By TIOL News Service:

NEW DELHI, MAY 11, 2016: APPLICANT proposes to enter into a Partnering Agreement with Choice Foundation, a society registered under Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 to combine their mutual areas of expertise for the setting up and operation of an educational institution at Thiruvalla in Kerala. As per said Agreement, applicant would be responsible for the entire infrastructural requirement of the educational institution while Choice Foundation would be responsible for the entire academic aspect and related requirements of the educational institution.

The agreement is for a term of thirty years and it has been agreed between the Parties that any revenue generated from the project, during the term, will be shared by the parties in the ratio agreed.

Applicant submits that they along-with Choice Foundation are partnering together to providing education services up to Higher Secondary School, which is a service mentioned in the Negative List under Section 66D(1) of the Finance Act, 1994; that the service falls within the Negative List, therefore, the revenue share relating to such service taken by both the applicant and Choice Foundation, is also not liable to Service Tax.

Applicant further submits that service recipient in the present case is the student and service providers are the applicant and Choice Foundation jointly; that no service is provided inter-se between the applicant and Choice Foundation; that construction of building by the applicant and its maintenance are in the nature of self service, thus not liable to Service Tax.

Applicant has raised following questions –

•  Whether Service Tax is applicable on the revenue share relating to the Applicant?

•  Whether Service Tax is applicable on the revenue share relating to Choice Foundation?

•  Whether Service Tax is applicable on the fees collected from the students?

•  If answer to any of the above questions is yes, then whether the applicable Service Tax can be recovered from the student?

The Revenue representative submitted that the activity is chargeable to Service Tax.

The AAR extracted the ‘Partnering Agreement' and observed thus -

++ Preamble to the "partnering Agreement" inter-alia reveal that both parties have agreed to partner to combine their mutual expertise for the setting up and operation of an educational institution. Therefore, partnering of applicant with Choice Foundation ("partnering person") would come under the ambit of "person" as defined under Section 65B (37) (VII) of the Finance Act, 1994, which includes an association of persons or body of individuals, whether incorporated or not. Applicant is a company and would fall under the definition of person as also Choice Foundation being a Society under Section 65 B(37)(iii) and 65B(37) (IV) of the Finance Act, 1994 respectively. Applicant, Choice Foundation and "partnering person" are all 3 separate persons. Therefore, service provided by the applicant (a person) to "partnering person" (another person) for consideration will be a service.

++ It is clear from Section 66D (l) of the Finance Act, 1994 that service provided by way of pre-school education and education up-to higher secondary school or equivalent is not liable to Service Tax being in the Negative List. Therefore, service provided by the "partnering person" would come under the Negative List and would not be liable to Service Tax.

On the submission of the Revenue that there are three areas wherein Service Tax is leviable viz.

a) Construction of Civil Structure

b) Renting of immoveable property

c) Construction of Civil Structure would entail services of architect, engineer etc., the Authority gave the following findings;

Construction of Civil Structure

Section 66 E(b) of the Finance Act, 1994 clearly envisages that construction of civil structure etc., shall be a declared service and thus liable to Service Tax provided it is intended for sale to a buyer. Further, construction of civil structure etc. even if intended for sale would not be declared service, where the entire consideration is received after issuance of completion certificate. In the case before us, civil structure is not intended for sale and furtherno amount shall be received by the applicant before issuance of completion certificate by the competent authority. Therefore, we agree with the applicant that the construction of complex etc., in this case will not come under the ambit of declared service and not be liable to Service Tax.

Renting of Immovable Property

The applicant, Choice Foundation and "partnering person", are all 3 separate persons under Section 65B(37) of the Finance Act, 1994. Therefore, service of providing of renting of immoveable property by applicant to "partnering person" will not be "self service". The consideration for renting said property would be received as per the "Revenue Share" clause in the said Agreement. Therefore, renting of immoveable property would be liable to Service Tax.

Construction of Civil Structure would entail Services of Architect, Engineer etc.

As architects, engineers etc., would be providing service to the applicant, in construction of building for consideration, the same would be liable to Service Tax . Further, service of maintenance and other infrastructural services rendered by the applicant (person) to "partnering person" (another person) would be liable to Service Tax unless same is exempted or in the Negative List.

Ruling:

a) Service Tax is applicable on the revenue share relating to the applicant to the extent it is relatable to rendering of taxable service.

b) Service Tax is applicable on the revenue share relating to Choice Foundation to the extent it is relatable to rendering of taxable service.

c) Service Tax is not leviable on the fees collected from the students to the extent it is covered under the Negative List in terms of Section 66D (l) of the Finance Act, 1994.

d) Service Tax is payable by a person providing taxable service in terms of Section 68(1) of the Finance Act, 1994. Therefore, in this case, Service Tax will not be payable by the students, as they are not providing any service.

In passing: After closure of matter on 01.04.2016, applicant in written submissions dated 12.04.2016 raised new issue regarding students getting bundled education service comprising of both academics and infrastructure. This issue was not considered by the Authority on the ground that it was raised only after closure of the matter.

(See 2016-TIOL-12-ARA-ST)