Background
The list of services which are exempted under GST is enumerated in Notification 12/2017-CT(Rate). The relevant exemption entry, applicable to the education sector are portrayed below; We would examine the relevant extracted portions in this article.
Entry no. 66 of notification 12/2017-CT(R): Services provided by:
a. by an educational institution to its students, faculty and staff;
aa. by an educational institution by way of conduct of entrance examination against consideration in the form of entrance fee;…..
The term “educational institution” is defined in the aforesaid notification [Clause 2(y)] and it means an institution providing services by way of:
- pre-school education and education up to higher secondary school or equivalent;
- education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
- education as a part of an approved vocational education course;
The aforesaid exemption (i.e., Entry no. 66) is applicable only for the ‘Educational Institutions’, which are satisfying the definition of the same as provided under Clause 2(y) of the Notification 12/2017-CT(Rate). The exemption is available to services by schools imparting education upto 10+2, education as part of curriculum to get qualification recognized under law in force.
As mentioned above, the qualification should be ‘recognized by any law’. The term ‘recognized by law’ was discussed in the case of Indian Institute of Aircraft Engineering Vs UOI 2013-TIOL-430-HC-Del-ST wherein it was held that “The expression 'recognized by law' is a very wide one. The legislature has not used the expression "conferred by law" or "conferred by statute". Thus, even if the certificate/ degree /diploma/qualification is not the product of a statute but has approval of some kind in 'law', would be exempt.”
Degrees given by Universities created under Central/State Acts, deemed universities, recognised professional courses such as under All Indian Council of Technical Education [AICTE]/Medical Council of India is Exempted education which is leading to qualification recognised under law. [Can refer circular 107/1/2009 since exemption was given in erstwhile ST law-positive list based service tax law- to education leading to qualification recognized in law].
Further approved vocational education courses means-
(i)a course run by an industrial training institute[ITI] or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 or
(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship; are also covered as exempted education.
It is also significant that when there is unconditional exemption, it is mandatory to claim it[explanation to Section 11].
We can also recall in the case of the Government of Kerala Vs. Mother Superior Adoration Convent, 2021 SCC Online SC 151, the Honorable Supreme Court held that an exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting economic growth or otherwise has some beneficial reason behind it. Education has been exempted from GST as it is a priority for the Government.
Thereby in light of entry 66 of the exemption notification, whether it can be said that this entry covers only the services provided to students/faculties or covers all activities by exempted educational institutions to be exempt under GST?
At this juncture it would be relevant to recall the concept of composite supply under GST. Composite supply as defined in Sec 2(30) of CGST Act, 2017 means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or in any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
Section 2(90) "principal supply" means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
Bundled service’ means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.
Under section 8(a) of GST law, composite supply is to be treated based on main supply.
In this article, the paperwriter has examined as to whether GST exemption is also applicable for all the various other supplies/services provided by education institution.
Whether the exemption is available only to the education services or also covers all other supplies by education institution?
Collection towards services: The various collections for services, made by the institutions imparting exempted education, from students are tuition fees, application fees, registration fees, convocation fees, development fees, lab fees, NSS fees, test fees, placement and training fees, student project fees, various certificate fees, fines, library fees, exam processing fees, breakage fees, transportation fees, digital class fees, sports fees, mega fair fees, workshop fees, medical fitness fees, e-journals and various other fees.
All kinds of services including placement and training services supplied by exempted educational institution to its students would be exempt under GST vide entry no. 66(a) of Notification no. 12/2017- CT(R) and hence all the above fees collected would be exempt from GST.
When exempted education institutions are also engaged in other ancillary activities such as renting of premises to banks/post offices, renting of space to canteen vendors, renting premises to photo copy service provider. In paperwriter opinion, all these services are incidental to the education services, and directly beneficial to the students, staff and faculty of the institution. Also these activities are dependent upon the education services which are clearly exempted from tax.
When the ancillary activities are incidental to the exempted education and do not have its independent existence, the said activities would be treated based on principal supply of education, and also exempted from GST. This is as per the concept of composite supply u/s 2(30) r/w Section 2( 90) r/w section 8(a).
In Mohit Minerals case, [2022 (61) G.S.T.L. 257 (S.C.)] SC as discussed in Para 143 which provides for "The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of introducing ‘composite supply’ was to ensure that various elements of a transaction are not dissected, and the levy is imposed on the bundle of supplies altogether. This finds specific mention in the illustration provided under Section 2(30) of CGST Act, where the principal supply is that of goods.
