Background
The list of services that are exempt from GST is enumerated in Notification 12/2017-CT(Rate). The relevant exemption entries applicable to the education sector are portrayed below. We will 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;
a. . by an educational institution by way of conducting an entrance examination against consideration in the form of an 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 recognized 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 satisfy 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 up to 10+2, education as part of the curriculum to get qualification recognized under the 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, or qualification is not the product of a statute but has approval of some kind in 'law', it would be exempt."
Degrees given by universities created under Central or State Acts, deemed universities, or recognized professional courses such as those under the All Indian Council of Technical Education [AICTE] or Medical Council of India are eligible education that leads to a qualification recognized under the law. [Can refer to Circular 107/1/2009 since exemption was given in erstwhile ST law-positive list-based service tax law-to education leading to a qualification recognized in law].
Further approved vocational education courses mean:
(i) a course run by an industrial training institute [ITI] or an industrial training center affiliated with 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 an unconditional exemption, it is mandatory to claim it [explanation to Section 11].
We can also recall that 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 an 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.
Therefore, in light of entry 66 of the exemption notification, can it be said that this entry covers only the services provided to students and faculty or covers all activities by exempt educational institutions to be exempt under GST?
At this juncture, it would be relevant to recall the concept of composite supply under GST. A composite supply, as defined in Sec. 2(30) of the 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, that 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 that constitute 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 the GST law, composite supply is to be treated based on main supply.
In this article, the author examines whether the GST exemption is also applicable for all the other supplies and services provided by educational institutions.
Whether the exemption is available only to the education services or also covers all other supplies provided by the 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 an exempt educational institution to its students would be exempt from GST under 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 premises to banks or post offices, renting space to canteen vendors, and renting premises to photocopy service providers. In my 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 on education services, which are clearly exempt from tax.
When the ancillary activities are incidental to the exempted education and do not have independent existence, the said activities would be treated based on the 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 the 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 immovable property for the purpose of a bank, post office, canteen, etc. are all allied services of education that 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 to faculty and staff. Therefore, the demand made for levying a service tax on the services provided by the petitioner institution under the heading renting of immovable property, cannot be sustained. [para 24] + The petitioner educational institution, i.e., the university, cannot be assessed for demanding any service tax for the services of education provided by them, which include affiliation or other services provided for the students, faculty, and staff of the university. An impugned order does not stand legal scrutiny.
The aforesaid judgment is also relied upon by the Hon'ble Madras High Court in the case of M/s Tamil Nadu Dr MGR Medical UniversityVersusPR. 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 judgment 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 third parties like postal departments, banks, etc., and also to run canteens for the purpose of students and staff, were considered to be allied services attached to the educational activities undertaken by the universities, and therefore they are also exempt.
Similarly held by the 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 Paragraph 14, the extract of the same is as follows:
It is not in dispute that the petitioner has let out some of its buildings for the canteen, bank, and other facilities that are essential for the effective running of an university in furtherance of imparting education, and the said activity has of imparting education, and the said activity has to be considered an incidental activity 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 the context of the erstwhile service tax law, these have persuasive 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 an exemption given to specified vendors who supply services such as transport of students and faculty staff, catering, including midday meals sponsored by the Central/State Government/UT, housekeeping, and security. These are exempt only when supplied to an education institution imparting pre-school or education up to 10+2.
Another exemption is given to vendor services related to the admission to or conduct of exams by an exempted education institution.
Also, there is an exemption from the supply of online education journals or periodicals. This applies only when the exempted education provided by the institution leads to a qualification recognized by law.
At the same time, there have been no blanket, specific GST exemptions given to all activities that are supplied by education institutions providing exempt education.
Due to the lack of clarity, it leads to demands on taxes and a 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 are as follows:
When the education institution is not registered under GST
Can take the position that since it is imparting exempted education, all other ancillary supplies would also be exempted, as it is a composite supply wherein the main supply is exempted education.
When such a position is taken, then suggest to the intimate jurisdictional officer by RPAD letter, sent to the official mail ID of the concerned officer as well, setting out the nature of activities done with reasons [citing decisions as well as holding that services allied to education should not be taxed] and seeking confirmation of understanding to ensure no demands made with interest and penalties at a future date, citing suppression with intent to evade taxes.
When an exempted education institution is already registered under GST
When a conservative view is taken, we can continue to discharge GST on supplies [other than services or supplies given to students or faculty], such as the sale of scrap or old furniture and the renting of premises to canteen vendors.
The corresponding ITC can be obtained.
Alternatively, take a call to stop paying GST under intimation to the dept. jurisdictional range officer, explain why you are not required to pay tax, seek confirmation of understanding with reasons, and ensure no sustainable demands are made with penalties, citing suppression with intent to evade taxes at a future date.
The author can also be reached at roopa@hnaindia.com.
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