Dr. Sanjiv Agarwal, FCA, FCS
According to present clause 9(b) of exemption Notification No. 25/2012-ST dated 20-06-2012, exemption is provided from the levy of Service Tax in relation to services provided 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; and
(iv) services relating to admission to, or conduct of examination by, such institution.
(oa) “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 recognized by any law for the time being in force;
(iii) education as a part of an approved vocational education course.
All the aforementioned services provided to any educational institution are therefore, exempt from Service Tax as of now.
However, Central Government has recently issued a Notification No. 10/2017-ST dated 08.03.2017 wherein clause 9(b) of the above notification has been amended to curtail this exemption w.e.f. 01-04-2017. The following proviso has been added –
“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”.
Accordingly, exemptions provided therein shall be applicable only to the institutions which provide services by way of pre-school education and education up to higher secondary or equivalent. Thus, institutions other than these will not be eligible for the exemption and all their services falling under above services shall become taxable w.e.f. 1.4.2017, i.e., services related to transportation, catering, security, conduct of exams etc. provided to educational institutions, which are providing education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and education as a part of an approved vocational education course will not be eligible for exemption provided under clause 9(b) of N. No. 25/2012-ST dated 20.06.2012.
The service providers of these services shall charge service tax on their invoices w.e.f. 1.4.2017 which implies that cost of such services will go up by 15 percent flat. This will impact cost increase by educational institutions except (schools). These institutions will also not be able to take input credit set off as education services are not liable to Service Tax. Since cost will go up, such institutions may increase the fees which will directly affect students and parents.
It would have been desirable not to withdraw this exemption in view of GST being introduced soon. On one hand, it was announced on Budget speech that because of GST, no changes are proposed in Service Tax but within a month of Budget which is before Parliament, this exemption has been withdrawn. It may be counter-productive as revenue benefit may only accrue for three months as GST is proposed from July, 2017. It is likely that such services may be taxed in GST regime also.
All educational institutions may have to restructure their service contracts in view of this withdrawal of exemption.