Held in the case of Madurai Kamaraj University Vs JT. Commr. of GST & C. EX Madurai [2021 (54) G.S.T.L. 385 (Mad.)].
Services such as renting of immovable property for the purpose of bank, post office, canteen etc. are all allied services of education which are also included in the purview of educational services, in view of clause 9, which has given an expanded meaning of educational services which includes the services to be provided not only to the students, but also faculty and staff. Therefore, demand made for levying service tax on the services provided by the petitioner institution under the heading renting of immovable property, cannot be sustained. [para 24] + Petitioner educational institution i.e., the university cannot be assessed for demanding any service tax for the services of education provided by them, which includes affiliation or other services provided for the students, faculty as well as the staff of the university. Impugned order does not stand legal scrutiny
The aforesaid judgement is also relied upon by the Hon’ble Madras High Court in the case of M/s Tamil Nadu Dr MGR Medical University Versus PR. Additional Director General, Directorate General Of Gst, Intelligence, Chennai Zonal Unit [2022 (64) G.S.T.L.475 (Mad.)], the extract of Para 16 of the judgement is as follows;
Therefore, the services rendered by the petitioner Universities by way of affiliation and allied activities including the conduct of examinations, awarding of degrees, diplomas, etc., and also the income they derived from rent paid by the third parties like Postal Department, Banks, etc., and also to run Canteen for the purpose of Students and Staff, were considered to be allied services attached with the educational activities undertaken by the Universities and therefore they are also exempted.
Similarly held by Hon’ble Karnataka High Court in the case of M/s Rajiv Gandhi University of Health Sciences vs Principal Additional Director General, Directorate General Of Gst Intelligence, Bengaluru Zonal Unit [2022 (64) G.S.T.L.465 (Kar.)] in the Para 14, the extract of the same is as follows;
It is not in dispute that petitioner has let out some of its buildings for canteen, Bank and other facilities which are essential for effective running of an University in furtherance to imparting education and the said activity has to be considered as an activity incidental to provide services of education and it is a service naturally bundled in the ordinary course of business as contemplated in the aforementioned Clause (3) of Section 66F of the Act and the rent received also deserves to be exempted once the activity of providing education by the petitioner-Institution is exempted from service tax.
Though the above decisions were in context of the erstwhile service tax law, these have pursuasive value, since there were similar exemptions therein [like what has been given in notification 12/2017-CT(R) to education services].
Way ahead and conclusion
There is exemption given to specified vendors who supply services such as transport of students/faculty staff, catering including mid day meal sponsored by Central/State Govt/UT, house keeping, security. These are exempted only when supplied to education institution imparting pre-school/ education upto 10+2.
Another exemption is given to the vendor services related to the admission to/conduct of exam by exempted education institution.
Also there is exemption to supply of online education journals or periodicals. This applies only when the exempted education provided by institution leads to qualification recognised by law.
At same time, there has been no blanket specific GST exemptions given to all activities which are supplied by education institutions providing exempted education.
Due to the lack of clarity it leads to demands of tax and consequent increase in costs associated with education, which becomes a burden for the economically backward sections.
In this backdrop the options available to the exempted educations are as under:
When the education institution is not registered under GST:
Can take position that since it is imparting exempted education, all other ancillary supplies also would be exempted, as it is composite supply wherein main supply is exempted education.
When such a position taken, then suggest to intimate jurisdictional officer by RPAD letter, sent to official mail id of concerned officer as well, setting out nature of activities done with reasons[citing decisions as well where held that services allied to education not be taxed] why not liable and seek confirmation of understanding, to ensure no demands made with interest and penalty at future date citing suppression with intent to evade taxes.
When exempted education institution already registered under GST:
When conservative view taken-Can continue to discharge GST on the supplies [other than services/supplies given to students/faculties] such as sale of scrap/old furniture, renting of premises to canteen vendors.
The corresponding ITC can be availed.
Alternately take call to stop paying GST under intimation to dept jurisdictional range officer, why not required to pay tax, seek confirmation of understanding with reasons, to ensure no sustainable demands are done with penalty, citing suppression with intent to evade taxes at future date.
For any queries mail [email protected]