Service tax on educational services - Dr Sanjiv Agarwal - Article published in Business Advisor, dated January 25, 2015 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

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Service tax on educational services
Dr Sanjiv Agarwal
While education is a priority in Indian context, given
its population base and mounting service sector and
its contribution to GDP (about 60% now), coaching,
which aids or supplements formal education also plays
a catalytic role in advancement of education in our
country. Coaching, which is generally imparted on
commercial basis is deep-rooted in Indian system and
cannot be ignored or left unnoticed. In fact coaching
and education go hand in hand to a large extent. All
education is not exempted and all coaching is not taxed. However, one
needs to understand the difference between the two terms – education and
coaching.
Understanding the concept of education and coaching
Coaching or training is a very narrow activity imparting skill in a particular
discipline but education is a broader term which is a process of
development of personality of body, mind and intellect. The scope of
education is broad but training or coaching is in a particular field. In ICFAI
case [2009 -TMI - 32004 - Cestat, Bangalore], tribunal observed that
coaching normally refers to a special teaching or a personalised teaching in
certain subjects.
Training is generally used to refer to practical instruction or learning
process. Education is the process of overall development of a person. It
included moral, intellectual and physical development of a child or a person.
It is not restricted to a particular subject and it covers various subjects and
areas. Moreover, as distinguished from coaching, education is not meant for
succeeding in an examination or test but for overall development of the
student. Education is a term of wide import and encompasses within its
Coaching normally refers to a special teaching or a
personalised teaching in certain subjects. Training is
generally used to refer to practical instruction or learning
process.

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ambit the specialised function of training and coaching but this does not
make all the three terms synonymous in nature.
Service tax
Service tax is an indirect tax to which education and coaching services
could be exposed. Service tax law is a branch of tax where frequent changes
have been made ever since it was enacted in the year 1994 by the Finance
Act, 1994, through Budget amendments, Notifications, and CBEC‘s
Circulars.
W.e.f. 01-07-2012, all services barring those which are in the Negative List
(Section 66D of the Finance Act, 1994) or have been exempted by way of
exemption notifications are in service tax net.
Taxability prior to 01-07-2012
Up to 30-06-2012, only specified services were taxable, i.e., tax was
‗services‘ specific. No special head ‗educational service‘ was specified in the
service tax law prior to 01-07-2012. However, Notification No. 33/ 2011-ST
dated 25-04-2011 exempted services of pre-school, training and coaching or
training leading to grant of certificate recognised by law. What was taxed to
service tax prior to 01.07.2012 was services of commercial coaching and
training. Educational services were carved out from the scope of service/
taxable service itself and not liable to service tax.
Taxability w.e.f. 01-07-2012
W.e.f. 01.07.2012, the concept of service tax has changed. What is taxed
now is an activity which gets covered under the scope of ‗service‘ as defined
in section 65B(44) of the Finance Act, 1994, as amended.
Charge of service tax on and after 1.07.2012 is defined under section 66B of
the Finance Act, 1994. Section 66B states that service tax shall be charged
at the rate of 12% on value of all taxable services, i.e., other than those
specified in the Negative List or exempted services, which are provided or
agreed to be provided in the taxable territory by one person to another and
collected in such manner as may be prescribed.
Section 66B specifies the charge of service tax which is essentially that
service tax shall be levied on all services provided or agreed to be provided
in a taxable territory, other than services specified in the Negative List.
Thus, as per charging section 66B, service tax shall be applicable on all
services except Negative List services or services which are specifically
exempt from service tax.

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(A)Services relating to education sector covered under Negative List
Section 66D of the Finance Act, 1994, contains Negative List of services. The
clause (l) of section 66D relates to education related services. The said
clause (l) of section 66D of the Act provides for the following Negative List
services in relation to educational sector:
Services by way of—
(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.
According to the Negative List, there are three categories of education
covered under this list and hence non-taxable:
Pre-school education – includes play schools, pre-nursery and nursery
schools, crèche, day care centre, pre-kindergarten or any such purpose
school or centre by whatever name called.
As per www.newworldencyclopedia.org, ‗preschool education‘ is education
that focuses on educating children from the ages of infancy until the age of
six years. The system of preschool education varies widely, with different
approaches, theories, and practices within different school jurisdictions.
The term preschool education includes such programmes as nursery school,
day care, or kindergarten, which are occasionally used interchangeably, yet
are distinct entities. While pedagogies differ, there is the general agreement
that pre-school is responsible for providing education before the
commencement of statutory education.‖ In academic parlance, ‗pre-school/
early childhood education‘ is defined as a pedagogical approach covering the
education of children from the period from birth to six years of age.
Section 66D of the Finance Act, 1994, contains Negative List
of services. The clause (l) of section 66D relates to education
related services.

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 Education up to higher secondary school or equivalent – includes
school education which is up to higher secondary (12th standard) or
equivalent level (say, intermediate). Any education beyond higher secondary
is not covered here. The use of expression ‗equivalent‘ provides wider scope
to school education implying that all education up to school leaving are in
Negative List. Even if it is provided by international school providing
international certificate, it will be out of service tax net.
 Education as a part of curriculum leading to recognised qualification –
unlike school education where any school education is covered, education
qualifies for Negative List only if certain conditions are met, viz.,
(i) education must be imparted as part curriculum;
(ii) such education should be for obtaining a qualification (say a degree,
diploma, certificate etc.);
(iii) such qualification should be recognised by any law (Indian law only) for
the time being in force.
If any of the aforementioned conditions is not satisfied, the education shall
not qualify to be under the Negative List. The use of words ―law for the time
being in force‖ implies that such laws as are applicable in India at a given
point of time. In such cases, education is imparted under a prescribed
syllabus or curriculum and the education must be imparted as a part of
such curriculum, i.e., it must be a part of syllabus for such course or
qualification. However, education leading to foreign qualifications shall be
liable to payment of service tax. In Indian context, it may be noted that
recognition is granted by bodies such as University Grants Commission
(UGC), All India Council of Technical Education (AICTE) etc.
 Approved vocational education course has been defined in section
65B(11) of the Finance Act, 1994. This is –
 a course run by an industrial training institute or an industrial
training centre affiliated to the National Council for Vocational Training,
offering courses in designated trades as notified under the Apprentices Act,
1961 (w.e.f. 10-5-2013, affiliations to State Council for Vocational Training
are also covered);
 a Modular Employable Skill Course, approved by the National Council
of Vocational Training, run by a person registered with the Directorate
General of Employment and Training, Ministry of Labour and Employment,
Government of India;

