“Knowledge is an eye for the blind, ears for the deaf, strength for the weak and all in all it is a boon for the mankind”. It is argued that a person who is blind is weak only in one sense but the one who is uneducated is weak by all senses.
Let me begin with the words of Ralph Emerson, “For every benefit that you receive, a Tax is levied”. Perhaps this seemed never so real than today in the Indian context.
Education sector has seen revolutionary changes in the past decade and so has the much debated service tax. The much thoughtful leaders of India have spared the education sector all alone from levy of taxes considering the importance of the same for the country. If a country wants to grow manifold than building infrastructure for education and educated infrastructure (people of the country) is a prerequisite.
The importance of education was considered again at the juncture of Budget 2012 and the same benefit was extended vide budget 2012 also when service tax entered into the most crucial stage by entering the negative list. Under the negative list following education services were exempt pursuant to section 66 (1) (d).
(i) Preschool and higher education or equivalent;
(ii) Education provided as a part of the curriculum for obtaining a qualification recognized by any law for the time being in force;
(iii) Education provided as a part of approved vocational education course as specified in section 65B (11).
The main reason for providing this exemption is to reduce the cost of education so that it can be available to the needy and the poor at affordable prices. Almost 4% of the GDP is spent for educating India’s hidden talent and 50% of the amount spent is for primary education. Relentless efforts made from the great thinkers of our nation have pushed this sector into a new arena. The cost of education is increasing gradually, now taxation plays a crucial role in determination of the fees charged in 2 ways. Firstly if there is service tax charged on the amount of the fees than the cost is for all obvious reasons going to rise but the same has been exempt as specified earlier, on the other hand if the service that the institutes imparting education receives is chargeable to service tax than also the total cost increases which ultimately results into an increase in the cost of education.
This matter was examined in depth by our farsighted leaders and finally they brought out Mega exemption notification No 25/2012 on 20th June 2012 whereby the following provision was stated in the context of education industry.
“Services provided to or by an educational institution in respect of education are exempted from service tax, by way of
(a) Auxiliary educational services; or
(b) Renting of immovable property”
This notification brought a sense of relief as the cost of services provided would be reduced but also there was a sense of confusion as regards to the word which was newly introduced by the department vide its notification named “Auxiliary Education services”. There were a lot of interpretations running around the industry and a whole lot of confusions were running in as to which services should be construed as Auxiliary Education services.
Budget 2013 brought a huge change again in the education industry. The word services provide “to or by” was replaced by “to”. This amendment has brought a drastic change in the education sector. At the time of its introduction of this benefit in mega exemption notification it granted relief to both the service providers and receivers from the levy of the service tax but later on vide the its introduction in budget the benefit was restricted to services which were only provided to educational institutions by way of
(a) Auxiliary educational services; or
(b) Renting of immovable property”
If we carry a detailed examination of the above amendment, than we could make out that the intention of the lawmakers was never to withdraw the exemption in its entirety and therefore it has only deleted the words “services provide by”, while services provided to education institutions as specified before are still in the ambit of exemption of service tax.
But still the industry was in a state of dilemma as to what constitutes auxiliary services was not specified by the board and it was no longer when the industry started taking the liberal understanding of the same and started considering every service provided to them as auxiliary education service. The intention of the law makers was not getting fulfilled due to the terms of trade.
It took almost more than a year since the original exemption was granted to education sector for the board to come upfront for a clarification. Auxiliary Education service was finally defined in Circular no 172/7/2013 dated 19th September, 2013 due to continuous approach of various institutions to the board. It was defined hereunder.
“Auxiliary education service means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge–enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.”
Now if we analyze the same, we could carve out the following points
1) All the services received by the education institutions are not construed as Auxiliary Education
2) The clarification does not give an exhaustive list rather it gives an illustrative list of services.
3) Services which could ordinarily have been carried out by the education institute but have been outsourced for one reason or the other to some other person may be considered as Auxiliary Education service.
4) Services which are carried out for the imparting of Education or skills or knowledge for the faculty or the staff could be construed as Auxiliary Education service.
5) Some of the examples would be housekeeping, security services, canteen, transportation etc.
This clarification brought a great deal of clarity among the industry but they still have to put every service received by them in the test of this definition of the clarification issued by the department. The industry was in need of something more concise and exhaustive. There still were a lot of issues raised from the department and the industry as they lacked Consensus Ad Idem (Same set of mind).
The industry demanded a clarity for Modus Operandi in the field of the Service tax and the new government with its promise of good governance vide finance (No. 2) Act, 2014 provided for the same.
The following was clearly specified in the budget.
The current exemption provided all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculty and staff are outside of the purview of service tax. While currently the exemption is provided for services received by way of Auxiliary Education service which have been a long debated issue for the industry and hence it was proposed to be omitted and an exhaustive list of services was given for exemption hereunder
1) Transportation of students, faculty and staff of the eligible educational institution;
2) Catering service including any mid-day meals scheme sponsored by the Government;
3) Security or cleaning or House-keeping services in such educational institution;
4) Services relating to admission to such institution or conduct of examination.
Further as a rationalization measure, the exemption hitherto available to services provided by way of renting of immovable property to educational institutions stands withdrawn, with immediate effect.
This Notification is applicable from 01/10/2014. This notification has now brought a smile and a tear both. Smile because there was a great deal of clarification and now there is no more room for any confusions while there are tears because the exemption list have narrowed down as a rationalization measure. But we can at least expect a better mindset of the industry and the department as a result of consensus being brought in between the two.
Cenvat Credit & Educational Institutions.
The education institutes are engaged primarily in imparting education which is a nontaxable service where no cenvat credit is available, but today there are various universities and institutions which have multi-disciplinary branches opened up and they may even provide taxable output service e.g. consultancy service provided by the faculties of the institute or even consultancy in research related work carried out by various institutes. Now in this case there would be some portion of taxable service provided among the total revenue. So as per cenvat credit rules, 2004 (as amended from time to time) they are eligible for cenvat credit as per Rule 6.
Rule 6 of cenvat credit rules, 2004.
When an entity is providing both taxable services & nontaxable services or taxable services and exempt goods or dutiable goods and exempt services or any such permutation and combination of exempt goods/nontaxable services and dutiable goods/taxable service, and it uses common input goods/input services and capital goods for providing the services/goods, than it would not be entitled for full cenvat credit as per cenvat credit rules, 2004.
Such case would be governed by rule 6 of cenvat credit rules, 2004. Rule 6 have various conditions which could be clarified by the help of the following diagram.
The education sector still has a huge scope of indirect tax lied underneath it, which needs to be explored by the professionals in their day to day endeavor. There are a few other illustrative list of services In relation to education sector for which bifurcation is given hereunder as to whether the same constitutes as taxable service or not for better understanding of this industry.
|Sr No||Particulars of service||Taxable (T)
|2||Courses not recognized by Indian Law or recognized by foreign law.||T|
|3||Courses by National Skill Development Corporation.(w.e.f 01/04/2013)||T|
|4||Room rent/Hostel Fees (Above1000 Rs per day per student).||T|
|5||Renting of immovable property.||T|
|6||Fees for Foreign courses.||T|
|7||Fees for foreign language courses.||T|
|10||Vocational courses (other than approved).||T|
|12||Higher Secondary Education.||NT|
|13||Education provided as a part of the curriculum for obtaining a qualification recognized by any law for the time being in force.||NT|
|14||Training or coaching in recreational activities relating to arts, culture or sports.||NT|
1) Budget 2012.
3) Budget 2013.
5) Budget 2014.
(Author can be reached at firstname.lastname@example.org)