Before we can talk about the question of taxability of educational services, it is important to know to know the nature of education, service and imposition of tax. Education is the bedrock of human civilization and existence. It is through education alone that societies have moved forward and have welcomed reform and change. But the practise of education, has grown manifold over the years, it no longer continues to remain a noble profession and has indeed become a profit generating market or service.
We must first have a brief background as to how and when service tax came to be imposed upon educational services. Before 2012, the scope of service tax was restricted, narrow and streamlined. It had within its ambit limited services and activities. The rest were outside the purview of taxation. In 2012, the finance ministry took to a complete overhaul of the entire structure with regard to service tax. The government moved from a limited positive list that included as to what services would be exigible to service tax to a comprehensive approach where it inserted provision 65B (44) to the Finance Act 1994 which included all services into the ambit of service tax except the ones which were exempted. This is how the taxation of educational services came into being.
But taxing education as suchwas not the purpose of the policymakers seated in the North Block. India had always been an education deprived nation and if taxes were to be imposed upon education now, it would have led to disastrous results. The idea indeed tax services which were in addition to the conventional and common form of educational services, such as coaching and etc. which did not affect the growth of education. Hence when it comes to academics, the practise is divided into two categories for better understanding and imposition of taxes. They are:
Before we delve into the legislation, we must peruse the meaning of education per se. The Oxford Dictionary chiefly defines education as “the process of receiving and giving systematic instruction especially at a school or a university”
The important phrase used is systematic instruction. This means following of a curriculum or likewise which may be prescribed or shaped by the suitable authority from time to time. There is thus a great extent of a formality in education.
It shall be wise at this stage to study the definition of coaching as well. The word “coaching” in the English language has a lot of definitions but in the present context it can be defined as “Give (someone) extra teaching”. Coaching is always in addition to the formal and conventional methods of teaching and hence it does not adversely affect the formal academic and educational pursuit of students.
The former is taxable while the latter is not. In order to avoid any confusion as to the taxation of educational; services, section 66D was inserted in the act which exempted three categories of academic activity and placed it beyond the purview of the revenue. They are
Services by way of
- Pre-school education and education up to higher secondary school or equivalent
- Education as part of a curriculum for obtaining a qualification recognised by any law for the time being force in India,
- Education as a part of an approved vocational educational course.
The first category covers the entire formal academic journey of a child from pre schooling to higher secondary. Apart from pre schooling which is not regulated or governed by any curriculum or education board, schooling is an entire course which is regulated and shaped by the supervisory authorities who shape the curriculum and award the respective pass certificate of matriculation and higher secondary.
The second category of education also speaks on similar lines apart from the fact that this focuses on higher education which may be carried out in the pursuance of an academic degree, certificate or diploma. The crucial phrase used here is “a qualification recognised by any law for the time being force in India” which means that there is constant monitoring of such education and it is one which is recognised by the force of the law and constantly backed by it. This also means that only those degrees which are approved by the laws of India can be covered under this exemption and if there is a degree or a certificate programme by a foreign institution which does have recognition under the law for time being force in India, then such course shall not be granted any exemption under the act.
In this regard, it is imperative to study the case of Mallapuram District Parallel Colleges Association v Union of India . In this particular case, the question was with regard to the taxability of parallel colleges that are functional in the state of Kerala and are a unique feature in the state. The parallel colleges are not affiliated to the Universities but they grant classroom teaching to those students who register themselves as private students in the university and only turn up to answer exams.
The parallel colleges thus grant education to such students who have either not secured a place in a regular college or live in a remote area devoid of a college and for certain reasons prefer to study in their hometown only. The Central Excise department was of the view that the activities carried out by Parallel Colleges was nothing but a clear case of commercial coaching and hence must fall within the ambit of service tax. The Parallel Colleges pleaded otherwise. – Their argument was based on the fact that since many students were unable to join affiliated colleges they were forced to educate themselves in parallel colleges. Also, the Parallel Colleges Association plead that over the years, the State Government had though not recognised them formally but had been granting similar status and facilities to students of parallel colleges and affiliated colleges. For instance, the bus concession which was granted to regular students was also being granted to students of parallel colleges similarly the SC/ST students studying in parallel colleges too were granted scholarships and other amenities. Therefore keeping in view that the state did not discriminate between institutions, the court stopped the revenue authorities on the ground that such levy would be violative of Art 14 of the Constitution.
Similarly in the another case of St. Anthony Educational and Charitable Society v UOIwhere the facts were identical, the Kerala High Court ruled in the favour of the parallel colleges and held that no service tax could be levied from them.
