MARCH 06, 2013

By CA. Pradeep Jain & CA. Preeti Parihar

THE Finance Minister has announced the Union Budget 2013-14 on 28/02/2013. With an intention to maintain the certainty and sustainability of negative list era, only few amendments have been made. One such minor amendment with several consequences as related to Education auxiliary services has been done in the mega exemption notification no. 25/2012-ST dated 20.6.2012. This amendment is summed up in this writing.

Before amendment:-

Serial no. 9 of mega exemption notification read as follows:-

"9. 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;"

The above exemption states that any services related to auxiliary educational services or renting of immovable property if either provided to education institution or even if it is provided by an educational institution which is providing the exempted services; will be exempted. In other words, if educational institution is either service provider or service receiver of auxiliary educational services / renting of immovable property services; the same shall be exempted. The auxiliary educational services have been defined in the mega exemption notification as follows:-

(f) “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, the auxiliary educational services include the any service relating to imparting any skill or knowledge, etc. for students or faculty, conduct of examination, transportation of students, faculty or staff, etc.

THE AMENDMENT:-

The serial no. 9 has been amended vide notification no. 3/2013-ST dated 1.3.2013 which is effective from 1.4.2013. After this amendment, the new serial no. 9 will read as follows:-

“9. Services provided to an educational institution in respect of education exempted from service tax, by way of,-

(a)  auxiliary educational services; or

(b)  renting of immovable property;”

Thus, after this amendment, only the auxiliary educational services or renting of immovable property will be exempted only if these are PROVIDED TO educational institution which is providing exempted services. Thus, w.e.f. 1.4.2013, if the educational institution is service recipient of auxiliary educational services or renting of immovable property services, then only, the exemption will be applicable.

Implications of amendment:-

Before this amendment, auxiliary educational services or renting of immovable property services were exempted in both the cases when received as well as when provided by the educational institution (which is providing the exempted services). However, after this amendment, only the renting or auxiliary educational services provided to educational institution will be exempted. In other words, the services like training programs, etc., transportation of students, faculty or staff; if provided to educational institution will be exempt. However, if the same services are provided by the educational institution, these will be taxable. Similarly, if the renting of immovable property service is being provided to education institution; it will be exempted; however, if the education institution has provided the renting of immovable property service to any person (other than an education institution which is providing the exempted services); the same shall be taxable. For eg. If the education institution owns buses and provides these services to their students, staff, etc. against a consideration the same shall be taxable w.e.f. 1.4.2013. Even if the contractor is engaged for transportation of the students and staff, then too, the service tax would be levied. This can be elucidated by following example:-

Thus, in any case, the transportation facility will be chargeable to service tax as no exemption has been given to any of the above cases in the mega exemption notification. Moreover, there may be one more ambiguity in the case where the transportation services are provided free of cost to the staff. In this case, department may contend that non-monetary consideration is involved and demand the service tax accordingly. Similarly, if the education institution has let out its premises to some other person for being used, like canteen is let out to an independent contractor who runs the same, service tax would be levied by virtue of this amendment. These are only few instances and there may be a number of other cases too where this small amendment may have vital impact.

Before parting:-

The above amendment has been brought to cover the cases like where the education institution has let out a premise to any commercial concern. Previously, these transactions were also exempt. However, w.e.f. 1.4.2013; such cases will be taxable. But this amendment has also brought some severe consequences like the transportation of students, staff, training programs conducted by the education institution over and above the normal education against a consideration will also become taxable which does not seems to be intention of the government. But till any further clarification, this amendment will continue narrowing the scope of entry no. 9 of the mega exemption notification.