24 May, 2013

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Service tax on Education - A Practical Perspective

Authored by CA Ankit Gulgulia (Jain). He is Practicing
Chartered Accountant in New Delhi and Specializes in
Indirect Taxation , Transfer Pricing & Corporate Laws.
Reach him at ankitgulgulia@gmail.com.
As per Section 65B (44) of the Finance Act, 1994, “service” has been defined as:
“Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include;
(a) An activity which constitutes merely,
(i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii)   Such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution, or
(iii) A transaction in money or actionable claim.

(b) A provision of service by an employee to the employer in the course of or in relation to his employment.
(c) Fees taken in any court or tribunal established under any law for the time being in force.
Clearly where educational service is provided for consideration it gets covered under the ambit of service. It is pertinent to note that majorly the taxability of such services gets influenced by various entries in negative list and mega exemption notification itself.
As per Section 66D (l), below items gets covered under negative list and thus shall be held as non taxable service
  1. Pre-school education and education upto higher secondary school or equivalent.
(ii) Education as a part of curriculum for obtaining a qualification recognized by any law for the tim being in force.
(iii) Education as a part of an approved vocational education course.
EDUCATION - MEANING
The first thing that needs attention in above provisions is that what is ‘education’. The term ‘education’ has not been defined in the Act.
In case of Sole Trustee, Loka Shikshana Trust v. CIT,  [1975 (8) TMI 1 - SUPREME Court], Hon’ble Supreme Court  observed that education connotes the process of training and developing knowledge, skill and character of students by normal schooling.
The word ‘education’ is derived from the Latin word ‘educa’ which means bringing out latent faculties. ‘Education’ means the act or process of imparting or acquiring general knowledge, developing the powers of reasoning and judgment, and generally of preparing oneself or others intellectually or mature life; the act or process of imparting or acquiring particular knowledge or skills. It is the result produced by instruction, training or study. Thus, the word has very wide import. [Padmanav Dhury v. State of Orissa, AIR 1999 Ori 97, 99].
The expression ‘education’ occurring in various articles of the Constitution of India means and includes education at all levels, from the primary school level up to the postgraduate level and professional education. [TMA Pai Foundation v. State of Karnataka (2002) 8 SCC 481 (SC), para 450].
According to P. Ramanatha Aiyar’s Advanced Law Lexicon, education means the bringing up, the process of developing and training the powers and capabilities of human beings. It is an act of providing with knowledge.
EDUCATION is a ‘BROAD’ term  
In Institute of Chartered Financial Analysts of India (ICFAI) v. CC & CE, Hyderabad II, [2008 (10) TMI 59 - CESTAT, BANGALORE] it has been held that so long as institutes are registered under Societies Registration Act for educational purpose, they cannot be brought under the ambit of commercial coaching and training centre. Where such institutions were awarding degrees or diploma in management, financial management, financial analysis etc. and course brochures reflected broad imparting of education rather than coaching or training and degrees were recognized by various universities, Government bodies, Bar Council of India etc., it was held that such education and institutions were to be excluded from the commercial coaching and training services. Education is very broad term but training and coaching are narrow in scope.
Hence say fees like admission fees, tuition fees, examination fees, computer fees, sports fees, annual subscription of journal fees of schools, universities shall be construed as covered within the ambit of ‘education’ and shall be covered by negative list – thus no service tax.
PRE SCHOOL EDUCATION
Hon'ble High Court of Punjab & Haryana in Enakshi Pant Through Her Father Vs Union Territory, Chandigarh, C.W.P. No.2104 of 2011 in respect of objective of "pre-school education/ early childhood education" has observed as under –
“With a view to prepare children above the age of three years for elementary education and to provide early childhood care and education for all children until they complete the age of six years, the appropriate Government may make necessary arrangement for providing free pre- school education for such children".
FOREIGN DEGREE COURSES NOT COVERED
For a services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by Indian law , .i.e. if it is recognized by law of a foreign country then it won’t be covered in this negative list entry.
Services provided by international schools giving certifications by way of education up to higher secondary school or equivalent are covered in this entry.
A course in a college which leads to dual qualification out of which only one is recognized by law would be treated as two separate services. Provision of dual qualifications is in the nature of two separate services as the curriculum and fees for each of such qualifications are prescribed separately. Service in respect of each qualification would, therefore, be assessed separately. If an artificial bundle of service is created by clubbing two courses together, only one of which leads to a qualification recognized by law, then under the principles of bundled services it will attract service tax.
APPROVED VOCATIONAL EDUCATION
Approved vocational education courses have been prescribed in Section 65B of the Finance Act, 1994 which are as follows:
  • A course run by an industrial training institute  or an industrial training centre affiliated to the National Council for Vocational Training (State Council inserted w.e.f 1.4.2013), offering courses in designated trades as notified under the Apprentices Act, 1961;
  • A Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labor and Employment, Government of India;
  • A course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India. (Deleted w.e.f 1.4.2013)
By Finance Act 2013, in the definition of “Approved Vocational Education Course” the courses offered by Industrial Training Institutes or Industrial Training Centres affiliated by State Council of Vocational Training have been included.
By Finance Act 2013, in this definition, the courses offered by an Institute affiliated to the National Skill Development Corporation have been deleted.
PRIVATE COACHING – TAXABLE
Training given by private coaching institutes would not be covered in this entry as such training does not lead to grant of a recognized qualification and hence will be liable to Service Tax. However, they can avail the benefit of threshold exemption.
BOARDING SCHOOLS – TAXABILITY
Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food.  If the charge for education and lodging and boarding are inseparable then it will be a case of bundled services. Thus their taxability will be determined as per terms mentioned under section 66F of the Act. Hence hereby the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be treated as a negative list service.
ADMISSION TESTS – TAXABILITY
Services of conducting admission tests for admission to colleges in case the educational institutions are providing qualification recognized by law for the time being in force are covered under this entry, hence exempt from service tax. While Admission test fees collected by private coaching institutes shall be liable to service tax.
PLACEMENT SERVICES by INSTITUTES/ UNIVERSITIES
Placement services provided to educational institutions for securing job placements for the students not covered in this negative list entry, hence taxable.
Even the services provided by educational institutions to prospective employers who come to the institutes for recruiting candidates through campus interviews are liable to service tax on the fees charged by as such services are not covered in the negative list.
MEGA EXEMPTION – NOTIFICATION 25/2012-ST
Entry No. 9
According to Entry No. 9 of Notification No. 25 / 2012-ST dated 20.6.2012, specified services provided to or by educational institutions are exempt as follows:
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;
* W.e.f 1/4/2013, there is a change in Entry No. 9 of the Notification No. 25/2012-ST, dated 20.6.2012 vide Notification No. 3 / 2013-ST, for the words “provided to or by”, the words “provided to” shall be substituted. Therefore, exemption of services provided by an educational institution in respect of education exempted from service tax by way of auxiliary educational services or renting of immovable property will not be available w.e.f. 1.04.2013. The exemption by way of auxiliary educational services and renting of immovable property to (and not by) educational institution in respect of education will continue.
 Note " CBEC in its Letter No. 334/3/2013-TRU dated 28/02/2013, it has been clarified that –
 “Exemption by way of auxiliary educational services and renting of immovable property by (and not to) specified educational institutes under S.No. 9 will not be available w.e.f. 1.4.2013.”

