Service Tax Department has initiated to issue Notices to the Education Institutions for charging Service Tax (retrospectively) on the Transportation Charges / Bus Fees charged by them from their Students, Staff or Faculty between the period from 01-04-2103 to 11-07-2014.
GROUNDS OF NOTICES ISSUED BY SERVICE TAX DEPARTMENT
Notification No. 25/2012 dated 20-06-2012 (Sl. No. 9) w.e.f. 01-07-2012 exempts services provided to or by an education institution in respect of education from Service Tax, by way of (a) auxiliary education service; or (b) renting of immovable property.
The above notification was later amended vide notification no 03/2013-ST dated 01-03-2013 (w.e.f. 01-04-2013) and only service provided to an education institution is respect of education remained exempted from service tax by way of (a) auxiliary education serice; or (b) renting of immovable property.
The aforesaid notification was further amended vide notification no. 06/2014 dated 11-07-2014 (w.e.f. 11-07-2014) wherein the definition of Auxiliary Education Service has been omitted and services provided by an education institution to its students, faculty and staff have again been included as exempted services.
The department is taking a view that Transportation of Students, Staff and Faculty by an Education Institution is an Auxiliary Education Service and by effect of removal of “By” from the notification 25/2012 for the period from 01-04-2013 to 11-07-2015, the same are chargeable to Service Tax during this period.
IMPACT
If the contention of the Service Tax Department is taken then during this period the Education Institutions were liable to charge Service Tax from their Students, Staff or Faculty for the Transportation Charges/ Bus Fees.
OUR VIEW
In this matter CBEC has issued detailed clarification vide Circular No. 172/7/2013-ST dated 19th September, 2013 (Copy enclosed) in which CBEC has clarified that “all services relating to education are exempted from Service Tax”.
Further following points are important to understand the legal position in this matter:-
- All these institutes are running recognised courses governed by law and are covered under clause (I) of the Negative List of Service covered under Section 66 D of the Finance Act.
- The Service Tax Department has stretched its imagination to book education institutions under Service Tax net without considering the provision of the law and guidance issued by CBEC in this regard.
- For ready reference of our readers, we are noting below the definition of the Auxiliary Education Service as defined under Service Tax:-
“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.”
a) In the aforesaid definition it is very clearly stated that any service that an education institution ordinarily carry out itself is termed as Auxiliary Education Service only when the same are outsourced from any other person;
b) Further, it is also stated that transportation of students, faculty and staff of the institute is an activity which an education institution carry out themselves in the ordinary course of imparting education to its student;
c) The transportation of students, faculty or staff is an activity similar to admission of students in the institution, conduct of examination, catering for students under any mid-day meal scheme sponsored by government;
- As evident from the aforesaid definition, ‘transportation of students, staff or faculty’ by an education institute is similar to conduct of examination and is exempted from service tax under clause (I) of the Negative List of Service covered under Section 66 D of the Finance Act.
- It is important to note that after the amendment done by Notification No. 03/2013 in the Finance Bill of 2013, the government has issued a Clarification vide Circular No. 172/7/2013-ST on 19th Sep, 2013 to address the concerns of the Education Institutions regarding Service Tax Liability. In para 3 of the aforesaid Circular it is clearly stated “…it will be clear that all the services relating to education are exempted from Service Tax”. Copy of the aforesaid circular is enclosed for your ready reference. Notification No. 06/2014 was issued merely issued to avoid ambiguity of interpretation and bring clarity on the aforesaid subject.
- It is also important to note that service of Transportation of Students, Staff and Faculty by an education institutes are covered under the Education Service (Negative List) and they do not cater any taxable services.
- We further bring to your notice, the provisions of Negative List, Clause (o)(i) of Section 66D for your ready reference below:-
“(o) service of transportation of passengers, with or without accompanied belongings by –
(i) A stage carriage
….”
Stage Carriage is defined in section 65 B (46) as follows:-
‘(46) “stage carriage” shall have the same meaning assigned to it in clause (40) of Section 2 of the Motor Vehicles Act, 1988;”
As per section 2 (40) of the Motor Vehical Act, 1988, “Stage Carriage” means a motor vehicle constructed or adapted to carry more than six passengers excluding the driver for hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for stages of journey.
Although Transportation of Students, Staff or Faculty by an Education Institutions are covered under the Clause (I) of Negative List, but for the information of department we are explaining the process followed by Education Institution for transportation of their students, staff or faculty:-
a) They use buses for transportation, which carry more than six passengers excluding drivers;
b) They charge separate Bus Fees from each Student, staff or faculty member;
c) The students have the option to choose the stage of journey from where they want to get into the bus and dropped back; and
d) The students travelling in the same vehicle pay different Bus Fees depending on the Bus Stop/ distance travelled by the student in the aforesaid vehicle;
This clearly indicates that even if the department views that service of transportation of Students, staff or faculty by an Education Institution is not covered under Clause (I) [i.e. Education Service] of the Negative List then it will certainly fall under Clause (o)(i) of the Negative List – which ultimately results in the service being exempt from Service Tax.
- We also humbly submit that the intention of the Law was to exempt the Education Service and in this regard the government has even granted exemption to the service received by the Education Institutions. It may also be worthy to note that in case if Service Tax Department interpret’s that service tax is chargeable on the Bus Fees charged from the students, then all the institutes will have to draw the Bus Fees Receipt separately from the School Fees and include to charge Service Tax in addition to the Bus Fees from their students. To the best of our understanding, government never intends the students to pay service tax in the course of receiving education from a recognised education institution.
- A far stretched interpretation of law results in undue harassment and legal recourse for the Education Institutions and even the effort and energy of the Department utilised in retrospective taxation on a sector like education for which the government has high priority is not good.
To sum up our observations noted above, we are of the view that the department has mis-interpreted the provisions of the Law and this will create undue Litigation for the Education Institutions and as well as the Department, resulting in a major loss of precious man-hours for both.