JULY 18, 2014

By Pradeep Jain CA, Neetu Sukhwani, CA & Ankit Palgauta

THE contents of exemption provided to the Educational Institutions vide entry no. 9 of the Mega Exemption Notification no. 25/2012-ST has been a grey area since its inception. However, it seems that the Budget 2014 proposes to put an end to all the controversies and ambiguity by substituting the entry no. 9.

History of provision:-

The exemption was available on services provided by way of Auxiliary education services or renting of immovable property to Educational institutions. The definition of "Auxiliary education service" was also given in the notification which reads 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;

Board issued a Circular 172/7/2013 – ST dated 19.9.2013 to clarify the definition of ‘Auxiliary Education Services' but on the contrary, it created more ambiguity as regards the nature of services that would be covered under the auxiliary education services and that would be exempt. I t clarified that besides the services of transportation "auxiliary educational services" will also include hostels, housekeeping, security services, canteen, etc. and thereby expanded the scope of auxiliary education services so as to include even those services that were not mentioned in the definition of auxiliary services given in the notification. As a consequence, all educational institutes pleaded that t he definition of "Auxiliary educational services" is very wide and it covers a number of services not only directly related to education services but also indirectly helping in the provision of educational services. It was contended that since the intention of the government was not to increase cost of education, so a number of services related to education services are eligible for benefit of the said exemption. Not only this, the education institutes also claimed exemption on architecture services availed for building the institute, telephone and internet services etc. Further, the circular also stated that in case of any doubt as regards eligibility of a particular service for the said exemption, the Chief Commissioner should be approached for clarification. As a consequence, the offices of Chief Commissioners were flooded with references seeking clarifications as regards various services being eligible for auxiliary educational services which created the necessity of bringing an amendment.

Amended Provision :-

The amended provision introduced vide Notification no. 6/2014-ST dated July 11, 2014 thereby substituting the entry no. 9 of the mega exemption notification reads as follows:-

"9. Services provided-

(a) by an educational institute to its students, faculty and staff;

(b) to an educational institution by way of :-

(i) transportation of students, faculty and staff of the eligible educational institution;

(ii) catering service including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services in such educational institution;

(iv) services relating to admission to such institution or conduct of examination."

Furthermore, in the later part of the notification, clause (oa) is introduced in paragraph 2 as under:-

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

It is also worth observing that it was said in TRU letter that this amendment is being made to bring clarity and the scope of exemption will remain the same as earlier.

Analysis:-

The very first effect of the amendment is that renting of immovable property services provided to educational institution is taxable now. Earlier it was exempted but the deletion of the same has made it taxable. This fact is also revealed by the TRU letter wherein it has been specifically mentioned that as a rationalization measure, the exemption available to the services provided by way of renting of immovable property to educational institutions stands withdrawn with immediate effect. However, it is difficult to digest this logic. When almost all the basic services provided to educational institute is exempted from service tax then it is not understandable as to why the service of renting of immovable property provided to the educational institutions is made taxable. The levy of service tax on renting of immovable property provided to the educational institutions will increase their cost only because the said educational institutions will not be able to take the credit of the service tax paid as their final services are exempted.

By the substituted entry, all the services provided by education institute to its students, faculty and staff will be exempt from service tax. The main services provided by institute is already exempt. But other services like transportation, hostel, canteen etc. provided by institute to their students will also be exempt. However, the erstwhile clause (a) exempted only auxiliary educational services provided to educational institutions. The definition of auxiliary educational services was inclusive one. Almost all of those services as already included in the definition of auxiliary educational services have been continued in the newly substituted entry. However, the list given in the new entry is exhaustive one, thus, one cannot now read the exemption as inclusive one as was in case of earlier definition of the auxiliary educational services. Thus, we can safely conclude that the objective of the government to bring clarity has been achieved to a large extent because inclusive definitions are prone to litigation as compared to exhaustive and restrictive definitions. Henceforth, no one would interpret that auxiliary education services includes all the services taken by education institute because only the listed services will avail the exemption.

There was lacuna in the earlier entry no. 9 of the mega exemption notification wherein only transportation services provided to educational institution in respect of transportation of students, faculty and staff was exempted. This was for the reason that the words "by" were omitted from the entry no. 9 vide notification no. 03/2013-ST dated 01.03.2013 thereby meaning that only auxiliary education services provided "to" an education institution was exempt. Even the circular issued by the CBEC did not clarify on this position. It was promptly and rightly pointed by the famous DDT 2194 column on www.taxindiaonline.com at that time only. But, it seems that the voice of the assessee has been heard by the government and so now transportation services provided "to" and "by" the educational institute have been exempted by this amendment and which is welcomed.

Further, the definition of educational institution has been added by inserting clause (oa) to the definitions given in the said mega exemption notification which states that "educational institution" means an institution providing services specified in clause (l) of section 66D. This means that the exemption will be available to only those educational institutes who are already exempted as per section 66D pertaining to negative list. This was implied and was already in minds of all the assessee for earlier period also that exemption of auxiliary education service is available to such education institutes that provide services exempted by negative list. But this amendment has brought a new point to plead for the consultants that earlier exemption was available to all educational institutes irrespective of the fact that they provided exempted services as specified in the negative list or not.

Conclusion:-

Although this amendment has imposed service tax on the services of renting of immovable property being provided to education institutes but at the same time it seeks to provide more clarity as regards the exemption given to the educational institutes. It has given specific exemption in place of inclusive definition with the sole objective to bring clarity. Thus, this will be a welcome step of government which is also necessary for the purpose of avoiding unnecessary disputes, which is the need of the hour. This amendment seeks to resolve the dispute as regards transportation services provided by the educational institutions which is infact, one of the basic services also provided by the educational institutions in the present time. This issue was a great cause of concern not only to the institutes but also for the parents of students. Hope this amendment will save time of revenue department as well as assessee and will result in efficient functioning thereby reducing unnecessary litigation.