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 a course run by an institute affiliated to the National Skill
Development Corporation set up by the Government of India (only up to 9-5-
2013).
The admission/ examination fee is covered under Negative List. Further,
tuition fee or development fees are also not liable for service tax. When
students avail the services of admission/ development/ examination and
pay the fees in respect of such services along with basic tuition fee, it may
be considered as a case of bundled services where tuition is having
dominant nature covered under Negative List and accordingly, all other fees
charged mandatorily along with tuition fees would not be liable for service
tax.
Negative List may, therefore, not include –
a) Private tuitions;
b) Education as a part of prescribed curriculum for obtaining
qualification recognised by law of a foreign country;
c) Services provided to educational institutions (except covered
elsewhere);
d) Placement services;
e) Services provided by educational Institutes such as IITs, ITMs charge
a fee from prospective employers like corporate houses/ MNCs, who come to
the institutes for recruiting candidates through campus interview.
The inclusion in/ exclusion from Negative List [section 66D(l) of Finance
Act, 1994 ] for different types of education related services can be illustrated
as follows :
Nature of service Taxability
School education up
to 12th standard
Covered under Negative List - Not taxable.
School examinations
fee, etc.
It is part of education and hence covered under the
Negative List - Not taxable
Conveyance facilities
to students
If part of education and cannot be separately covered
under Negative List - Not taxable
Approved vocational
educational course
Covered under Negative List - Not taxable

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Boarding school
(package offered
inclusive of food,
rent, etc.)
Covered under Negative List - Not taxable; Essential
character being education, non-taxable as per rule of
bundled services
College education
(affiliated to an Indian
university)
Recognised by law, covered in Negative List - Not
taxable
Test for admission in
a college/ institution
If recognised by law, covered in Negative List - Not
taxable
Campus recruitment
fee
Taxable
Courses recognised
by foreign law
Not covered under Negative List - Taxable
Coaching centre‘s
services
Taxable
Placement services Taxable
Grants-in-aid As per Rule 6(2)(vii) of the Service Tax (Determination
of Value) Rules, 2006, subsidies and grant disbursed
by the Government, not directly affecting the value of
service, will be excluded from the value of service -
Not taxable.
(B)Exemptions to services relating to education sector
Only specified services provided by educational institutions are included in
the Negative List. Services provided to educational institutions are not
covered under Negative List. However, certain services provided to and by
educational institutions are separately exempted vide Notification No.
25/2012-ST, dated 20-6-2012.
(1) Exemption under Entry No. 9 of Notification No. 25/2012-ST dated
20.06.2012 (as amended)
(i) During the period 1.7.2012 to 31.03.2013:
The following services provided to or by an educational institution in respect
of education were exempted from service tax, by way of, -

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(a) Auxiliary educational services; or
(b) Renting of immovable property.
‘Auxiliary educational services‘ were defined in the mega exemption
notification dated 20.06.2012. In terms of the said definition, the following
activities were covered under auxiliary educational services:
 any services relating to imparting any skill, knowledge or 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 following services relating to:
— admission to such institution;
— conduct of examination;
— catering for the students under any mid-day meals scheme sponsored by
Government;
— transportation of students, faculty or staff of such institution.
During this period, exemption was available for the services provided to or
by educational institutions in respect of education which was itself
exempted from service tax. Therefore, service tax was chargeable on such
auxiliary educational services which were in respect of services education
chargeable to service tax.
(ii) During the period from 1.4.2013 to 10.07.2014:
W.e.f. 1.04.2013, an amendment was made in Entry No. 9 of the Notification
No. 25/2012-ST, dated 20.6.2012 vide Notification No. 3/2013-ST whereby,
for the words ―provided to or by‖, the words ―provided to‖ were 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 is not 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 shall therefore, continue.

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(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,-
(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.‖
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,-
a) transportation of students, faculty and staff;
b) catering, including any mid-day meals scheme sponsored by the
Government;
c) security or cleaning or house-keeping services performed in such
educational institution;
d) services relating to admission to, or conduct of examination by, such
institution.
The effect of changes in exemption is -
 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;

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 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.
In view of the aforesaid, the following twin tests ought to be satisfied now for
availing the said exemption:
 Institution that 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:
 transportation of students, faculty and staff of the eligible educational
institution;
 catering service, including any mid-day meals scheme sponsored by
the Government;
 security or cleaning or house-keeping services in such educational
institutions;
 services relating to admission to such institutions or conduct of
examinations.
(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 -
(a) a civil structure or any other original works meant predominantly for
use other than for commerce, industry, or any other business or profession;

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(b) 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;
(c) a structure meant predominantly for use as (i) an educational, (ii) a
clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or
(iii) sewerage treatment or disposal; or
(f) 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 structure meant predominantly for use as (i)
an educational, (ii) a clinical, or (iii) an art or cultural establishment.
Thus, 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.
(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur)
Services of construction of a structure, predominantly used
in education, to Government, local authority and
Governmental authority are exempted from service tax.