Implication of GST changes on IIM's in this new year


BACKGROUND

At the outset, a happy and a prosperous new year to all the readers. With the New Year comes new joys, new rays of hope, new resolutions as well as New Circulars and Notifications !! (A New Year gift from the Government)

The Government has issued Circular No. 82/01/2019-GST on 01-01-2019, which clarifies on applicability of GST for IIM's. In this article, we would discuss the issues addressed by the circular. But before diving deep into the circular, let us first understand GST implications for IIM's.

1. APPLICABILITY OF GST FOR IIM'S- PROVISIONS UNDER GST

GST applicability: GST is applicable on all supply of goods or services unless specifically exempted by way of notification under section 11 of CGST Act, 2017. Exemption for services is brought out by Notification 12/2017 CTR dated 28 June 2017 (as amended from time to time).

Definition of educational institution:- Notification 12/2017 CTR, under section 2(y) defines an 'educational institution' as an institution providing services by way of, interalia, education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force.

Although IIM's provide education, the same was not recognized under any law (as IIM's were previously not set up under an act of parliament); thus, the above-said exemption was not available for IIM's. It is for this regard that Government had inserted entry no. 67 to the said notification, which provided a separate exemption to IIM's. The same is provided below.

Entry no. 66 (general exemption for all educational institutions): This entry exempts service provided by an educational institution to its students, faculty, and staff. Further, it also exempts services provided to the educational institution by way of transportation, catering, security, housekeeping, and other related services.

Entry no. 67 (specific exemption to IIM's):- This entry exempts the following services provided by IIM's to its students, namely

  • Two-year full-time Post Graduate Programs in Management for the Post Graduate Diploma in Management (This basically refers to the M.B.A program for which admission is made through CAT exams);
  • Fellow program in Management;
  • Five years integrated program in Management;
  • However, no exemption is available for Executive Development Programs (This program would generally be for working executives who want to improve their leadership and management skills).

The table below depicts the GST position of IIM's via a vis other educational institutions prior to issuance of circular 82/01/2019 GST dated 01-01-2019:


Particulars

Educational institutions (covered under definition above)

IIM's

Exemption on outward supply

All services provided to its students, faculty and staff are exempt

Only few educational programs were exempt; whereas others were taxable

Benefit for inward supply (purchases)

Exemption would be available for transportation, catering, security, house-keeping and other related services

No exemptions were available for IIM's as they did not fit in the definition of educational institution.


2. THE IMPACT OF INTRODUCTION OF IIM ACT

Introduction of IIM Act, 2017:- IIM Act, 2017 (effective from 31-01-2018) declares IIM's to be institutes of national importance. Under section 7(2) (f) of IIM Act, IIM's have been conferred the power to grant degrees, diplomas and other academic distinctions or titles.

IIM's would now be educational institution: -The 2 conditions required for an educational institution as per Notification 12/2017 CTR are,

  • Provision of education as a part of the curriculum:  IIM's provides education by having a specified curriculum that is required by IIM Act, 2017.
  • Qualification recognized by any law: - IIM's now have the powers to grant degrees and other academic titles by virtue of IIM Act, thus the degrees so conferred would be a qualification recognised by law.

Thus, IIM's could now be called an educational institution for the purpose of Notification 12/2017 CTR.

Nevertheless, if they qualify as an educational institution, they would be eligible for 2 exemptions, i.e. under entry no.66 (general exemption for educational institution) as well as entry no.67 (specific exemption for IIM's). In cases where two or more exemption notifications are available to an assessee; the assessee can claim the one that is more beneficial to him. The Supreme Court upheld the same in case of Collector of Central Excise, Baroda vs Indian Petro Chemicals(1997) 92 ELT 13 (SC). Click here to view the SC verdict

Thus, IIM's would be legally entitled to enjoy the benefits of entry no.66, which exempts all services provided to the students.

Advance Rulings (IIM's thrown out of frying pan into the fire):-

Rulings against the IIM's:- Advance rulings, in case of IIM, Indore (Order No. 10/2018 dated 10-08-2018)and IIM, Bangalore (Order No. 25/2018 dated 25-10-2018) have held that the exemptions in entry no.66 would not be eligible to IIM's and they had to strictly adhere to the specific exemptions provided in entry no.67.  