AUXILIARY EDUCATIONAL SERVICES
“Auxiliary educational services” 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.
 Thus, auxiliary education services shall cover the services in relation to educational activities only and include –
(i) any service relating to imparting any -
  • skill
  • knowledge
  • education
  • development of course content
  • other knowledge enhancement activity
(ii) whether for students or faculty
(iii) out sourced activities ordinarily carried out by educational institutions
(iv) services in relation to –
  • admission
  • conduct of examination
  • catering of students under any mid day meal scheme sponsored by Government
  • Transportation of students or faculty
CONDITIONS
Exemption is available only in relation to services to (not by) educational institutions in respect of the education. Conversely, service tax shall be chargeable on such auxiliary educational services or renting of immovable property which is not in respect of education chargeable to service tax. Thus, it calls for twin tests to quality for exemption in this entry –
a) it should be an auxiliary education service or renting of immovable property service
b)  in respect of education which itself is exempt.
Entry No. 4 of Notification. 25/2012
Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities;
Note :- Only charitable activities of such registered entities shall be exempt. Charitable activity has been defined in the notification itself as:-
(k) “charitable activities” means activities relating to -
    (i) public health by way of -
        (a)  care or counseling of-
            (i) terminally ill persons or persons with  severe physical or mental disability,
            (ii) persons afflicted with HIV or AIDS, or
            (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
        (b)  public awareness of preventive health, family planning or  prevention of HIV infection;
    (ii) advancement of religion or spirituality;
    (iii) advancement of educational programmes or skill development relating to,-
        (a) abandoned, orphaned or homeless children;
        (b) physically or mentally abused and traumatized persons;
        (c) prisoners; or
        (d) persons over the age of 65 years residing in a rural area;
    (iv) preservation of environment including watershed, forests and wildlife;
   Hence under this head, exemption is only available in respect of discreetly listed above activities only. The scope of this exemption is precise and restricted and should be judiciously applied.
Entry No. 8
“Services by way of training or coaching in recreational activities relating to arts, culture or sports. “
Services relating to training or coaching in recreational activities such as dancing, painting, sports etc. which are relating to Arts, Culture or Sports are exempted. Such services may be provided by Educational Institutions in addition to their normal educational curriculum.
Entry No. 18 & 19 – APPLICABILITY
“18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent;
The Hostel fees charged by such institutions shall be covered in above category. Further, it shall be liable to tax only if declared tariff of a unit of accommodation is rupees one thousand per day or equivalent or more.
It is pertinent to note that revenue might have different opinion on the above since it covers “renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes”.
Further as per 66D(m) of Negative List provisions - Services by way of renting of residential dwelling for use as residence shall also be out of service tax ambit. Hence charges collected by educational institutions in such context shall also be not leviable to service tax.
19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year”.
The canteen fees charged by such institutions shall be covered in above category.
It is pertinent to note that revenue might have different opinion on the above since it covers “serving of food or beverages by a restaurant, eating joint or a mess”.
“Declared Tariff” Includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit”.
Entry No. 23
23. Transport of passengers, with or without accompanied belongings, by -
    (a)....
    (b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or
    (c) ropeway, cable car or aerial tramway;
Note :- Contract carriage excludes tourism, conducted tours, charter or hire. Hence such activities shall not be covered in this and be liable to service tax (Subject to bundling provisions).
Entry No. 35
35. Services of public libraries by way of lending of books, publications or any other knowledge- enhancing content or material;


