Service tax dossier on educational services

Agarwal Sanjiv & Company,
Chartered Accountants, Jaipur
1
SERVICE TAX DOSSIER
on
EDUCATIONAL SERVICES
Introduction
Education is the life line of any nation and blood for economic growth. Our Government realizes
its importance and hence has taken several initiatives to boost the growth of this sector,
including setting up of several universities, deregulating policies and making significant pacts
with foreign nations. 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. Infact coaching and education go hand in hand
to a large extent.
Understanding the Concept of Education and Coaching
 All education is not exempted and all coachings are not taxed. However, one needs to
understand the difference between the two terms – education and coaching.
 According to 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.
 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 ICAFI case [2009 -TMI - 32004 - Cestat, Bangalore], tribunal observed that coaching
normally refers to a special teaching or a personalized 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

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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 ambit the specialized
function of training and coaching but this does not make all the three terms synonymous in
nature.
It is also true that Governments need fund to run the welfare state and to meet certain socio-
economic objectives which pave for economic growth. Taxes in various forms direct and
indirect come to the rescue of Government.
Education and coaching, being an important part of our service sector should, therefore also
attract taxation.
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. We discuss the applicability or otherwise of Service Tax on education
related services pre and post 1.07.2012 in this document.
Taxability prior to 01-07-2012
 Upto 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 recognized by law.
 What was taxed to Service Tax prior to 01.07.2012 was services of commercial coaching
and training which was defined under section 65 as follows:

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 As per section 65(26) of the Finance Act, 1994, ‘commercial training or coaching’
means any training or coaching provided by a commercial training or coaching
centre. (as amended)
 As per section 65(27) of the Finance Act, 1994, ‘commercial training or coaching
centre’ means any institute or establishment providing commercial training or
coaching for imparting skill or knowledge or lessons on any subject or field other
than the sports, with or without issuance of a certificate and includes coaching or
tutorial classes.(as amended)
 As per section 65(105) (zzzc) of the Finance Act, 1994, services provided to any
person, by a commercial training or coaching centre in relation to commercial
training or coaching;
Explanation.—For the removal of doubts, it is hereby declared that the expression
“commercial training or coaching centre” occurring in this sub-clause and in clauses
(26), (27) and (90a) shall include any centre or institute, by whatever name called,
where training or coaching is imparted for consideration, whether or not such centre
or institute is registered as a trust or a society or similar other organization under
any law for the time being in force and carrying on its activity with or without profit
motive and the expression “commercial training or coaching” shall be construed
accordingly.
It can be seen from above definitions that 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

4
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.
(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 recognized by any lawfor
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 six years old. The
system of preschool education varies widely, with different approaches, theories, and
practices within different school jurisdictions. The term preschool education includes
such programs 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

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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.
 Education upto 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 recognized 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 recognized 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 - Approved vocational education course has
been defined in section 65B(11) of the Finance Act, 1994. These are –
 a course run by an industrial training institute or an industrial training centre
affiliated to the National Council for Vocational Training, offering courses in

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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.
 a course run by an institute affiliated to the National Skill Development
Corporation set up by the Government of India. (only upto 9-5-2013)
 Negative list may, therefore, not include –
a) Private tuitions
b) Education as a part of prescribed curriculum for obtaining qualification
recognized 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 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
alongwith 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.
 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 upto 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

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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
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)
Recognized by law, covered in negative list -
Not taxable
Test for admission in a college / institution If recognized by law, covered in negative list -
Not taxable
Campus recruitment fee Taxable
Courses recognized 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.
If any of the aforementioned auxiliary services do not pertain to education per
se, it may not be termed as auxiliary education service. To have a nexus with
education is a necessary pre-condition. It must relate to the specified activities
viz,
 skill, knowledge or education (but not coaching)
 development of course content (e.g. syllabus)
 any knowledge enhancing activity (say a seminar, conference or quiz
event)
 activities outsourced in ordinary course of education (admission,
examination etc.)
 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.

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(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.
 The following tables denotes the taxability and exemption under Entry No. 9 of
Notification No. 25/2012-ST in respect of education exempted from Service Tax at a
glance:–
Exemption up to 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

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 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,-
(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;

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(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 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.

