Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
New Delhi, dated 28th January 2009
Subject: Levy of service tax on educational institutions- regarding
Various educational institutions impart training and conduct courses in
different fields. Many of these institutions issue certificates/degrees/diplomas
to the candidates upon their successfully completing such courses. Apart from
government run or aided institutes imparting education, training or coaching,
there are several private run institutes or centers, which impart education/
training/ coaching, teach skills, help in preparing for competitive examinations
or run classes on various subjects. Service tax is leviable on services provided
by ‘commercial training and coaching centers’, since the year 2003. Over a
period of time, certain doubts /disputes have arisen in the field in respect of
the chargeability of service tax on the fees/ charges collected by such
institutes and education centers. Some of such issues have been discussed below.
- COMMERCIAL NATURE OF INSTITUTE
The first issue arises from the very name i.e. Commercial training or coaching
center’. 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 (i.e. having profit motive) in
nature. It is argued that institutes which are run by charitable trusts or on
no-profit basis would not fall within the phrase commercial training or coaching
center and none of their activities would fall under the taxable service. This
argument is clearly erroneous. As the phrase ‘commercial training or coaching
center ‘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
center has no mention that such institute must have ‘commercial’ (i.e. profit
making) intent or motive. Therefore, there is no reason to give a restricted
meaning to the phrase. Secondly, 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 fulfills the requirements of
definition, are leviable to service tax.
- POST SCHOOL EDUCATION
3.1 Determination of taxability of education, other than school education is
more complex and poses more questions. This is because, it covers an entire
gamut of educational courses, such as formal higher education (i.e. bachelors,
masters, doctoral, post doctoral course), specialized education, vocational
education, language (including foreign language) courses etc. These vary in
terms of their content; purpose; scope; and the type of institutes or
establishments, which impart them.
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. 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).
3.3 In addition, for recognition of professional courses, promotion of
professional institutions and providing grants to various programmes, a number
of ‘professional councils (Such as All India Council for Technical
Education-AICTE, Medical Council of India-MCI, Indian Council for Agricultural
Research-ICAR, Bar Council of India-BCI) have been created through independent
Union Acts. Since, inter alia these councils are entrusted with ensuring norms
and standards of the courses, physical and instructional facilities, undertaking
assessment etc., they have also been provided with powers to make subordinate
legislations (i.e. through notifications, circulars, rules) that the
institutions or the establishments within their ambit must abide. In case of
default, the councils have the power to derecognize an institution or
establishment or a particular course being conducted by them, even if they are
recognized as a university, a deemed university or an affiliated college. If an
institution or establishment is derecognized, then such institution or
establishment cannot be called to be an institute or establishment which issues
any certificate or diploma or degree or any educational qualification recognized
by the law for the time being in force. With the result, the courses conducted
would fall under the ambit of ‘commercial training or coaching centers’ and
would be charged to tax. It may however, be noted that for exercising such
power, there should be a valid rule / notification / circular, prescribing the
minimum requirements or standards as also the consequences of default.
3.4 All India Council for Technical Education-AICTE, was started in 1945 with
the objectives stated above. Based on the recommendations of a ‘National Working
Group’ (constituted by the Government of India) that AICTE be vested with the
necessary statutory authority, it was given legislative support through an Act,
called the AICTE Act, 1987. AICTE, using the powers conferred on it through 1987
Act, issued the ‘AICTE (Grant of Approval for Starting New Technical
Institutions, Introduction of Courses or Programme and Approval), Regulation
1994. Theses were amended in the years 1997 and 2000. Under Regulation 4
(Requirement of Grant of approval) of these Regulations, AICTE prescribed that,-
“After the commencement of these regulations,-
a. No new Technical Institution or University Technical Department shall be
started; or
b. No course or programme shall be introduced by any Technical Institution,
University including a Deemed University or University Department or Collage; or
c. No Technical Institution, University or Deemed University or University
Department or College shall continue to admit students for Degree or Diploma
course; or
d. No approved intake capacity of seats shall be increased or varied;
Except with the approval of the council.
The powers to issue regulations for approval are conferred on AICTE under
Section 23 read with Section 10 of the AICTE Act.
