Is a private educational institute conducting various courses liable to Service tax?
This decade has seen a major shift in the education system and parents' inclination to enrol their children in various educational institutions imparting training and conducting courses in different fields has grown. Many of these institutions issue certificates/degrees/diplomas to candidates upon their successfully completing such courses.
It is seen that apart from government-run or aided institutes imparting education, training or coaching, there are several privately-run institutes or centres. which impart education/ training/ coaching, impart skills, help in preparing for competitive examinations or run classes on various subjects.
The cost of education has been on the rise and any additional component of Service tax is being ultimately passed on to the students, which is a burden on their parents. Service tax was introduced on provision of such services under the category of services provided by 'commercial training and coaching centres', in the year 2003.
The very term "commercial" is a misnomer and the Board vide their Circular dated 28.01.2009 issued clarifications on the said subject. It was clarified that as many service providers argue that the word 'commercial' appearing in the aforementioned phrase, suggests that to fall under this definition, the establishment or the institute must be commercial in nature. In other words, the said institute must have profit motive.
It was argued that institutes which are run by charitable trusts or on no-profit basis would not fall within the phrase 'commercial training or coaching centre' and none of their activities would fall under the taxable service.
The Board vide its Circular No. 107/01/2009 dated 28.01.2009 rejected this argument and found it erroneous. The ministry clarified that as the phrase 'commercial training or coaching centre has been defined in a statute, there is no scope to add or delete words while interpreting the same. The definition commercial training or coaching centre has no mention that such institute must have 'commercial' (i.e. profit making) intent or motive and therefore there is no reason to give a restricted meaning to the phrase.
The ministry further clarified that Service tax, unlike direct taxes, is chargeable on the gross amount received towards the service charges, irrespective of whether the venture is 'profit-making, loss-making or charity-oriented' in its motive or its outcome. The word 'commercial' used in the phrase is with reference to the activity of training or coaching and not to the nature or activity of the institute providing the training or coaching. Thus, services provided by all institutes or establishments, which fulfill the requirements of definition, are subject to Service tax.
As per the definition of taxable services under this category, read with Section 65 (27), "commercial training or coaching centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than 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 recognised by law for the time being in force.
Another related issue is, that many a time private institutes conduct courses and issue diplomas or certificates in collaboration with certain foreign institutes universities. In many cases, private enterprises conduct campus interviews of the students of such institutes and offer them jobs. Such certificates/diplomas may be accepted for higher education abroad.
However, as per the clarification issued by the ministry, such a certificate/diploma cannot be called as the one 'recognised by the law for the time being in force' unless such a diploma/ certificate has been specifically recognised by the statutory authorities such as UGC, AICTE. Consequently, such institutes would not fall under the exempted category and would be subjected to Service tax.
With increase in the cost of education and as education is on the top priority of the government, any such tax burden would hamper the motive of quality education and as such it is high time that the government abolished Service tax on such service in the field of education.
.jpg){kind=logo}
