GST leviable on Private Coaching Institutes imparting education to CA, CS, CMA etc

The Kerala Appellate Authority for Advance Ruling ('the KAAAR') in matter of M/s Logic Management Training Institutes Pvt. Ltd. [Order No. AAAR/13/21 dated May 05, 2021] upholds the Order No. KER/76/2019 dated May 20, 2021, ('Impugned Order') passed by Authority for Advance Ruling ('the AAR') holding that the private coaching institutions (the assessee) imparting education to students facilitating them to obtain qualification like CA,CS, CMA etc., are not covered under the definition of ‘educational institution’ in para 2(y) of the Services Exemption Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017 ('Services Exemption Notification') and hence not eligible to exemption under the Central Good and Services Act ('the CGST Act').

Facts

The petition is filed by the M/s Logic Management Training Institutes Pvt. Ltd. ('the Petitioner') against the Impugned Order passed by the AAR ('the Respondent') challenging the legality, correctness and propriety of the Impugned Order. The Petitioner is an institute imparting coaching to the students to facilitate them to obtain qualification such as Chartered Accountant ('CA'), Company Secretary ('CS'), Certified Management Accountant ('CMA') etc.

The Petitioner is providing educational services based on the curriculum published by the recognized institutions and prescribed by law and is, therefore, eligible for exemption from Goods and Services Tax ('GST') as per Sl. No. 66 of Service Exemption Notification. The Petitioner further contends that since principal supply is exempted from GST, the other services that are ancillary to the same are also exempted from GST.

Issues

1. Whether the education programme and training being offered by the Petitioner is exempted as per the Service Exemption Notification to a limited class of students of the Government recognized institutes and universities ('Govt. Institutions') or all the students studying directly or indirectly in these Govt. Institutions since the Petitioner is giving lecture classes and notes including printed books published by Govt. Institutions and universities based on the specific syllabus (curriculum) published by these Govt. Institutions?
2. Whether nature of service imparting by the Petitioner should be classified under the Service Accounting Code ('SAC') 9992-999293 as commercial training and coaching services?
3. Whether there should be any tax liability under the CGST Act as work of an agent by the Petitioner for collecting and transferring examination fees and other fees of the recognized institutes and universities on behalf of students studying in the Petitioner’s institute?
4. Whether there is any tax liability on the hostel fees of less than Rs 200/- per day per person including food and at a monthly rate of maximum Rs 6000/- from its own students?
5. Whether there is any tax liability on the Petitioner for selling textbooks to its students as the books are covered under exempted goods?

Held

The Hon’ble KAAAR of Kerala in Order No. AAAR/13/21 dated May 05, 2021, held as under:

• Observed that, the Petitioner is not qualified to be classified as an ‘educational institution’ within the meaning assigned and covered vide para 2(y)(ii) of Service Exemption Notification. Opined that by the applying the settled law of strict interpretation of taxing statute, the coaching or training service provided by the Petitioner to the students is not the service provided by means of ‘education as a part of curriculum prescribed for obtaining a qualification recognized by law for the time being in force’ as envisaged under Entry 66 of the Service Exemption Notification for exemption from GST. The coaching/training imparted by the Petitioner to CA/CMA aspiring students (for appearing and qualifying in the respective examinations) would not lead to grant of certificate/qualification recognized by law. Instead, all the aspirants are required to take a separate set of examinations conducted by the said recognized institutions like ICAI, ICWA etc., for acquiring certificate or degree recognized by law. The training/coaching imparted by the Petitioner might be helping the aspirants to clear the test/examinations organized by the recognized institutions but not per se lead to grant of any certificate or degree as such recognized by law.

SAC of the services rendered by the Petitioner

Held that, as per the scheme of classification of services under GST Law, SAC 999293 Specifies about commercial training and coaching services. This SAC includes any training or coaching provided by any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports with or without issuance of a certificate and includes coaching or tutorial classes. Thereby the services rendered by the Petitioner can rightly be classified under the SAC 999293.

Whether there is any GST liability on the Petitioner for collecting and transferring examinations fees and other fees to the recognized institutes or universities on behalf of the students study at their institute?

