This article is written by Navneet R., a student of RGNUL, Patiala.
Service Tax on services related to the education sector in India is governed by the provisions of Finance Act, 1994. Section 66D of the Act lists the services and Section 93(1) empowers the Government to provide exemption from Service Tax to certain other services. These services are listed in the notifications which are issued by the Government. Until recently, auxiliary educational services and renting of immovable property when provided to an educational institution were exempted from having to pay service tax. Auxiliary educational services (as per notification No.25/2012-ST dated 20th June, 2012) meant:
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.
As per the Circular dated 19th September 2013 (issued by Director, Tax Research Unit), this notification read with the list as per Section 66D of the Act made it absolutely clear that all services which are related to education are exempt from having to pay Service Tax. Auxiliary educational services also include canteens, hostels, and housekeeping and transportation services amongst others. Such a wide interpretation allowed the educational institutions to not pay any Service Tax to the service providers. This was not a healthy interpretation, especially for the service providers as the educational institutions/authorities who dealt with them refused to pay any sort of service tax.
The Government has clarified the scope of the exemption which is provided to the educational institutions. The new government has put an end to this confusion by means of a new notification (No. 06/2014- Service Tax). As per this notification, the following services are provided an exemption from service tax:
- Services provided by an educational institution to its students, faculty and staff;
- Services provided to an educational institution, by way of:
- transportation of students, faculty and staff
- catering, including any mid-day meals scheme sponsored by the Government
- security or cleaning or house-keeping services performed in such educational institution
- services relating to admission to, or conduct of examination by, such institution
This notification has put an end to the ambiguity which was related with the concept of auxiliary services. Only those services which have been explicitly mentioned are exempt from the ambit of service tax. Exemption provided to the services involving renting of immovable property has also been done away with. Time is the right judge to declare the utility of such a move. The change has definitely removed a lot of ambiguity which was associated with the concept of service tax on services related to education.
- Circular issued by Director, Tax Research Unit on 19th September, 2013
- Government of India Notification No. 06/2014- Service Tax on 11th July, 2014