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Service Tax-Educational Institutes & Auxiliary Educational Services

Facts, confusion, apprehension and clarification

11-11-2013 | CA Ashutosh Lohani

As discussed previously, a service is exempt from service tax if it is
(a) part of negative list, (b) covered under mega exemption, (c) covered by specific exemption or (d) rendered in non-taxable territory.
Read more about services exempt, negative list and mega exemption >>

The education being part of the negative list under clause (l) of section 66D of the Finance Act, does not form a taxable service.

The entry as per clause (l) of section 66D list the following services:
(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 recognised by any law for
      the time being in force;

(iii) education as a part of an approved vocational education course;

Further, the mega exemption notification 25/2012 dated 20-06-2012 exempted auxiliary educational services and renting of immovable property "to or by" educational institutions.

The entry at clause 9 of the mega exemption notification states that 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;

Whereas there was no doubt on the exemption to educational institutions from service tax, the use of the terms "to or by" in mega exemption notification, gave the impression that renting of a immovable property by an educational institutions even for a commercial purposes is out of service tax ambit.

To set this anomaly right, Government vide its Notification no 3/2013 dated 1st March, 2013, replaced the term "provided to or by an educational institution"by "provided to an educational institution". This made the renting of immovable properties by an educational institutions as taxable with effect from 1st April, 2013.

The intention of the law was to make renting of immovable property only as subject to service tax. However, many Educational institutes were in a fix over the amendments and started making representation to CBEC for clarifying the matter as to whether after the removal of the term they are required to pay service tax on auxiliary educational services provided by them to students.

The major confusion of these institutions were that w.e.f. 1.4.2013, all the other services except the regular curriculum provided to the students by the schools with an intention to improve the overall quality of the education as well as the holistic character of the students are also made liable to levy of Service Tax.

Read the representation of Private Schools Correspondents Confederation, Madurai to Ministers and MPs . >>

Responding to the representation, CBEC vide its circular no 172/7/2013 dated 19-09-2013, clarified that all services relating to education are exempt from service tax. It further clarified that auxiliary educational services means services provided to an educational institute.

Mega Exemption seek to exempt such services provided to educational institutes which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification. It pointed out that apart from auxiliary educational services defined in mega exemption notification, other example of auxiliary educational services not subject to service tax would be "hostels, housekeeping, security services, canteen, etc."

It is to be noted that as per Mega Exemption Notification 25/2012, auxiliary educational services were defined as under:

"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 CBEC has clarified beyond any doubt that all services relating to education are exempt from service tax whether provided by institution themselves or by any other person to these educational institutes.

Read CBEC Circular No 172/7/2013 >>
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