Held that, As per the provisions of Section 15 of the Central Goods and Services Act, 2017('the CGST Act'), the entire consideration received by the Petitioner from the recipient of services is taxable under the GST Act. However, if the conditions prescribed in Rule 33 of the CGST Rules, 2017 ('the CGST Rules') are satisfied and the Petitioner acts as a pure agent on behalf of the students enrolled with them, there will be no tax liability for the amount collected as examination fees/other fees. Accordingly, such amount can be excluded from the value of taxable supply as expenditure incurred by the Petitioner as a pure agent of the recipient of services.

Tax liability on Hostel Fees – the Petitioner offers hostel facility to its students at a rate of less than ₹ 200/- per day per person including food and at a monthly rate of maximum ₹ 6000/- -

Held that, the Petitioner is mainly and principally engaged in imparting training/coaching to their students and thereby providing educational services, which is classifiable under SAC 9992-999293. The student who opts to take coaching from the Petitioner stays in the Petitioner’s hostel and pay hostel fees @ less than ₹ 200 per day or maximum ₹ 6000/- per month, in addition to the course charges as a package The Petitioner is charging different rates from their students and outside persons to differentiate between the two categories of residents. The students enrolled with the Petitioner are presumably charged lesser amount of hostel fees as a part of the package with educational services. In such a situation, when the Petitioner are distinguishing the two types of residents for charging different hostel fees for the same lodging and food services, it’s inferred that the Petitioner’s students enjoy the concession only as a part of composite services of educational services and hostel facility. Accordingly, held that the hostel facility is being provided by the Petitioner to enrolled students as a part of composite services along with educational service, the entire set of service shall be classified under SAC 9992-999293 – Commercial training and coaching services, being principal service and shall be charged to GST accordingly. The claim of the Petitioner regarding benefit of Service Exemption Notification for hostel fees is also devoid of merit in view of the fact that exemption is granted to the services falling under Sl. No. 14 – heading 9963 only and not for heading 9992 as is applicable in present case.

Tax liability on the Petitioner for selling text books to its students 

Held that, the Petitioner admitted that the supply of text book to students are at different lower rate than that of outside persons. Hence, the supply of books or printed material relating to the course opted for the Petitioner shall have to be treated as part of composite services along with educational services, being the principal service, as is held in case of hostel fees charged from the students. Consequently, the supply of books shall also be charged to rate of the GST Act as applicable to educational service under SAC 9992-999293-Commercial Training and coaching services.

Upholds the Impugned order passed by the AAR.

Relevant Provisions

Section 100(1) of the GST Act

'Appeal to Appellate Authority. 

(1) The concerned officer, the jurisdictional officer or an applicant aggrieved by any advance ruling pronounced under sub-section (4) of section 98, may appeal to the Appellate Authority.'

Entry No. 66 with HSN 9992 of the Service Exemption Notification:

'Services provided-

(a) By an educational institution to its student, faculty and staff;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mi-day meals scheme sponsored by the Central Government, State Government or Union territory;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution; upto higher secondary;

(v) supply of online educational journals or periodicals:

Provided that nothing contained in [sub-items (i), (ii) and (iii) of item (b)] shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent:

Provided further that nothing contained n sub-item (v) of item (b) shall apply to an institution providing services by way of,-

1. Pre-school education and education up to higher secondary or equivalent; or
2. Education as a part of an approved vocational education course.'

Para 2(y) of the Service Exemption Notification

'Educational Institution means an institution providing services by way of:

(i) Pre-school education and education up to higher secondary school or equivalent;

(ii) Education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;

(iii) Education as a part of an approved vocational education course.'

Section 15(2) of the CGST Act

'Value of taxable supply:

15(2) The value of supply shall include

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation. For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.'

Rule 33 of the CGST Rules

'33. Value of supply of services in case of pure agent-

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression 'pure agent' means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.'

Section 2(30) of the CGST Act

'(30) 'composite supply' 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 any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.'

Section 8 of the CGST Act

'Tax liability on composite and mixed supplies. 

8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.'