3.5 In 2003, when service tax was first imposed on commercial training and
coaching centers, the AICTE regulations required that for (a) starting or
establishing new technical institutions; (b) introduction of additional
programmes; or (c) increase in ‘intake’ in the existing programmes of AICTE
approved institutions, a ‘no objection certificate’ from the concerned State
government /UT would be required (notification F.37-3/Legal (iii)/2002 dated
10.09.2003). This notification does not prescribe any certification for existing
institutes or establishments, which did not introduce any additional programme
or did not increase in ‘intake’ in an existing programme. Thus, at that stage,
not having a AICTE approval for such existing institution or establishment did
not make them ineligible for being an institute or establishment which issues
any certificate or diploma or degree or any educational qualification recognized
by the law for the time being in force. Thus, if otherwise recognized or
accepted, this sole reason of absence of AICTE approval did not cause such
institutions or establishments to be within the service tax net. On 6.01.2005,
vide notification No. F.37-3/Legal/2004, the previous AICTE Regulations was
replaced by new Regulations. These Regulations expanded the scope and stated
(Regulation No. 5) that no new technical institution of the Government,
Government Aided or Private institution shall be introduced; no new courses or
programs in technical education shall be introduced or no variation of intake
shall be effected or no existing technical institution of the Government,
Government Aided or Private institution shall conduct any technical course
without prior approval of the council. The Regulation No. 7 of these Regulations
also stated that the council shall, in every year publish the names of approved
technical institutions, conducting course in technical education, the course and
programs approved by the council and the number of seats permitted for each
course etc. These Regulations were again superseded by another set of
Regulations issued vide Not. No. F-37-3/Legal/2004 dated 28.11.2005, where the
requirement of grant of approval by AICTE was further elaborated to specifically
include universities, deemed universities and any admission authority etc. Vide
notification No. F-2-1/2006 U.3 (A) dated 5.04.2006 the Central Government
issued clarification regarding the role and the powers of AICTE and UGC with
respect to ‘Deemed to be University’. From the above it emerges that from the
year 2005 onwards, a technical institution or establishment (which is otherwise
recognized being a university, or affiliate college) not having AICTE approval
cannot be called to be the one issuing any certificate or diploma or degree or
any educational qualification recognized by the law for the time being in force
and thus be within the ambit of service tax. However ‘Deemed to be University’
have been exempt from this requirement. As per the said notification for the
institutes ‘Deemed to be University’, it is not a pre-requisite to obtain the
approval of AICTE to start any programme in technical or management education
leading to an award, including degrees in disciplines covered under the AICTE
Act, 1987. However, such institutes are required to ensure the maintenance of
the minimum standards prescribed by the AICTE for various courses under the
jurisdiction of the said council.
3.6 Similar would be the situation in case of other Statutory Councils.
3.7 A related issue is, that since the concept of recognition of an educational
qualification in India has been dynamic in nature (i.e. the degree/ diploma/
certificate an institute or establishment may be recognized by the law at one
time and not recognized at other, due to change in legal provisions) the
taxability of the courses conducted would depend on the legal status of such
institute or establishment at the point of time when such service is provided
(i.e. course is conducted). It cannot be said that once recognized an institute
or establishment would remain so even in future or was so in the past.
3.8 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, such a certificate / diploma cannot be called
as the one ‘recognized by the law for the time being in force’ unless such a
diploma/ certificate has been specifically recognized by the statutory
authorities such as UGC, AICTE. Consequently, such institutes would not fall
under the exempted category and would be subjected to tax.
- VOCATIONAL TRAINING INSTITUTE
The vocational training institutes are exempted from service tax vide
notification no. 24/2004-ST, dated 10.09.2004 (as amended). By definition, such
institutes should provide training or coaching that imparts skill to enable the
trainee to seek employment or undertake self-employment, directly after such
training or coaching. Disputes have arisen in respect of institutes that offer
general course on improving communication skills, personality development, how
to be effective in group discussions or personal interviews, general grooming
and finishing etc. It is claimed that such training or coaching improves the job
prospects of a candidate and therefore they are eligible for exemption as
‘vocational training institutes. However, a careful reading of the definition
shows that the exemption is available only to such institutes that impart
training to enable the trainee to seek employment or self-employment. The
courses referred to above do not satisfy this condition because on their own
such courses do not prepare a candidate to take up employment or self-employment
directly after such training or coaching. They only improve the chances of
success for a candidate who already has the required skill. Therefore, such
institutes are not covered under the exemption.
- CONCLUSION
All pending cases may be disposed of accordingly. In case any difficulty is
faced in implementing these instructions, the same may be brought to the notice
of the undersigned.
(Gautam Bhattacharya)
Commissioner (Service Tax)
CBEC, New Delhi
F.No137/23/2007-CX.4
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