QUESTIONS & ANSWERS
Service tax on educational institutions
A recent Circular No. 107 dated January 28, 2009, would revise the interpretation of levy of service tax on service provided by commercial training and coaching centres. Exemption was available for pre-school coaching and training centres and those awarding legally recognised certificates/ diploma/ degree or any educational qualification. A further notification exempted vocational training institutes.
It was understood that the word “commercial” cannot possibly cover educational institutions run by charitable trusts or institutions without profit motive. The Circular would now take the view that such an interpretation is “clearly erroneous” on the ground that the status of the service provider is not relevant in interpretation of the entry, because service tax, unlike direct taxes, depends on the nature of the service irrespective of the fact whether it is “profit making, loss making or charity oriented.”
Notification F.No.37-3/Legal/2004 dated January 6, 2005, covered exemption for AICTE approved institutions. Though AICTE approval is not made mandatory thereafter having been replaced by Government approval under the new regulations from January 6, 2005, so that such approved institutions would also merit exemption along with deemed universities. The suggestion, therefore, is that only formal education would merit exemption.
It is also stated in the present Circular that the exemption, once recognised to be eligible, need not be taken to be eligible forever in view of the concept of recognition being “dynamic in nature”. The amounts charged by private institutions will not be treated as recognised by law in force so that such institutions cannot be exempt.
It has been further “clarified” that the entry exempting vocational training institutions from service tax in the Notification No.24/2004-ST dated September 10, 2004, has been amended limiting the exemption. The present Circular now states that a careful reading of the definition shows that courses like improving communication skill, personality development, grooming for interviews and discussions and finishing cannot fall within the meaning of vocational training. Improvement of existing technical skill would also not fall under the same. Various private institutions imparting training or coaching on various subjects would be commercial in nature and cannot avoid tax.
The rigid interpretation of entries to cover even public institutions without profit motive and for courses which are not specifically approved would not sub-serve the initial exemption to limit tax only on commercial training or coaching centres and not to academic or vocational training institutions. In fact, education in whatever form should merit exemption.
Tax Forum can do nothing better than agreeing with the reader in airing his grievance in these columns for consideration of the Central Government and those interested in education. The choice of targets of service tax had been erratic leaving out employment, law and medicine, while making the imparting of education taxable. Distinction between formal and non-formal education is artificial. Non-formal education is availed by relatively weaker sections of the community. The assumption that education provided by non-profit organisation to be commercial in interpreting the entry imposing levy on commercial and coaching centres is against the spirit of the exemption. Such levy of service tax increases the cost of education, while one would expect it to be one of primary concerns of the Government as long as such education, whether formal or informal, academic or vocational, contributes to knowledge and promotes skill.
S. RAJARATNAM
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