FAQ’s on Service tax on Educational Institutions
1 Are services provided by international schools giving international certifications like IB also covered in this Negative List?
Yes. Services by way of education up to higher secondary school or equivalent are covered in this entry.
2 Are services provided by boarding schools covered in Negative List?
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 66F of the Act. Such services in the case of boarding schools are bundled in the ordinary course of business. Therefore the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be treated as a negative list service.
3 Are services provided to educational institutions also covered in Negative List?
No. Such services are not covered under the negative list entry. However certain services provided to educational institutions are separately exempted by a notification:
•  Services to an educational institution by way of catering under the centrally assisted mid-day meals scheme sponsored by government.
•  Transport to and fro such exempt institutes.
•  Services to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of services in relation to admission to such education.
4 Are private tuitions covered in the entry relating to education?
No. However, private tutors can avail the benefit of threshold exemption.
5 Are services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by a law of a foreign country covered in the negative list entry?
No. To be covered in the negative list a course should be recognized by an Indian law.
6 If a course in a college leads to dual qualification only one of which is recognized by law would the service provided by the college by way of such education be covered in Negative List entry?
Provision of dual qualifications is in the nature of two separate services as the curriculum and fees for each of such qualifications are prescribed separately. Service in respect of each qualification would, therefore, be assessed separately. If an artificial bundle of service is created by clubbing two courses together, only one of which leads to a qualification recognized by law, then by application of the rule of determination of taxability of a service which is not bundled in the ordinary course of business contained in section 66F of the Act it is liable to be treated as a course which attracts the highest liability of service tax. However incidental auxiliary courses provided by way of hobby classes or extra-curricular activities in furtherance of overall well being will be an example of naturally bundled course. One relevant consideration in such cases will be the amount of extra billing being done for the unrecognized component viz-a-viz the recognized course. For guidance on ‘bundled services’ please refer to  Taxability of bundled services under Service Tax
7 Are placement services provided to educational institutions for securing job placements for the students covered in this negative list entry?
No. Such services do not fall in the category of exempt services provided to educational institutions (please refer to point No. 3 above).
8 Are services of conducting admission tests for admission to colleges exempt?
Yes in case the educational institutions are providing qualification recognized by law for the time being in force (please refer to point No. 3 above).
9. In addition to the services specified in the negative list, which educational services are exempt if provided by a charitable organization?
10 What are the courses which would qualify as an approved vocational education courses?
Approved vocational education courses have been specified in section 65B of the Act. These are -
•  a course run by 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);
•  a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, Government of India;
•  a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India.


About the Author:
CA Ankit Gulgulia (Jain)
Author is practicing Chartered Accountant in New Delhi and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at ankitgulgulia@gmail.com or +91-9811653975.


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