FEBRUARY 18, 2011

University Education: Service tax concern

Mahesh Jaising and Prashanth Bhat

EDUCATION services fall within the purview of exempt services under VAT/ GST regime in many countries. It is not difficult to fathom as to why this sector is protected / supported across the world. It is the backbone upon which countries hope to build their economies in an inclusive manner and India has been a stand out example of this theory.

In India , as well, University education is outside the purview of service tax. Or atleast this appears to be the intention from the way the law is drafted.

i. As per Section 65(105)(zzc) of the Finance Act, 1994, taxable service in relation to “commercial training or coaching” means “ any service provided or to be provided to any person, by a commercial training or coaching centre in relation to commercial training or coaching” . “Commercial Training or Coaching” is defined to mean “any training or coaching provided by a commercial training or coaching centre”.

ii. “Commercial training or coaching centre” is defined under section 65(27) of the Act to mean “any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include pre-school coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force.”

Hence, University / Deemed University get excluded from the definition of Commercial Training or Coaching Centre, as it is an institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force (b y virtue of the powers granted under section 22 of the UGC Act). It may be important to note that this exclusion operates at the University/Deemed University level and not at the course level.

Now the issue that has been plaguing the education sector in the last year is that the department in several cases have started service tax investigation on Universities and Deemed universities (typically set-up as trusts) trying to analyse what courses / degrees / diplomas are recognised by law in India and what courses cannot, in their view, be said to be so recognised.

While Universities/Deemed Universities are set-up as trusts, the fact remains that they do not get covered within the primary definition of CTC which specifically does not include any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force.

The following circulars issued by the CBEC clearly clarify/ support this position:

i. Relevant extracts of Circular 107/2009 dated January 20, 2009

“3.2 The system of statutory recognition of educational establishments or institutions in India is still in the state of evolution. As regards university education, University Grants Commission (UGC) is the apex regulating body. As per the objects of the University Grants Commission Act, 1956 (which established UGC) the said Act is 'to make provision for the co-ordination and determination of standards in Universities and for that purpose, to establish a University Grants Commission'

As per the definition, in terms of Section 2(f) of the Act, a University means a University established or incorporated by or under a Central Act, a Provincial Act or a State Act, and includes any such institution as may, in consultation with the University concerned, be recognized by the Commission in accordance with the regulations made in this behalf under this Act. . Therefore, all universities which are a creature of a State or Union Act fall within this definition of 'University'.

Further, Section 3 of the Act, explains the scope of a 'deemed university' and defines that the Central Government may, on the advice of the Commission, declare by notification in the Official Gazette, that any institution for higher education, other than a University, shall be deemed to be a University for the purposes of this Act, and on such a declaration being made, all the provisions of this Act shall apply to such institution as if it were a University within the meaning of clause (f) of section 2.

Also, UGC, with the approval of Central Government and under the Recognition of College in Terms of Regulations, 1974 framed under the UGC Act, can grant recognition to a college or institution run by a trust, a registered society or a body corporate or body incorporated under Central or state Act as an institution affiliated to or form as constituent member with a university , providing education up to a bachelors degree, masters degree or diploma of a duration of minimum one academic year

As per National Policy on Education, 1986, a scheme of autonomous colleges was promoted. In the autonomous colleges, whereas the degree continues to be awarded by the university, the name of college is also included. These colleges develop and submit new courses of study for approval by the university. These autonomous colleges are fully responsible for the conduct of examination.

As all these institutions or establishment are either created or recognized in terms of the power conferred by statutes, they would fall in the category of institutes/ establishments which issues diploma or certificate recognized by the law for the time being in force (and thus get excluded from the definition of CTC) . As regards issuance of degree, section 22(1) of the said Act, provides for right of conferring or granting degrees only by a 'university' (as defined above) or a 'deemed university' (as defined above)”.

ii. Relevant extracts of Circular 59/8/2003 dated June 20, 2003 (as applicable at the time of introduction of service tax levy on CTC services)

2.2.3 Certain doubts have been raised in case of commercial coaching and training. In this regard, the following is clarified,-

++ Whether service tax is leviable on institutes providing commercial coaching in addition to recognized degree courses:

Some institutes like colleges, apart from imparting education for obtaining recognized degrees/diploma/certificates, also impart training for competitive examinations, various entrance tests etc.

It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by law, are outside the purview of "commercial training or coaching institute" . Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.

It is clear that University / Deemed University are outside the purview of service tax. Consequently all the courses offered by these institutes, whether degree is issued or not and whether the department views them to be recognised in India or otherwise, would be outside the purview of service tax.

Given the above, the exercise undertaken by the Department of trying to analyse what courses / degrees / diplomas are recognised by law in India and what courses cannot, in their view, be said to be so recognised is futile and results in a lot of wasteful consumption of time and resources, both at the Department's side and of the Universities. It will be timely if the Board can issue a specific clarification / instruction which clarifies/ reiterates the legal issue on this matter.

(The authors are Chartered Accountants and are associated with BMR Advisors. The views above are personal)