Service Tax on Educational Institutions – CBEC v CESTAT – Tribunal thrown over BOARD
It is strange that while the Board is kind to the builders, it is harsh to educational institutions.
In a detailed and lengthy clarification, Board has held that
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 fulfils the requirements of definition, are leviable to service tax.
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.
The CESTAT, Chennai and Bangalore Benches in several decisions had emphatically held that charitable organisations were not commercial coaching centres.
Obviously, the Board does not agree. But when the Board does not agree with the CESTAT order, what they should do is to appeal to the higher judicial forum. But Board with utter contempt for judicial discipline has chosen to give a circular over-ruling the CESTAT decisions.
Any circular of the Board against a CESTAT decision is simply not valid. Then why this exercise of issuing circulars which are meant to be struck down?
Maybe the lawyers, who must be losing several cases because of the Board's beneficial circular for the builders, must be compensated and so they are offered tons of cases through this circular.
In any case IS IT FAIR FOR A GOVERNMENT TO TAX EDUCATION?
In Malappuram District Parallel College Association case - [] the Kerala High Court observed,
“Of course, article 41 also provides that the State shall within its economic capacity and development make effective provision for securing the right to work to education and to public assistance in cases of unemployment, old age, etc. There is certainly force in the contention of the petitioners that even if the State is not able to finance higher education as required under the Directive Principles of State Policy under article 41 of the Constitution, it should not deny and discourage opportunities for education by adding cost to it in the form of tax on education which will certainly disable the economically weaker sections from pursuing higher studies . Addl. Solicitor General of India appearing for the respondents submitted that so many educational institutions are mushrooming and education is carried on as business. Therefore, according to him, there is no illegality or even impropriety in levying tax on such educational institutions. I am unable to appreciate this apprehension of the Government because this malady has to be corrected only by levying income-tax on the institutions and not by licensing the institutions to collect service-tax from students. In fact section 10(22) of the IT Act which granted blanket income-tax exemption for educational institutions is now deleted and exemption is provided with moderation in section 10(23C) of the said Act. Of course, section 11 of the IT Act which provides cover to large number of tax evaders under the guise of charity will continue to protect educational institutions as charity includes education also. If education is run on business lines, then solution is to amend section 11 and other relevant provisions of the IT Act withdrawing the exemptions to institutions and Government can simultaneously provide financial aid to beneficiaries which will put an end to misuse of income-tax provisions. Therefore I do not think the levy of service-tax on students will serve the purpose of disciplining those who make business out of education. Tax on education, particularly when the incidence of tax is passed on to the beneficiaries, that is, the students, is a regressive legislation and has to be condemned, more so, when large number of poor people seek salvation through education and employment.
The students in these so called commercial coaching centres are the less fortunate among the student community who could not exploit State-subsidised education and if these commercial coaching centres are fleecing the students, it is unfair, unjust and unsocial for the State also to join to extract its pound of flesh.
If Government cannot finance education, the least it should do is to avoid taxing it.
See also our Guest Column today
CBEC Circular No. 107/01/2009 – ST Dated: 28th January 2009