AUGUST 17, 2016

By P G James

IF a person is rendering a paying guest accommodation and also provides food to the resident, can that person be held to be providing the services of Restaurant, when such food providing is only restricted to the paying guest and not to any independent person, who can come at any point of time and enjoy the food facility?

If a hotel provides services of washing and ironing of clothes to its resident guests, can it be called as a laundry or a dry-cleaning service provider?

The answer to both the above propositions would be an emphatic 'NO'.

A similar answer was given by Hon Tribunal of Ahmedabad in the case of Gujarat Chemical Port Terminal Co. Ltd - 2007-TIOL-1898-CESTAT-AHM while setting aside the demand of Service Tax and penalties on the storage and warehousing services provided by a Minor Port. It was held that for taxing the services under the storage and warehousing services, the services must have been provided by a storage and warehouse keeper in that capacity and storage being an integral part of Port service cannot be taxed separately.

Viewed from the above emphatic answer of Hon Tribunal, the moot question now is if a school or educational institution is providing transport facilities for its own students and collecting fees thereof, can the school be called as provider of service of transportation of passengers for the leviability of Service Tax?

Logically and legally, the answer would be another emphatic 'NO' inasmuch as schools are predominantly providing primary and/or secondary higher education and its ancillary services. Provision of pick up and drop facilities for students is inextricably linked to education which is the main service rendered which is exempted from levy of Service Tax as it is covered in the Negative List.

But the master brains in Service Tax Department somewhere conceived the novel idea of raising demand of Service Tax on the bus fees collected from students merely on technical grounds under the pretext of Notification No 3/2013-ST dated 1.03.13 wherein in Entry No 9, for the words "provided to or by", the words "provided to" was substituted. As per Entry No 9 of Mega Exemption Not 25/2012 dated 20.06.2012, services provided to or by an educational institution in respect of auxiliary educational services or renting of immovable property is exempt from the levy of Service Tax.

"Auxiliary Educational Services" is defined as "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.

The above Notification was amended by Notfn. No 3/2013-ST dated 1.03.13 wherein in entry no 9, for the words "provided to or by", the words "provided to" was substituted.

Later in the Budget of 2014-15, presumably to correct the drafting error, Notn No 6/2014-ST dated 11.07.14, was issued wherein services provided by an educational institution to its students, faculty and staff are reinstated for exemption.

The demand of Service Tax on transportation charges collected from students and staff for the period 1.04.2013 to 10.07.2014 merely due to the removal of the word "or by" in the Notification is learnt to be based on instruction from CBEC which mentions that for the period 01.04.2013 to 10.07.2014, the service of transportation provided by educational institutions to students, faculty and staff of such institutions was taxable. On the basis of RTI query, copy of the letter dated 7th January 2016 addressed to all Chief Commissioners by Director of Service Tax, CBEC was obtained wherein it was directed to forward details of Service Tax paid/SCNs, if any, issued to educational institutions in respect of transportation service provided by educational institutions to students, faculty and staff for the period 1.04.2013 to 10.07.14 for necessary action at their end.

Perhaps, the purpose of collecting such details is to enable the Government to come out with a Section 11C notification but it seems that the jurisdictional authorities would first like to issue the SCN as they would not like to miss the bus and then wait for the exemption, if and when it is issued!

Is it the intention of Govt to burden the cost of primary/secondary and higher education by levy of Service Tax and that too on miniscule portion of bus fee? Definitely not, as per the much publicized policy of Govt of India.

The levy and collection of Service Tax for the interim period is absurd and not legally sustainable due to the following reasons:

++ Firstly, provision of bus services to students/staff is ancillary service to education. Lot of ancillary services are involved in the rendition of the main service of education like admission,registration, tuition, counselling, development and training of students and faculties, conduct of examinations, provision of library,laboratory, books, periodicals, computer/internet access etc. These are interlinked to the main service and as per clause (1) of Section 66F of the Finance Act, 1994, reference to a service (i.e., main service) shall not include reference to a service which is used for providing main service. As per sub clause (3) of the said Section also, if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of single service which gives such bundle its essential character. Therefore the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case, since dominant nature is determined by the service of education, the entire bundle would be treated asa service under negative list.

++ In view of the above, inasmuch as the main service is "Education" which is covered under Entry No 9 of Exemption Not No 25/2012, ancillary or subsidiary service involved in the rendition of main service cannot be separated for the levy of Service Tax.

++ Secondly, even after the issuance of Notfn. No 3/2013 dated 1.03.2013, CBEC has issued Circular No 172/7/2013-ST, dated September 19, 2013 clarifying that by virtue of the entry in the  negative list  and of the  exemption notification, it will be clear that all services relating to education are exempt from service tax.

++ Thirdly,Section 66D (l) of the Finance Act, 1994 (at the material time) clearly stated that negative list shall comprise of services by way of pre-school education and education upto higher secondary school or equivalent. Transportation of students being an essential service incidental to pre-school/higher secondary education, there is no rationale to levy tax on the incidental service overlooking the provisions of Section 66D&66F.

++ Fourthly, the intention behind the amendment vide Notfn. No 6/2014-ST was to levy Service Tax on renting of immovable property belonging to an educational institution for commercial purposes which has no direct or indirect relation with providing education facility and intention is not to levy tax on transportation of students which legitimately has direct nexus to education.

Last but not least, when the services provided by a transport operator to a school are exempted from Service Tax, it is illogical to think that same service rendered by school to students is leviable to tax. Such a discrimination or differential treatment is never the intention of law. In this connection, it is pertinent to refer to the decision of Hon High Court of Kerala in Malappuram Dist Parallel College Assn Vs Union of India - 2006-TIOL-35-HC-Ker-ST which held that levy of service tax for services rendered by parallel colleges which indirectly falls on students, but by simultaneously providing exemption to regular affiliated colleges allowing students therein to study free of tax is patently discriminatory and violative of Article 14 of the Constitution of India.

It is essential that the law enforcers of our country should bear in mind the well accepted legal maxim "Lex non curat de minimis" (the law does not care for trifles). How much is the revenue they are going to collect by burdening schools with tax which are ultimately passed on to students? It may not justify even the cost of collection and consequent litigation.

Shri Javadekar the new Education Minister, while assuming his charge, stated that education should be seen as an "emancipator" and "agent of change" and the vision of Govt is to provide quality and meaningful education. Hon Minister should first emancipate schools and students from this hanging sword of unfair levy and should free education from litigation.