EXEMPTION IN RELATION TO SERVICES TO OR BY EDUCATIONAL INSTITUTIONS

[Dr. Sanjiv Agarwal]

Exemption under Notification No. 25

According to Entry No. 9 of Notification No. 25 / 2012-ST dated 20.6.2012, specified services provided to or by educational institutions are exempt as follows:

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;

 Auxiliary Educational Services

“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, auxiliary education services shall cover the services in relation to educational activities only and include –

(i) any service relating to imparting any -

• skill
• knowledge
• education
• development of course content
• other knowledge enhancement activity

(ii) whether for students or faculty

(iii) out sourced activities ordinarily carried out by educational institutions

(iv) services in relation to –

• admission
• conduct of examination
• catering of students under any mid day meal scheme sponsored by Government
• Transportation of students or faculty

 Conditions

Exemption is available only in relation to services to or by educational institutions in respect of the education. Conversely, service tax shall be chargeable on such auxiliary educational services or renting of immovable property which is not in respect of education chargeable to service tax. Thus, it calls for twin tests to quality for exemption in this entry –

a) it should be an auxiliary education service or renting of immovable property service

b)  in respect of education which itself is exempt.

 Education

Now what is education has to be seen. Everything that is imparted may not be education. The term ‘education’ has not been defined in either income tax or excise or service tax provisions. Of course, courts have tried to interpret the term in few cases. Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT,  [1975 (8) TMI 1 - SUPREME Court] observed that education connotes the process of training and developing knowledge, skill and character of students by normal schooling.

The word ‘education’ is derived from the Latin word ‘educa’ which means bringing out latent faculties. ‘Education’ means the act or process of imparting or acquiring general knowledge, developing the powers of reasoning and judgment, and generally of preparing oneself or others intellectually or mature life; the act or process of imparting or acquiring particular knowledge or skills. It is the result produced by instruction, training or study. Thus, the word has very wide import. [Padmanav Dhury v. State of Orissa, AIR 1999 Ori 97, 99].

The expression ‘education’ occurring in various articles of the Constitution of India means and includes education at all levels, from the primary school level up to the postgraduate level and professional education. [TMA Pai Foundation v. State of Karnataka 2002 (10) TMI 739 - SUPREME COURT=(2002) 8 SCC 481, para 450].

According to P. Ramanatha Aiyar’s Advanced Law Lexicon, education means the bringing up, the process of developing and training the powers and capabilities of human beings. It is an act of providing with knowledge.

In Institute of Chartered Financial Analysts of India (ICFAI) v. CC & CE, Hyderabad II, [2008 (10) TMI 59 - CESTAT, BANGALORE] it has been held that so long as institutes are registered under Societies Registration Act for educational purpose, they cannot be brought under the ambit of commercial coaching and training centre. Where such institutions were awarding degrees or diploma in management, financial management, financial analysis etc. and course brochures reflected broad imparting of education rather than coaching or training and degrees were recognized by various universities, Government bodies, Bar Council of India etc., it was held that such education and institutions were to be excluded from the commercial coaching and training services. Education is very broad term but training and coaching are narrow in scope.

 Meaning of ‘In Respect of’

In Renusagar Power Co. Ltd. v. General Electric Co.1993 (10) TMI 232 - SUPREME COURT OF INDIA = [1984] 4 SCC 679, it was observed as under:

"Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence validity and effect (scope) of the arbitration agreement."

In Doypack Systems Pvt. Ltd. v. Union of India 1988 (2) TMI 61 - SUPREME COURT OF INDIA = AIR (1988) SC 782, 800; Swadesh Cotton Mills Co. Ltd. (Acquisition and Transfer of Undertakings) Act, (1986), it was held that 'in relation to' means to bring into association or in connection with. 'Relation to' is equivalent to or synonymous with as to 'concerning with' or 'pertaining to'. An agent may be acting in relation to his principal's affair or an employee may be working in relation to business of his employer.

The phrase 'In respect of' appearing in Entry No. 9 in Notification No. 25/2012-ST, dated 20.6.2012 should be given its natural meaning of having nexus or relationship to taxable service, i.e., renting. Therefore, renting of property should be in relation to exempt education.

Meaning of ‘To’ and ‘By’

The words ‘to’ and ‘by’ are not defined in the Finance Act, 1994 and these have to be understood as per their general meanings.

According to 2^nd Edition of Oxford Dictionary, the meanings of ‘By’ are as follows–

• After a noun denoting an action – a clear decision by the electorate
• Identifying the author of a text, idea, or work of art – a book by Ernest Hemingway
• Indicating  a name according to which  a person is known , e.g., she mostly calls me by my last name

 According to Online Your Dictionary, the meaning of ‘By’ is as follows –

• By means near or next to, and it also means through which. (preposition). An example of by is the author of a novel.
• The definition of by is in the immediate region, or to go past something. (adverb). An example of by is how one describes the closeness of a church down the street (close by) or a bike passing by a walker on the street.

 According to 2^nd Edition Oxford Dictionary, the meaning of ‘To’ may be as follows–

• Expressing motion in the direction of (a particular location)
• in the direction of something; towards something
• reaching a particular state
• before the start of something
• used to show the person or thing that receives something
• used after verbs of movement to mean ‘with the intention of giving something’

 According to Advance Law Lexicon P. Ramanatha Aiyar 3^rd Edition 2005, the word ‘to’ would include any action towards the final goal of the action. Hindustan Lever ltd. v. Ashok v. kate, 1995 (9) TMI 326 - SUPREME COURT = AIR 1996 SC 285,299 [Maharastra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act (1971), Sch. 4,Item 1]

 Change in scope of Exemption W.e.f 1/4/2013

W.e.f 1/4/2013, there is a change in Entry No. 9 of the Notification No. 25/2012-ST, dated 20.6.2012 vide Notification No. 3 / 2013-ST, for the words “provided to or by”, the words “provided to” shall be substituted. Therefore, exemption of services provided by an educational institution in respect of education exempted from service tax by way of auxiliary educational services or renting of immovable property will not be available w.e.f. 1.04.2013. The exemption by way of auxiliary educational services and renting of immovable property to (and not by) educational institution in respect of education will continue.

The following table explains the taxability and exemption under Entry No. 9 of Notification No. 25/2012-ST in respect of education exempted from Service Tax.

Exemption upto 31.03.2013 –

Service Provider	Service Receiver	Taxability
Educational Institution	Educational Institution	Exempt
Educational Institution	Non Educational Institution	Exempt
Non Educational Institution	Educational Institution	Exempt
Non Educational Institution	Non Educational Institution	Taxable
Exemption  w.e.f. 01.04.2013 -
Service Provider	Service Receiver	Taxability
Educational Institution	Educational Institution	Exempt
Educational Institution	Non Educational Institution	Taxable
Non Educational Institution	Educational Institution	Exempt
Non Educational Institution	Non Educational Institution	Taxable

 Note " CBEC in its Letter No. 334/3/2013-TRU dated 28/02/2013, it has been clarified that –

 “Exemption by way of auxiliary educational services and renting of immovable property by (and not to) specified educational institutes under S.No. 9 will not be available w.e.f. 1.4.2013.”