The third category of education is one which used the phrase “approved vocational educational course”the meaning of the phrase relies upon the meaning of approval. So what does approval mean?According to the Black’s Law Dictionary, Approve means, to give formal sanction to; to confirm authoritatively. Further Section 65B of the Finance Act provides as to what all courses are within the meaning of approved courses. They are:
- Approved vocational education courses have been specified in section 65B of the Act. These are
- A course run by an industrial training institute or an industrial training centre affiliated to the National Council for vocational training
- 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.
- A course run by an institute affiliated to the National Skill Development Corporation.
With regard to vocational courses, a very pertinent case is that of Bombay Flying Club v Commissioner of Service Tax. The facts of the case are as follows.
The assessee was a company registered under the Companies Act, 1956 with the object of promoting the art and science of flying without any profit motive. The assessee was an approved organisation by DGCA (Director General Civil Aviation) fit to carry out training apart from maintenance and overhaul of aircraft components. The assessee thus conducted two kinds of courses (1) Aircraft Maintenance Engineering (2) Flying School. The assessee conducted courses for both and upon successful completion of the course granted a course completion certificate to the trainee. The certificate enabled the student to appear in the exam conducted by the DGCA and only upon clearing that exam was a candidate granted a certificate to practise as a pilot or as a maintenance man.
The department was of the view that the entire activity carried out by the assessee was clearly within the definition of commercial coaching and hence shall be exigible to service tax. Section 65(27) of the finance act 1994 states that
“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 sports, with or without issuance if a certificate and includes coaching or tutorial classes but does not include pre-school coaching or any institute or establishment which issues certificate or diploma or any educational qualification recognised by law for the time being in force.”
However the course conducted by the flying club did not in any way grant a qualification which would enable the holder of the certificate to fly planes or serve as maintenance staff unless the candidate cleared the exam conducted by the DGCA hence the tribunal relying upon the clarification 137/132/2010- Service Tax dated 11th May, 2011 of the CBEC in this regard which clarified that the training imparted by the aforesaid institutions and therefore the same cannot be granted any exemption under service tax.
Thus if we observe all the three categories of exempted educational services from the ambit of the service tax, we can observe one basic similarity- all of them are formal methods of education which bestow upon the student some degree, certificate or equivalent. At the same time this is not the only touch stone as the other most important requirement is the sanction of law or approval and recognition for the form of academic practise in question.
Whether it is schooling which is regulated by boards which are recognised by the law, or universities, colleges or vocational institutions which have adequate approval to carry out the academic activity that they do. The courts in this country have laid great stress on the point that the education must be in consonance to a curriculum and even if such teaching does not form part of regular classroom teaching but assumes the form of a parallel teaching process but does tend to follow an approved course then the same shall be exempted from levy of service tax.
Wider Aspects of Education and Their Taxability
Education does operate in isolation, there are many aspects of education which are raise questions pertaining to their taxability. Education and the exemption granted within it do not only extend to classroom teaching and pedagogy. It also extends to boarding schools. Boarding schools are a very important specimen to study under this service tax liability.
Boarding schools do not just provide education but accommodation, food and various other facilities and services so the obvious question arises that though the services of education may be exempted but would the same exemption extend to the other services of lodging, food etc. as well?
There are however many auxiliary services too which were offered by owners of education institutions. In 2012, vide notification 25/2012 any auxiliary education services rendered were also exempted, thus this exemption was being used for nefarious purposes by some assessees and therefore in 2013, vide letter 334/3/2013 (TRU) a slight change was made in the exemptions granted to educational services, auxiliary services and renting of immovable property by educational institutions by the educational institutions and not to educational institutions. However the question continued to remain as to what auxiliary services would be exempt and what not.
To answer this question we must observe section 66F of the Finance Act, 1994 which provides that where there is a bundle of services being rendered by the service provider, the service which has the most dominant nature shall be considered as the chief service. Since the dominant service continues to remain education, hence the service is deemed to be covered under the negative list exemption.
In conclusion, it can be said that the rule pertaining to the levy of service tax on educational institutions is indeed clear in most aspects but continues to remain ambiguous in certain aspects too. In the current assignment itself, we have studied two kinds of cases- one pertaining to parallel colleges of Kerala and the other pertaining to an aviation school in Mumbai.
In the first case of parallel colleges, we can clearly observe that the parallel colleges have no recognition from any academic body and grant no certificate yet due to the benevolence granted to them by the state government their activity has been exempted, conversely if we observe the case of Bombay Flying Club which was had recognition and also granted a certificate was nevertheless dragged into the ambit of taxability and no form of relief was granted to them. This only reiterates the point that all forms of organisations must be studied in isolation and taxability may differ from assessee depending upon the common practises of the trade.
  150TAXMAN624 (Ker)
 (2006) 202 CTR (Ker) 229
Black’s Law Dictionary, 9th Edition
2013  S.T.R. 156 (Tri – Mumbai)
Shashank Shekar Misra.
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