NOVEMBER 13, 2018

By Vijay Kumar

What is exempted in Kolkata is taxable in Indore & Bangalore

AS  per Sl. No. 66 of Notification  No. 12/2017-Central Tax (Rate), dated, June 28, 2017, GST on services provided by an educational institution to its students, faculty and staff, are unconditionally exempted. As per Sl. No. 67 of the same notification, services provided by the Indian Institutes of Management (IIM) for the following programmes except Executive Development Programme, were exempted:

(a)  two year full time Post Graduate Programmes in Management for the Post Graduate Diploma in Management,

(b)  fellow programme in Management;

(c)  five year integrated programme in Management.

When Sl. No 66 exempted services provided by an educational institution, what was the need to exempt courses by IIMs by Sl. No. 67? Is an IIM not an educational institution? The Notification defined educational institution as -

"educational institution" means an institution providing 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 recognised by any law for the time being in force;

(iii)  education as a part of an approved vocational education course;

Probably, the idea was that the programmes by IIMs were not degrees recognised by law and so the IIMs were liable to pay GST on their course fee and so a separate exemption is given to IIM courses except Executive Development Programme. But by the 'Indian Institutes of Management Act, 2017' which came into force on 31st January 2018, IIMs are now empowered to give degrees and titles and so they can now give MBAs and PhDs, which are recognised by Law and perhaps GST authorities.

So, is the IIM eligible for exemption from GST as per Sl. No. 66 and is Sl. No. 67 infructuous?

The IIM, Indore was before the AAR with the question,  "Whether the course - Executive Post Graduate Programme in Management (EPGP), after enactment of Indian Institute of Management Act 2017 notified effective from 31st January 2018, is exempted from Goods and Service Tax ?"

The IIM pleaded that with effect from 31.01.2018, they shall be entitled to exemption in terms of entry no. 66 of Notification  12/2017-Central Tax (Rate), as they now qualify as Educational Institutions as defined for the purpose of this notification.

Strange that the most coveted Management Schools in the country were not considered as Educational Institutions under the GST!

The AAR did not find an iota of ambiguity and ruled [reported as - 2018-TIOL-151-AAR-GST dated 10 August 2018]:  

1.  the Entry Number 67 of the Notification  No.12/2017- Central Tax (Rate)  and corresponding notification under MPGST Act, 2017 has been specifically put for Indian Institutes of Management and therefore there appears to be neither any reason nor any prudence in overlooking this specific entry and going to a General Entry i.e. Entry No.66.  (Under what law is a 'general entry' in a notification not applicable when there is a specific entry?) 

2.  We do not find even an iota of ambiguity in the language of the impugned notification. Further, the principle of 'Strict Interpretation' of the statute has been propounded by the Hon'ble Supreme Court in catena of judgments, and one has to strictly go by what is written in the statute.

3.  Though, there is no ambiguity in the matter before us, still we have to conclude that the services provided by the Applicant have a specific mention under Entry No.67 to the Notification  12/2017-Central Tax (Rate)  and corresponding notification under MPGST Act, 2017, and therefore, there is no good reason to take shelter of a general entry (entry no.66) just to bring the Executive Post Graduate Programme under the ambit of exemption.

You must have read all this in these columns in What they don't teach you in Management Schools: Why again? Well, a recent Ruling (dated 2 nd November 2018) of the Kolkata AAR reported as - 2018-TIOL-242-AAR-GST requires one to revisit this issue.

In this case, the IIM, Calcutta was before the West Bengal AAR with the questions:

(i)  After the introduction of the IIM Act w.e.f 31/01/2018 (hereinafter referred to as "the IIM Act, 2017"), whether or not the Applicant should be considered an "Educational Institution"

(ii)  If the Applicant is eligible for Exemption under Entry No. 66(a) of the Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017 (hereinafter referred to as "the Exemption Notification"), and from which date it should be effective.

The learned Authority held, "The Applicant is an "Educational Institution" within the meaning of sub-clause (ii) of clause 2(y) of the Exemption Notification in terms of the IIM Act. Exemption under Entry no. 66(a) is applicable to such educational institutions as such, especially as the law mentions that the qualifications awarded are to be "recognised by any law for the time being in force". As Entry No. 67 specifically concerns IIMs, courses mentioned therein, will be eligible for Exemption under the specific entry, even if not mentioned elsewhere under any law for the time being in course … The court, including the apex court, settles that if benefits under more than one provision are lawfully available, the assessee can enjoy the provision more beneficial to him. "

So, the Calcutta IIM is exempted while the Indore IIM is not (for certain courses).

While on the subject, there is also another decision delivered by the AAR, Karnataka in the matter of application filed by IIM, Bangalore and which was delivered on October 25, 2018, reported as - 2018-TIOL-259-AAR-GST.

