Implementation of project againt grants-in aid

This query is : Resolved

pkkapoor (Querist)
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08 November 2008 In case of an Educational Institute, registered for service tax purposes, executes different educational programmes from the financial support (90%) of a Ministry of Government of India and students (10%).

Funds are received by the Ministry under grants-in-aid, and individual projects are approved based on the detailed proposal with budget submitted by the Educational Institute.

After the Registration, first proposal has now been submitted and Ministry on examinatioin has stated that service tax cannot be paid as financial support is given by the Ministry from Grants in aid and it is not a commercial transaction.
Educational Institute has stated that since it is payable by receipient of service and that it is collected for payment to Concerned Service tax authority of the GOvernment of India.

Query 1- Whether service tax is recoverable under these circumstances, if yes,
(a) whether justification of Educational Institute is sufficient.
(b)If not, what more arguments can be given so that the Ministry agrees to pay serivce tax

Query 2- If service tax is not recoverable under these circumstances, Why it should not be recovered under which section of Service tax Rules.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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10 November 2008 It depends entirely upon the the terms of agreement. If the agreement is silent about taxes and duties, the person granting can take a stand it is not reimbursable.