Parth Shah

“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

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).

Budget 2014

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.

st eduThe 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)
/Non Taxable
(NT)
1 Private Tuitions. 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
8 Postal coaching. T
9 Online coaching. T
10 Vocational courses (other than approved). T
11 Preschool Education. NT
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

Bibliography

1) Budget 2012.

2) Notification 25/2012 dated 20th June, 2012.

3) Budget 2013.

4) Circular 172/7/2013, 19th September, 2013.

5) Budget 2014.

(Author can be reached at parthshah2811@gmail.com)

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42 Comments

  1. krish says:

    Dear sir,

    we are renting immovable property to Educational Institution from past 6 years .is service tax applicable for me.please explain

  2. gokulnath says:

    sir we are educational consultant we are diong admission to educational institutions .payment revived from institution for students admission.service tax exemption is or not sir

  3. Niharika says:

    Dear sir,
    I am a student of fashion designing taking coaching from an institute in Kolkata. The fees structure of the institute has been increased and also they are demanding service tax increament from the month of November. Am I liabe to pay?

  4. Hitesh R Shah says:

    Sir, we are new educational institute run under the family trust providing Post graduate Courses (Degree & PUC) recognised by University and Board. Sir, the question is are we as an trust directly exempted from service tax that is charged by Professionals, contractors, suppliers, etc. as service providers? or is that they charge & collect from us and later we can take credits for the same?

  5. ankita says:

    we are providing private coaching through company A and charging service tax on it. but billing of books are making through company B on which not charging service tax. as per service tax rule its composite service and value of books should be included in the value of coaching service.

    is there any solution so we can avoid service tax on books

  6. Padma Hegde says:

    What about OIDAR to recognized educational institutes ? As per regulations, any Indian entity which does not provide Service tax registration number will have to pay the Service tax @ 15% to the foreign entity for the Online library or online information database.
    Ultimately this burden would be transferred to the students who study in these educational institutes.

  7. Violinvasu Devan says:

    Namaste,
    This is Vasudevan, I am a musician. We have registered a partnership firm called “Rockstudios” under societies act to provide music education. should we collect service tax along with the fees from students and pay to the government? We did not collect any tax for the fees what they pay till now .

    as I read in the above table
    14 Training or coaching in recreational activities relating to arts, culture or sports. NT –
    Are we exempted?
    your advice is highly appreciated. Regards,
    Vasu

    1. SUSHIL KUMAR SHARMA says:

      If you are not providing private tuition and providing Training and coaching for recreational/Art related activities, there is no need to charge Service Tax. However, please note that things are going to change with GST and all these exemptions are expected to go.

  8. Surender singh says:

    Our co alliance holidays is in school educational tours. We conduct educational tours in India as well as abroad. My question is service tax is applicable on educational tours or not.Please guide.

    1. SUSHIL KUMAR SHARMA says:

      Educational tours are not exempt from Service Tax. These are grossly covered under MICE category and you should register yourself as a Tour Operator and pay Tax on abated value of 30%.

  9. sunny says:

    We take cleaning contracts of commercial/residential buildings and malls(facade cleaning). i want to know if service tax can be applied if are giving cleaning service to a college building. any help in this regard would be greatly appreciated. thank you.

  10. Amar Singh Rana says:

    Clarification is sought from Service Tax Department regarding provision of refund of Service Tax paid by the Govt. Department to the Agency and deposited by the Agency to the Service Tax Department during the year 2014-15.
    The Education Department is exempted from payment of service tax on conducting examination and admission process through the agency. The Service Tax was paid by the Department to the Agency and the Agency deposited in the Service Tax Department. Whether the Service Tax deposited by the Agency can be refunded by the Service Tax Department so that the same could be paid to the Education Department by the Agency?
    You are requested to kindly clarify with rule position.
    If the Service Tax once deposited by the Agency cannot be refunded, the same may also be clarified with rule position so that the matter can be settled.

  11. Sivaganesh says:

    We are registered trust running the university, whether we have to pay service tax in respect of salary recovered from left employees in lieu of notice?

  12. Asmita Pendse says:

    Dear Sir
    We are providing annual maintenance service to an educational institute situated at Pune. They have provided service tax exemption certificate. As per circular no 172/7/2013 they are exempted from service tax. But our organization is a Private Ltd Co, I have one doubt, whether these services are covered under reverse tax mechanism & whether we are liable to pay service tax under reverse tax mechanism? Pl guide.

    Thanks & Regards

    Asmita Pendse

  13. sanjay says:

    Dear Neeraj

    Manpower services are liable for service tax under RCM, however if the service is given to an educational institution it is exempted. So in your case the service is exempted hence to service-tax.

  14. Neeraj Bansal says:

    Query- Services provided by manpower agency in relation to transportation will be liable to service tax or not? The educational institutional has hired manpower agent to provide bus drivers and conductors for buses used for transportation of students and staff.

