Article 21A of The Constitution inserted by The Constitution (Eighty Sixth Amendment) Act, 2002 is notified with effect from April 1, 2010. This Article deals with “Right to Education” and states as under:
“The State shall provide free and compulsory education to all children of the age of six to fourteen years in such manner as the State may, by law, determine”.
Empowered by the above Article “The Right of Children to Free and Compulsory Education Act” received the assent of President of India on August 26, 2009 and was notified with effect from April 1, 2010.
The Constitution of India thus makes it mandatory to provide not only free but also compulsory education to every child in the age group of six to fourteen in
The compulsion of the Government to raise resources has spared none and in the current times when “education” has opened up flood gates to bountiful riches and capturing seats of power, both at school as well as professional level. At this juncture it must be mentioned that it is not ‘teaching’ but ‘coaching’ which has ensured rags to riches for many who in the guise of service have plundered the student community to accumulate riches far beyond they could have earned from their regular activity. Thus no longer providing education is a service and the Government is fully aware of the enormous tax potential from this sector.
Education being a service was brought within the taxable domain of The Finance Act, 1994 by the levy of tax on “commercial training or coaching centres” and the position remained the same till June 30, 2012. Section 66D containing the negative list was notified with effect from July 1, 2012. Clause (l) of the said section contains the following:
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 law for the time being in force; (iii) education as a part of an approved vocational educational course.
Services contained in the negative list are not leviable to tax. Accordingly the clause (l) which is in three parts has to be studied to understand the activity which qualifies for non-taxability and the same is analysed here under:
The first part deals with education up to school level:
“pre-school education and education up to higher secondary school or equivalent”
Fashion of the yester years has become compulsion i.e. sending the kid at home to a preparatory school so that the child can cry its heart out staying away from the parents, do all the pranks without Pre-school education, generally called as nursery or kinder garden in common parlance qualify.
Education up to higher secondary school or its equivalent whether State, Central or matriculation boards qualify. In the State of Tamil Nadu and few other States the higher secondary school education is imparted at the school itself, however in certain States the student leaves the school after class X and the higher secondary is named as pre-university and the same is imparted by institutions which are approved or authorized by the State.
In both the above instances “education” is tax free.
The second part deals with education beyond higher secondary school or equivalent:
“education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force”
In this part the education that is imparted must form part of a curriculum. Curriculum here would mean the prescribed curriculum by the Board or University or any other establishment under whose regulation the education is being imparted. The subjects taught must form an integral part of the curriculum prescribed and the qualification that a student will be entitled after the completion of the education must be recognized by law. Accordingly, institutions post higher secondary school will be covered in this clause, however, any activity carried out by these institutions which beyond the curriculum prescribed will be outside the purview of negative list and accordingly will suffer tax.
Clause 9 of Notification No.25/2012-ST dated June 20, 2012 exempts services provided to an educational institution. The said exemption was amended on April 1, 2013 and after the amendment the same is as follows:
Services provided to an educational institution in respect of education exempted from service tax, by way of:
a. auxiliary educational services; or
b. renting of immovable property
Clause 2 (f) of the Notification defines “auxiliary educational services”. Auxiliary education 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.
Prior to April 1, 2013 the words used were “Services provided to or by an educational institution”. The words “or by” have been deleted. The consequence of this deletion brings to tax various services provided by the educational institution which are in the nature of “auxiliary education” as defined above. To quote a few examples, the following receipts of educational institutions will directly suffer tax with effect from April 1, 2013, mess fees, infrastructure fee, facility fee, admission fee, application fee, internet charges, the list may be more but each activity has to be separately analysed on a case to case basis to decide on the taxability. A query has been raised whether hostel accommodation will be chargeable to tax. Hostel accommodation is purely for residential purposes. Renting of immovable property is a declared service vide section 66E(a) of the Finance Act, 1994. However, “services by way of renting of residential dwelling for use as residence” is contained in Section 66D clause (m) of the negative list by virtue of which hostel accommodation should find a place outside the tax net. If it is argued that hostel accommodation is a commercial place and not a residential dwelling then clause 18 of Notification No.25/2012 contains the exemption for “services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent”. In my view following a hostel cannot be treated on par with hotel, inn, guest house, club or campsite. It can also not be clothed within the term “other commercial places” as following the Ejusdem generis principle for interpreting the language of a statute when a generic description follows specific items, the more generic description is read to apply only to things belonging to the same group or class as the specific item. Applying this a hostel cannot be grouped under the category of “hotel, guest house, inn etc. and hence the service of providing hostel accommodation must necessarily be covered under clause (m) of section 66D of negative list and thereby will enjoy exemption.
The third part deals with “education as a part of an approved vocational educational course”. Section 65B (11) defines:
“approved vocational education course” means,—
(i) 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 notified under the Apprentices Act, 1961 (52 of 1961); or
(ii) 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, Union Ministry of Labour and Employment; or
Industrial Training Institutes (ITI), Polytechnic etc which are affiliated to the National Council for Vocational Training and courses imparting employable skills taught by any person registered with DGET, Ministry of Labour and approved by NCVT is also outside the ambit of taxation.
Clause 4 of the exemption notification exempts Services by an entity registered under section 12AA of the Income Tax Act, 1961 by way of charitable activities. However the term charitable activities defined in the said notification does not include education and hence any charitable institution which is engaged in education activities will not be covered by this exemption. The entity can avail the general exemption of up to Rs.10 lakhs available under the small service provider category.
To conclude permit me to state here that many queries have been received from professionals and stake holders whether it is correct to levy service tax on charitable institutions which are in the service of providing education? The answer is ‘Yes’ if the entity is treating the activity as a ‘business’ and ‘No’ if the entity is purely in the business of ‘charity’. Tax is on coaching and not on teaching, Teaching is a pious service but Coaching is business aimed to accumulate riches.
CA. Rajendra Kumar P, FCA, Chennai
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