FEBRUARY 05, 2015

By Sneha Sangani, Manager - Finance & Taxation, Manipal Global

THE Mega Exemption notification 25/2012-ST dated 20.06.2012 (w.e.f 01.07.2012) carried the following entry -

"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;"

Paragraph 2(f) of the notification defined "auxiliary educational services" thus -

(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;

2. However, by amending notification 6/2014-ST , dated 11.07.2014, the entry 9 was substituted with the following -

"9. 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 mid-day meals scheme sponsored by the Government;

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

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

So also, in paragraph 2 relating to definitions, clause (f) was omitted.

3. While the intention of the Union Government to provide exemption for education related services is forthcoming from the above exemption, however, the exemption only covers services like providing food, transportation, housekeeping and security. The core services like online delivery systems for education and development of course content seem to have been inadvertently excluded from the scope of the exemption.

4. Distance Education ("DE") mechanism of learning through online e-learning mediums is now recognised as an effective tool for improving the quality of education and enhancing the outreach of education to rural and semi-urban areas. The effectiveness of Distance education is substantially enhanced through online delivery systems, through the internet and course content which is more presentable and easy to understand than just textual like in the books. This in turn requires constant updates to the education content to ensure that the course content is in line with latest developments used for online delivery and the development of self-learning material that is used by the students. Hence, online delivery systems and content development form the core for imparting education for DE courses. Given the new age techniques and specialization, Universities prefer to contract Service providers rather than make sizeable Investment for content development for online delivery as well as the delivery of education online.

5. The intention of the legislation surely cannot be to levy service tax on these core education related services and thereby increase the cost of education to the students.

6. In view of the above, we request that the exemption entry no. 9 be amended to include "Services in relation to learning management systems, imparting education through online delivery systems, and development of course content " as these too form an integral part of rendering education."