  15. Amarendra Mishra says:

    Dear Sir

    I am running an education institute under a private limited company. Am I liable to pay service tax on course fees. Please guide
    Thanks

  16. Nikhil Jain says:

    WHETHER EDUCATIONAL INSTITUTIONS GIVING A PLACE FOR RENT FOR CANTEEN PURPOSE TO AN INDIVIDUAL IN CONCERNED EDUCATIONAL PREMISES FOR PROVIDING CANTEEN PURPOSE IS LIABLE TO SERVICE TAX ? DO REVERT AS EARLIEST AS POSSIBLE

  17. Sanjeeva says:

    We are in the process of receiving an order from Engg college in Mumbai for the Supply of power press which is a capital equipment for training purpose. My query is are they exempted from CST i.e central state tax if so what is the form they need to produce.

    Kindly send our reply at the earliest.

    Regards

    Sanjeeva
    Hensel India Pvt Ltd
    Bangalore

  18. sanjay says:

    Dear Nitin

    Your training falls under ” education as a part of the curriculum” if you are not charging a separate fee for your training directly from the students. You are exempted if the classes are given on behalf of the college.

  19. JM Baskar says:

    Query: Can you please clarify about education courses accredited by NABET( National Accreditation Board for Education & Training),QCI.

    Does NABET accredited course fall under ” a course recognised by any law” ?

    As per circular 164/15/2012 from TRU”- The words ” recognized by any law” will include such courses as are approved or recognized by any entity established under a central or state law including delegated legislation, for the purpose of granting recognition to any education course or VEC.

    Note : NABET is the constituent Board of Quality Council Of India, the accreditation authority in India. NABET formally recognizes the Vocational training providers and also the courses.

    It would be of great help if this query is answered.

    1. Hardeep Singh says:

      Query: Can you please clarify about education courses accredited by NABET( National Accreditation Board for Education & Training),QCI as VTP exempted from GST?.

      Note : NABET is the constituent Board of Quality Council Of India, the accreditation authority in India. NABET formally recognizes the Vocational training providers and also the courses.

      It would be of great help if this query is answered

  20. sanjeev says:

    Received 2 nos of cheque from student for tution fees Rs. 112360.00 (Inclusive service tax) i.e., Rs. 56180/- received by cheque dated 14.3.14 and another cheque received Rs. 56180/- dated 31..03.14. so how will entry pass.

  21. nitin ingale says:

    no 13
    Education provided as a part of the curriculum for obtaining a qualification recognized by any law for the time being in force. NT –

    sir,

    i am a Private software & knowledge provider for students who are pursuing there bachelor degree in ( arts, engineering, commerce, management etc,)

    i give training to their college in house or call them in my office, as if they don’t have facilities.

    as degree they pursuing is as per gov low, also many college don’t border & tell student take this lab (software) knowledge from outside, even this software knowledge have 50 marks practical & 50 mark theory.

    Q; should i charge ST, to them or not, if no help me how to go about this. i want to remove bender of them.

  22. Bhanudas says:

    Is the service tax on fees collected for students transportation between 1-4-13 to 11-7-14 payable?
    What is the percentage of fees?
    Please guide.

  23. Shyamsunder Gandewar says:

    An Institute has organised training programme for teachers. The programme is approved by Maharashtra State Govt. The programme imparts training to teachers to increase moral value education amongst Students. Fees is collected from Qualified teachers. Whether that course would be taxable to service tax?

  24. sanjay says:

    Foreign language courses can be an exempted service if coached on a recreational basis. Learning a language is an art and also it involves the learning of culture of that language and the society where the particular language is spoken.

    so under entry-8 not 25/2012 exemption can be claimed.

  25. vswami says:

    OFFHAND

    On the concept of ‘knowledge’, as an outstanding and towering law legend and renowned humanitarian in the reputed person of Nani Palkhivala said to the effect, in modern times ‘knowledge’ has increasingly come to be degraded, in almost every walk of human life and attendant activities, to simply knowing as to which side of the ‘bread is buttered’. To one’s understanding, it is his firm conviction that the concept has lost its sheen and original flavor, for ever.

    While on service tax, albeit brought to surface through this very website,apart from ‘education’, another area which requires to be devoutly looked into but remaining over-sighted / side tracked concern the intended levy of ubiquitous service tax even in an instance where there are no two persons- one rendering service and another a recipient of it.The reference is to the collection for common ‘maintenance’ expenses of a multi storied building complex, contributed by the owners/members themselves, and defrayed by them jointly as a ‘condominium’, for the mutual benefit of selves.

    No gainsaying that every such levy under the self-proclaimed/enacted law, with no logic, or no rhyme or sane reason behind,keep demonstrating to eternity that, after all, “law is an ass”.

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