In this case, the AAR, Karnataka held -

"…Therefore insofar as educational services provided by Indian Institutes of Management are concerned, the provisions contained in Serial no. 67 alone shall apply. The constitution of the Notification does not allow selective application of Serial no. 67 in respect of educational programmes like (a) two year full time Post Graduate Programmes in management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT) conducted by the Indian Institute of Management; (b) fellow programme in Management; (c) five year integrated programme in Management and application of Serial number 66 for the rest of the educational programmes. In conclusion, we are of the opinion that when notification number 12/2017 provides for a specific entry for the Indian Institutes of Management at serial no. 67, the provisions of serial number 66 shall not apply to them."

Nothing wrong; we have different Benches of the High Courts/Tribunals holding contradictory views. But what is the Government doing? Can't they give a clarification? Maybe they are waiting for the case to reach the Supreme Court and perhaps then the Supreme Court verdict can be retrospectively reversed.

Cost of One Lakh Rupees imposed on Service Tax Commissioner: A Commissioner (Appeals) feels that he is not obliged to follow the decisions of the CESTAT and that his views prevail over those of the Tribunal. The assessee approaches the High Court and the Department defends the Commissioner in the High Court stating "there were no new facts which necessitated going through the rigmarole or formality of hearing and is nothing but time wasting tactics being adopted by the petitioner"

The High Court was not amused and observed, - 2018-TIOL-2304-HC-KAR-ST

Firstly, in the impugned order, the first appellate authority throwing to the winds, the principles of judicial discipline and binding order passed by higher appellate forum, not only reiterated his own stand, which were set aside by the Tribunal but the same is sought to be defended by the Department with the aforesaid words quoted above. The total callous, negligent and disrespectful behaviour shown by the Departmental authorities in this Court should not be tolerated at all. It is this kind of lack of judicial discipline which if it goes unpunished, will lead to more litigation and chaos and such public servants are actually a threat to the society.

The High Court imposed a cost of one lakh rupees on the Commissioner to be deposited by him from his personal funds.

The whole country will benefit if the tax officers are slightly inclined towards LAW instead of blindly confirming demands. We don't need such super brilliant officers just to realise tax illegally. Before bringing in GST, all the officers should have been trained to realise that tax-payers are not adversaries and that tax collection is not a war against enemies and the principle, 'Be you ever so high, the law is above you'.

Also see similar orders reported as - 2018-TIOL-2037-HC-KAR-CT & - 2018-TIOL-2117-HC-KAR-CX.

GST Lottery - Gambling? The other day, a very knowledgeable GST officer asked me, "Lottery, betting and gambling are some of the items that fall under actionable claims. However, these are goods as per goods definition under Section 2(52) of CGST Act. But it seems Customs Tariff Act, 1975 which is basis for determination of classification of goods for GST taxation purpose, doesn't have an entry. It seems the lottery, betting and gambling are classified as services with SAC codes."

He was not simply asking an innocent question, but raising serious doubts.

Some facts:

-  Section 2(52) of the CGST Act defines goods as: "goods" means every kind of movable property other than money and securities but includes actionable claim , growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

-  As per item 6 of the III Schedule to the CGST Act, Actionable claims, other than lottery, betting and gambling are activities or transactions which shall be treated neither as a supply of goods nor a supply of services.

-  Notification 1/2017-Central Tax (Rate) notifying the rate of CGST for goods has included lottery at Sl. No. 228 of Schedule III and Sl. No. 242 of Schedule II, but in both these places, there is no tariff item, which is shown as a dash (-).

-  The above notification clarifies that "Tariff item", "sub-heading" "heading" and "Chapter" shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

-  Notification No. 11/2017-Central Tax (Rate) notifying the rate of services has "Gambling" as item No. 34 (v).

- Lottery services figures under service code 999694, making it a service. Similarly, Gambling and betting services fall under the service code 999692.

Perhaps, the Government was not sure whether lottery was goods or service or both, but they were determined to tax it. Board was aware of this problem more than a year ago when it was brought to its notice that that due to discrepancy in code allotted, i.e., lottery is defined as goods but code allotted for lottery is under services, the assessees are not able to upload return or deposit tax in time.

The Board in Circular No. 06/06/2017-CGST, dated 27th August, 2017 clarified,

It should be noted that the process of filing return is linked with rate of tax specified for supply. Further, there is complete clarity about rate of tax on lotteries. As mentioned above, in GST, lottery is goods and the classification indicated in relevant notification for lottery is "-", which means any chapter.

That being so, it is clarified that the classification for lottery in respective CGST, IGST, UTGST and SGST notifications shall be 'Any Chapter' of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and tax on lottery should be paid accordingly at prescribed rates, 12% or 28%, as the case may be.

When I tried to explain all this to the GST officer, he was visibly bored, as you are now, and told me, "My only doubt was why service codes were given to some items falling under actionable items." That only God and perhaps Board can answer.

Recent Lottery Judgements: Recently the Calcutta High Court decided on these issues: - 2018-TIOL-2882-HC-KOL-GST

In a recent judgement delivered on the 2 nd of this month, the Bombay High Court held that lottery is gambling. - 2018-TIOL-2393-HC-MUM-MISC

Whether it is gambling or betting, goods or service, the moot point is, it is taxable. Don't you think GST is very simple?