Service tax on Educational Services

Palak Goel

The Education sector in India is poised at a crucial stage in its growth. Coaching which aids or supplements formal education also play a catalytic role in advancement of Education system in our country. Commercial training and coaching service was introduced in Budget 2003 with a view to tax the mushrooming coaching institutes and training centres which either provide coaching classes for examination or unrecognised areas such as management, marketing, engineering etc.

Case 1 Prior to 1.7.2012

A paradigm shift in Indirect tax structure operationalised on 1^st July 2012 leading to the advent of a new dawn for Service tax regime which is popularly known as Negative list approach. Prior to 1.7.2012 i.e. under Positive list regime, only those services were taxable which were specified u/s 65 of Finance Act,1994. Services provided by “commercial training or coaching centre” find its place in the said section and hence, was chargeable to tax.

Definition of Commercial training or Coaching Centre

Section 65(26) of the act defines commercial training or coaching as under “ Commercial training or coaching” means any training or coaching provided by a commercial training or coaching centre.

Section 65(27) reads as under:

“commercial training or coaching centre” means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force.

Central Government in lieu of the power granted u/s 93(1) of Finance Act, 1994 issued certain notifications for granting exemptions from service tax liability. The excerpt from the various notifications are enumerated below:

Notification No. 10/2003-ST- 20.06.2003

“Central Government exempts the taxable services provided by a commercial training or coaching centre, in relation to commercial training or coaching, which form an essential part of a course or curriculum of any other institute or establishment, leading to issuance of any certificate or diploma or degree or educational qualification recognised by law for the time being in force, to any person, from the whole of the service tax leviable thereon under subsection (2) of section 66 of the said Act:

Provided that this exemption shall not be applicable if the charges for such services are paid by the person undergoing such course or curriculum directly to the commercial training or coaching centre.”

On perusal of the above Notification, it can be opined that taxable services provided by a commercial training or coaching centre, leading to issuance of any certificate or diploma or degree or educational qualification shall be exempt from whole of service tax provided that consideration flows directly to the institute or establishment issuing such certificate, diploma etc and not to the commercial coaching or training centre (clarified by Service tax Trade Notice No. 20/2003 dated 24/6/2003).

Notification No. 24/2004-ST – 10.09.2004

“Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided in relation to commercial training or coaching, by, –

(a) a vocational training institute; or

(b) a recreational training institute,

to any person, from the whole of the service tax leviable thereon under section 66 of the said Act.

Explanation:- For the purposes of this notification,-

(i) “vocational training institute” means a commercial training or coaching centre which provides vocational training or coaching that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching;

(ii) “recreational training institute” means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies.”

It can be concluded that Services provided by Vocational training institute or recreational training institute are exempt from service tax.

The above Notification was amended by Notification No. 3/2010-ST dated 27. 2.2010 to substitute the definition of Vocational Training institute as stated infra:

“Vocational training institute means an Industrial Training Institute or an Industrial Training Centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961).”

Trade Circular – F. No. 137/26/2007-CX. 4

It has been clarified through the department letter that Schools running transport services for their students are not liable to pay service tax under the category of tour operator. There has been no change in the stand taken by the Board.

It is further clarified that the activity of schools to transport children from and back to the School on the cabs owned and run by them does not constitute renting a cab and schools do not fall in the category of rent-a cab operator. As regards hiring a cab by school from outside, the same has specifically been excluded from the scope of taxable service. Hence, activity of transportation of school children on cabs owned by school or hired by school does not attract service tax.

Notification No. 47/2010-ST – 3-9-2010

Central Government exempts the taxable service of outdoor catering referred in sub clause (zzt) of S. 65(105) from whole of service tax, if the same is provided by NGO under Centrally assisted Mid-day meal scheme.

Amendment vide Finance Act 2010

Finance act, 2010 inserted an Explanation below the sub clause (zzc) of Sec 65(105) with retrospective effect from 1.7.2003 which is re-instated below:

The term commercial appearing in clause (27) only means that such training or coaching is being provided for consideration, whether or not such training or coaching is conducted with the profit motive.

In Circular No. 107/01/2009-ST dated 28-01-2009, department clarified that the word “Commercial” used in the phrase is with reference to the activity of training or coaching and not to the nature or activity of the institute providing the training or coaching. Thus, services provided by all institutes or establishments, which fulfills the requirements of definition, are leviable to service tax.