Rulings in favour of IIM's:- Advance ruling, in case of IIM, Calcutta (21/WBAAR/2018-19 dated 02.11.18) held that IIM was an educational institution; thus eligible for general exemption under entry no.66.

The contradicting views as given above led to more confusion about applicability of GST to IIM's.

Entry no.67 removed vide Notification: - Notification 28/2018 CTR dated 31-12-2018 removed the specific exemption granted to IIM's (vide entry no. 67). The deletion of that entry left behind many unanswered questions such as-

  • Whether all services by IIM's would be taxable under GST?
  • If exemption can be claimed under entry no.66, whether all services would remain exempt or whether the exemption is only for few educational programs?

The old year ended carrying a huge load of doubts and queries with regard to GST on IIM's. All these were a clear indication stating 'Picture abhii baakii hai'.

3. CIRCULAR CLARIFYING GST APPLICABILITY TO PROGRAMS BY IIM'S

This circular comes as a welcome move, which tries to solve all the doubts pondering in the minds of professionals. The genesis of Circular 82/01/2019-GST dated 01-01-2019 is provided below, which answers all the unanswered questions:-

Whether IIM's are educational institutions: As per the provisions of IIM Act, IIM's are empowered to grant degrees, diplomas, and other academic distinctions. Thus with effect from 31st January 2018, all the IIMs are 'educational institutions' for the purpose of claiming exemptions provided in Notification 12/2017 CTR dated 28 June,2017.

Exemption provided to long duration programs:

  • IIM's provide various long duration programs (one year or more) for which they award diploma/ degree certificate duly recommended by Board of Governors as per the power vested in them under the IIM Act, 2017.
  • The services provided by IIM's to their students- in all such long duration programs (one year or more) are exempt from levy of GST.

GST applicability on short duration programs:

  • IIM's provide short duration/ short term programs for which they award participation certificate to the executives/ professionals as they are considered as 'participants' of the said programs. These participation certificates are not any qualification recognized by law. Such participants are also not considered as students of Indian Institutes of Management.
  • Services provided by IIMs to such participants are not exempt from GST. Such short duration executive programs attract a standard rate of GST @18%.

Stand to be taken for the services rendered between 31-01-2018 and 31-12-2018:

  • With effect from 31st January, 2018(date mentioned in circular),all the IIMs are 'educational institutions' as defined under notification No. 12/ 2017- Central Tax (Rate) dated 28.06.2017 as they provide education as a part of a curriculum for obtaining a qualification recognised by law for the time being in force.
  • Thus, all IIM's are eligible for general exemption applicable to an educational institution under entry no. 66.

Withdrawal of specific exemption to IIM's vide entry no. 67:

  • From 31st January 2018, all IIMs have become eligible for exemption benefit under Sl. No. 66 of notification No. 12/ 2017 CTR.
  • As such, specific exemption granted to IIMs vide Sl. No. 67 has become redundant. The same has been deleted vide notification No. 28/2018 CTR dated, 31st December 2018 w.e.f. 1st January 2019.

Let us encapsulate the entire circular with the help of the Table provided below:


Time period

Exemptions available to IIM

Services liable to GST

01-07-17 to 31-01-18

The following educational programs:-

  • Two-year full time Post Graduate Programs in Management for the Post Graduate Diploma in Management (admissions based on CAT)
  • Fellow program in Management;
  • 5 year integrated program in management

All other services are taxable for IIM's (as they cannot avail the benefit of an educational institution)

31-01-18 onwards

All long duration programs (one year or more) provided by IIM's to their students for which they award diploma/degree certificate.

Short duration executive programs


CONCLUSION

The recent circular seems to be an outcome of the efforts put by IIM's by continuous representations done seeking to confirm coverage in GST exemption as it imparts education recognized by law. It goes back to the basic funda of management 'never give up until the goal is reached'.

Thus, we may say that the IIM's not only preach management, they practice it as well.

The recent developments in GST are measures towards simplifying GST law further and providing GST benefits and concessions wherever applicable.

The author can also be reached at tabish@hiregange.com)

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Tabish Hassan 
on 05 January 2019
Published in GST
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