SERVICE TAX EXEMPTION ON EDUCATIONAL SERVICES (PART – II)

[Dr. Sanjiv Agarwal]

CBEC Clarifications on Exemption

CBEC in its Letter No. 334/3/2013-TRU dated 28/02/2013, has 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.”

Circular No. 172/7/2013 -ST dated 19.09.2013 has clarified that -

“By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax. There are many services provided to an educational institution. These have been described as “auxiliary educational services” and they have been defined in the exemption notification. Such services provided to an educational institution are exempt from service tax. 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 is also clarified that in addition to the services mentioned in the definition of “auxiliary educational services”, other examples would be hostels, housekeeping, security services, canteen, etc.”

(iii) Applicable w.e.f. 11.07.2014

Entry No. 9 has been substituted vide Notification No. 06/2014-ST dated 11.07.2014 w.e.f. 11.07.2014 and now exemption entry read as follows -

“Services provided,-

1. 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.”

The entire scheme of exemption in relation to educational has thus been modified.Hence, w.e.f. 11.07.2014, exemption is available as follows -

As per Entry 9(a), all services provided by an educational institution (as defined) to its students, faculty and staff would be exempt; and

As per Entry 9(b), exemption is granted to services provided ‘to’ an educational institution, by way of,-

1. transportation of students, faculty and staff;
2. catering, including any mid-day meals scheme sponsored by the Government;
3. security or cleaning or house-keeping services performed in such educational institution;
4. services relating to admission to, or conduct of examination by, such institution.

The effect of changes in exemption are -

• concept of ‘auxiliary educational services’ under para 2(f) of the Notification 25/2012-ST dated 20.06.2012 stands deleted.
• scope of exemption remains the same as earlier in the case of services provided by eligible educational institutions.
• in the case of services received by the eligible educational institutions, exemption will be available only in respect of the services specified as above.
• services provided by way of renting of immovable property to educational institutions stands withdrawn w.e.f. 11.07.2014.

‘Educational institution’ has been defined in para 2(oa) of the notification. Accordingly, ‘educational institution’ means an institution providing services specified in clause (l) of section 66D of the Finance Act, 1994.

In view of the aforesaid, following twin tests ought to be satisfied now for availing the said exemption-

• Institution who is engaged in providing education to students must be educational institute as defined in para 2(oa) of the Notification No. 25/2012-ST, dated 20.06.2012. (i.e. pre-school, high secondary school)
• Such educational institute must provide services which are specified in Entry No. 9 of this Notification. The concept of auxiliary education services has been omitted. Now the entry itself is clear as to on which facility or service, educational institutes will get exemption. This entry is self- explanatory.
• Accordingly, the following services received by eligible educational institutions shall be exempted from service tax -

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

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

(c) security or cleaning or house-keeping services in such educational institutions;

(d) services relating to admission to such institutions or conduct of examinations.

Now, all the services provided by an educational institution to its students, faculty and staff shall be exempt from Service Tax. However, exemptions to services provided to educational institutions have been limited only to the scope specified in Entry No. 9. Such services would include services like transport facility to students, faculty and staff, catering including mid-day meals scheme, security services, cleaning or housekeeping services and services relating to admission or conduct of examination.

Ancillary services relating to admission process, examination work such as processing of applications, preparation of exams, conduct of exams, evaluation, result etc. shall be exempt from levy of Service Tax.

(2) Exemption under Entry No. 12 of Notification No. 25/2012-ST dated 20.06.2012 (as amended)

Services in relation to construction, erection, maintenance etc. of building / structure

This exemption is available to -

Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

1. a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
2. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958;
3. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
4. canal, dam or other irrigation works;
5. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
6. a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

Under this exemption, two conditions are important, viz, -

(a) Services should be provided to -

(i) Government,

(ii) Local authority, or

(iii) Governmental Authority

(b) Services shall be in relation to those specified in the entry i.e., construction, erection, commissioning etc.

These could be services provided to the Government or local authority or governmental authority for -

• a civil structure or any other original works meant predominantly for use other than commerce, industry or any other business or profession;
• a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958;
• a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment;
• canal, dam or other irrigation works;
• pipeline, conduit or plant for (i) drinking water supply (ii) water treatment(iii)sewerage treatment or disposal; or
• a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the Finance Act;

Thus, if services of construction of a structure (e.g. school building etc.) predominantly used in education to Government, local authority and Governmental authority are exempted from service tax.

Relevant Provisions / Notifications etc.

Section 65B(11) of Finance Act, 1994 - Definition of Approved Vocational Education Course Clause (l) of Section 66D of Finance Act, 1994 i.e. Negative List - Pre -school, higher secondary, vocational education etc. Notification 25/2012 - ST dated 20.06.2012 - Entry No. 9 and 12 - Services provided to or by educational institutions and construction services respectively Para 2 (f) of Notification 25/2012 - ST dated 20.06.2012 - Definition of Auxiliary Education Services (deleted w.e.f 11.07.2014) Para 2 (oa) of Notification 25/2012 - ST dated 20.06.2012 - Education Institution [para 2 (oa)] Notification No. 30/2012-ST dated 20.06.2012 - Reverse charge provisions CBEC Letter No. 334/3/2013-TRU dated 28/02/2013 - CBEC clarification on exemption Circular No. 172/7/2013 -ST dated 19.09.2013- CBEC clarification on exempt services - Auxiliary Education Services