. Educational institution has been defined as an institution imparting.

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course.

Thus, services of lodging/boarding in hostels provided by such educational institutions which are providing pre-school education and education up to higher secondary school or equivalent or education leading to a qualification recognised by law, are fully exempt from GST. Annual subscription/fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall not attract GST.”

GST Flier on “GST on Education Services’ issued by National Academy of Customs, Indirect Taxes & Narcotics also clarified in the same fashion:-

“Thus output services of lodging/boarding in hostels provided by such educational institutions which are providing pre-school education and education up to higher secondary school or equivalent or education leading to a qualification recognised by law, are fully exempt from GST. Annual subscription/fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall therefore, not attract GST.”

However, let me be fair enough to admit that some people are of the opinion that services as described in column three of sl. no. 66, must take colour from the SAC Code 9992 which is mentioned in the column-2. The argues that though the codes mentioned in column 2 are indicative, but indication is very clear that only those services of an educational institutions are exempted which are covered by SAC code 9992 and which are provided to its students, faculty and staff.

I fails to understand the said theory and guess that had it been the intention of the Government,  the entry ought to have been “education services provided…………..” and not :services provided….”.  Absence of the word “Education” before the word services in the aforesaid entry makes it clear that scope of the exemption is not confined to education services rather it covers all the services provided by the educational institutions (as defined) to its students, faculty and staff in normal course of its affairs.

Some representations were made for seeking clarification on mess facilities provided by the educational institutes to its students, faculty and staff.

In response, the Tax Research Unit (TRU) issued a circular no. 28/02/2018-GST dated 08/01/2018 and clarified as under:-

“The educational institutions have mess facility for providing food to their students and staff. Such facility is either run by the institution/ students themselves or is outsourced to a third person. Supply of food or drink provided by a mess or canteen is taxable at 5% without Input Tax Credit [Serial No. 7(i) of notification No. 11/2017-CT (Rate) as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017 refers].

It is immaterial whether the service is provided by the educational institution itself or the institution outsources the activity to an outside contractor.”

Later on, TRU had issued a corrigendum dated 18/01/2018 to the aforesaid Circular no. 08/01/2018. After giving effect to the corrigendum, the clarification stood as under:-

• If the catering services is one of the services provided by an educational institution to its students, faculty and staff and the said educational institution is covered by the definition given under para 2(y) of Notification No. 12/2017, Central Tax (Rate), then the same is exempt. [Sl. No. 66(a) of Notification No. 12/2017, Central Tax (Rate) refers]
• If the catering services, i.e., supply of food or drink in a mess or canteen, is provided by anyone other than the educational institution, then it is a supply of service at entry 7(i) of notification No. 11/2017-CT (Rate) [as amended vide notification No. 46/2017-CT (Rate) dated 14.11.2017] to the concerned educational institution and attracts GST of 5% provided that credit of input tax charged on goods and services used in supplying the service has not been taken, effective from 15.11.2017.

The aforesaid circular also support my aforesaid views.

In light of the above, and more particularly in the light of the aforesaid circular, there was no doubt regarding the fact that hostel and mess facilities provided by an educational institution (as defined) is taxable at Nil rate. At-least till 26^th July, 2018.

Confusions & Debate:-

On 26^th July 2018 a notification no. 13/2018 Central Tax (Rate), which become effective on 27^th July 2018 has substituted the existing entry no. 7(i) of the exempted services list in notification No. 11/2017-CT (Rate).

After the aforesaid notification, TRU has withdrawn its circular no. 28/02/2018-GST dated 08/01/2018 and its corrigendum dated 18/01/2018 vide a circular no.  50/24/2018-GST dated 31/07/2018. The reason for withdrawal has been given as under:-

“Consequent to the decisions of 28th GST Council Meeting held on 21.07.2018, the contents of the circular no. 28/02/2018-GST dated 08/01/2018 as amended vide Corrigendum dated 18.01.2018 have been incorporated in Sl. No. 7 (i) of the notification no. 13/2018 Central Tax (Rate), dated 26.07.2018 amending the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017.”

Entry no. 7(i) of taxable services (taxable @ 2.5% + 2.5%) after being substituted vide the aforesaid notification, stood as under:-

“Supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent.

Explanation 1.- This item includes such supply at a canteen, mess, cafeteria or dining space of an institution such as a school, college, hospital, industrial unit, office, by such institution or by any other person based on a contractual arrangement with such institution for such supply, provided that such supply is not event based or occasional.”

The question and dispute arouse that whether by this substituted entry mess services provided by an educational institution to its students, faculty and staff has become taxable?

The explanation appended to the entry is very important and it apparently attempts to fix the rate of tax on services provided at mess, canteen, dining space etc. of Schools and College by such institutions or by some others. Question may arise that whether this entry [7(i)] of the taxable schedule supersede the entry no. 66 of the exempted list?

If we compare the relevant part of both the entry, we finds as follows:-

1. Services provide by educational institutions (as defined) to its students, faculty and staff.
2. Services provided by anyone in the mess, canteen, cafeteria, dining space etc. of an institution such as college, school etc.

It appears that the first one is specific entry, which is describing the service providers and as well service recipients, whereas the second one is generic entry describing only the place of service. It appears that use of the phrase “educational institution” has been knowingly avoided in the aforesaid explanation.

As the entry no. 66 was in the original notification and as the explanation to entry 7(i) has been inserted in July 2008, it can be argued that had there being any intention to curtail the scope of entry 66, the specific effect could have been given to the said entry at the time of insertion of the explanation in entry 7(i).

It seems appropriate to interpret both the entries in such a fashion that existence of both the entry does not get disturbed. It may be a reasonable interpretation that supplies covered by exempted entry 66 will not be taxable even if the same are supplied in the mess, canteen, dining space of a college or school.  It is however a debatable issue.

Composite Supply concept (in case of supply to students):-

GST Flier on “GST on Education Services’ issued by National Academy of Customs, Indirect Taxes & Narcotics, which said that output services of lodging/boarding in hostels provided by educational institutions (as defined) are fully exempt from GST. Also contained the followings:-

“Composite and Mixed Supply in so far as Education is concerned Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food. This may be a case of bundled services if the charges for education and lodging and boarding are inseparable. Their taxability will be determined in terms of the principles laid down in section 2(30) read with section 8 of the CGST Act, 2017. Such services in the case of boarding schools are naturally bundled and supplied in the ordinary course of business. Therefore, the bundle of services will be treated as consisting entirely of the principal supply, which means the service which forms the predominant element of such a bundle. In this case since the predominant nature is determined by the service of education, the other service of providing residential dwelling will not be considered for the purpose of determining the tax liability and in this case the entire consideration for the supply will be exempt.”

For the sake of argument, even if it is admitted that providing of lodging/ boarding/ mess services to students by an educational institute is a taxable service, it is a dispute free fact that the same are naturally bundled supply of nil rated taxable services and other taxable services. In this case, supply of education is the primary supply and all the services provided in conjunction of each other in the ordinary course of business. Thus the case falls under the category of composite supply as defined u/s. 2(30) of the CGST Act.

The dispute raised by substitution of entry-7(i) vide notification no. 13/2018 Central Tax (Rate) demands a legal verdict/ proper amendments. We may expect that the CBEC will come with appropriate remedy.

This write-up is for academic discussion only. I solicit your valuable comments, views, and inputs

Author can be reached at fca.opg@gmail.com