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 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.

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(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;
(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 civil structure or any other original works meant predominantly for use other than
commerce, industry or any other business or profession;

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 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.
(C) Provisions of Reverse Charge Mechanism
 As per Notification No. 30/2012-ST dated 20.06.2012 (as amended) and conditions
stipulated therein, the liability to deposit Service Tax to the credit of Central Government
shall be on service receiver. Reverse charge mechanism can be full or partial as follows:
 Full Reverse Charge Mechanism: The liability to pay 100% Service Tax is on the service
receiver. In respect of certain services as specified, 100% Service Tax is to be paid by
service receiver and there is no obligation on the part of the service provider to pay
Service Tax. (For example, legal services, GTA services etc.)
 Partial or Joint Reverse Charge Mechanism: The liability of payment of Service Tax shall
be both, on the service provider and the service recipient.
 In terms of serial number 7(b), 8 and 9 of the table specified in Notification No.
30/2012 - ST dated 20.6.12, the partial/joint reverse charge mechanism is
applicable to services provided or agreed to be provided by way of

15
a) renting of a motor vehicle designed to carry passengers on non-abated value to
any person who is not engaged in a similar business, or
b) supply of manpower for any purpose, or
c) service portion in execution of a works contract;
by any individual, Hindu Undivided Family or partnership firm, whether registered or
not, including association of persons, located in the taxable territory to a business
entity registered as a body corporate located in the taxable territory. Thus, the
nature of the service and the status of both the service provider and service receiver
are important to determine the applicability of partial reverse charge provisions.
 ‘Body corporate' has been defined in clause (11) of section 2 of the Companies Act,
2013 which applies in Service Tax. Accordingly, 'body corporate' or 'corporation'
includes a company incorporated outside India, but does not include –
i) a co-operative society registered under any law relating to co-operative
societies; and
ii) any other body corporate (not being a company as defined in this Act), which
the Central Government may, by notification, specify in this behalf.
 As most of the education institutions are run under Trust and registered under
12AA/80G of the Income Tax Act, 1961. Since Trust is not a body corporate,
therefore, the provisions of partial reverse charge mechanism on works contract,
supply of manpower, and renting of a motor vehicle shall not be applicable in such
cases and whole of Service Tax shall be payable by service provider irrespective of
its status. However, the provisions of full RCM will be applicable in normal course.

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Relevant Provisions / Notifications etc.
Upto 30.06.2012
1. Section 65(26) of the Finance Act, 1994 – Meaning of Commercial Training or Coaching
2. Section 65(27) of the Finance Act, 1994 – Meaning of Commercial Training or Coaching
Centre
3. Section 65(105) (zzzc) of the Finance Act, 1994 – Taxable Services relating to
Commercial Training & Coaching
w.e.f. 01.07.2012
1. Section 65B(11) of Finance Act, 1994 - Definition of Approved Vocational Education
Course
2. Clause (l) of Section 66D of Finance Act, 1994 i.e. Negative List – Pre –school, higher
secondary, vocational education etc.
3. Notification 25/2012 – ST dated 20.06.2012 - Entry No. 9 & 12 – Services provided to or
by educational institutions and construction services respectively
4. Para 2 (f) of Notification 25/2012 – ST dated 20.06.2012 – Definition of Auxiliary
Education Services (deleted w.e.f 11.07.2014)
5. Para 2 (oa) of Notification 25/2012 – ST dated 20.06.2012 - Education Institution [para 2
(oa)]
6. Notification No. 30/2012-ST dated 20.06.2012 – Reverse charge provisions
7. CBEC Letter No. 334/3/2013-TRU dated 28/02/2013 – CBEC clarification on exemption
8. Circular No. 172/7/2013 –ST dated 19.09.2013- CBEC clarification on exempt services –
Auxiliary Education Services
For clarification, please contact:
AGARWAL SANJIV & COMPANY
CHARTERED ACCOUNTANTS
503, GURUKRIPA TOWER,
MAHAVEER MARG,
C-SCHEME,
JAIPUR-302001
Phone : 0141-2368071, Fax : 0141-2369250
E- mail :asandco@gmail.com

Service tax dossier on educational services

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Service tax dossier on educational services