Amendment vide Finance Act 2011

The TRU in its DO letter dated February 28, 2011 has clarified this aspect at paragraph 3.3 as follows:

3.3 Commercial Training or Coaching Service [section 65 (105) (zzc)]: The scope of the service is proposed to be expanded to include all coaching and training that is not recognized by law irrespective of whether the institute is providing any other course(s) recognized by law.

This is further explained in Annexure B to this TRU letter as follows:

3. Commercial Training or Coaching Service [section 65 (105) (zzc)]:

3.1 The levy in its present form keeps outside its purview unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law. Thus two identical courses may be treated differently merely because one of the institutes also conducts another course that is recognized by law. This anomaly is proposed to be corrected by subjecting all such unrecognized education to tax.

3.2 In the Finance Bill the definition of “commercial training coaching centre” has been amended. Suitable exemption will be given after the enactment of the Finance bill to preschool coaching and training and to coaching or training relating to educational qualifications that are recognized by law.

Hence, the exclusions clause was omitted by Finance act, 2011 w.e.f 1.5.2011.

Through D. O. F. No. 334/3/2011-TRU, clarifications were issued by the department which is given as follows:

“The revised definition is intended to bring into the tax net all unrecognized education within its ambit irrespective of the fact whether the institute imparting the education is conducting any one or more course recognized by law. Accordingly, an exemption has been given to pre-school education and all education that leads to the award of a qualification recognized by law vide notification No. 33/2011-ST dated April 25, 2011.”

Notification No. 33/2011 w.e.f 1.5.2011 was inserted which is stated below:

“Central Government on being satisfied that it is necessary in the public interest so to do, hereby exempt,-

(i) any preschool coaching and training;

(ii) any coaching or training leading to grant of a certificate or diploma or degree or any educational qualification which is recognised by any law for the time being in force;

when provided by any commercial coaching or training centre from the whole of the service tax leviable thereon under section 66 of the Finance Act, 1994.”

Notification No. 34/2012 w.e.f 01.7.2012

The following Notifications were rescinded through the said notification:

• Notification no. 33/2011-ST dated 25-4-2011
• Notification no. 47/2010-ST dated 03-09-2010
• Notification no. 10/2003-St dated 20-06-2003
  

Case 2 – From 1/7/12 to 1/3/13

In exercise of the powers conferred by sub section (1) of Sec 93 of Finance Act’1994, Notification No. 25/2012-ST dated 20/6/2012 was introduced by Central Government which specifies certain services which are exempt under Service tax.

Entry No. 9 of Notification No. 25/2012-ST is stated infra:

“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 ”

Definition of Auxiliary service

“Auxiliary educational services” is defined as under 2(f) of Mega Exemption notification

• 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 midday meals scheme sponsored by Government or
  • transportation of students, faculty or staff of such institution;

Under Negative list regime, new Section 66D was introduced in chapter V of Finance Act, 1994 (through clause 143 of the Finance Bill, 2012) which nail down the following clause:

“(l) 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”

Case 3 – From 1/3/13 to 11/7/14

Vide Notification No. 3/2013-ST dated 1/3/13, Entry 9 was amended for the following substitution:

In Entry 9, for the words “provided to or by”, the words “provided to” has been substituted.

In our case, Services provided to educational institute will remain exempt in lieu of the Notification No. 25/2012-ST.

Case 4 – From 11/7/14 till date

Central Government vide Notification No. 6/2014-ST dated 11/7/2014 amended the Entry No. 9 for the following substitution:

“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 midday meals scheme sponsored by the Government;

(iii) security or cleaning or housekeeping services performed in such educational institution;

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

Through this Notification, Clause (f) was omitted and after clause (o), the following clause was inserted:

“(oa) educational institution means an institution providing services specified in clause (l) of section 66D of the Finance Act,1994 (32 of 1994)”

From the plain reading of the above Entry, it can be inferred that any services other than the one stated in the said entry will be subject to service tax. Hence, services provided in our case will also fall under the purview of service tax.

Conclusion

Any service related to education other than those covered under Mega exemption and Negative list will be subject to service tax.

(Author can be reached at palak.goel13@gmail.com)