The economics of education: Govt Mints money taxing educational services

The economics of education: Govt Mints money taxing educational services

22 December, 2010 Ahmedabad :
Education is a matter between the person and the world of knowledge and experience, and has little to do with school or college. However, schools and colleges are the breeding ground for our future generations. Education should be absolutely free from taxes. The government collects huge revenues in the guise of education cess. These funds are meant to be used for the welfare of students and for providing free education to the children of this country. Ironically, the same government has imposed service tax on the coaching and training institutes and the ultimate burden of this tax is passed on to the students.
A fundamental issue emerges that whether, the service provided by a not-for-profit organisation is liable for service tax. Various courts held contrary views and pronounced contrasting decisions. Before any final conclusion can be reached the Finance Act, 2010, has added an explanation in the definition of the taxable service to clarify that the term 'commercial' appearing in the relevant definition, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is retrospective in nature with effect from 01.07.2003.
Constitutional validity of levy of service tax treating parallel college as "commercial training or coaching centre" within the meaning of Section 65(27) was raised in Malappuram Distt. Parallel College Assn. (STO 2005 Ker 122). A parallel college is always privately-owned and in most cases, it is a small scale institution with facilities similar to colleges. Whereas colleges are affiliated to universities, parallel colleges have no such official recognition.
The Kerala high court has struck down the demand of service tax from parallel colleges under commercial coaching and training service" as arbitrary and violative of article 14 of the constitution of India. The high court observed that there is no distinction between the two classes of students namely; the students studying in the colleges affiliated to universities and private students who take coaching in parallel colleges to write the same examinations. The high court further observed that the main reason why many students can't join regular colleges affiliated to universities is economical reasons. Further, on account of limited number of seats available in the affiliated colleges, the less brilliant will have to look for coaching elsewhere and they end up in parallel colleges. In any case, there can be no distinction between students undergoing private study in the parallel colleges and those undergoing course-study in the regular colleges, so long as the curriculum, the examinations written and the degrees obtained by them are one and the same.
Based on the above findings, high court held that "Therefore, levy of service tax for services rendered by parallel colleges which indirectly falls on the students, but by simultaneously providing exemption to regular affiliated colleges allowing the students therein study free of tax is patently discriminatory and violative of Article 14 of the Constitution of India."
Even in Circular No. 59/8/2003-S.T., dated 20.06.2003, the clarification was provided that some institutes like colleges, apart from imparting education for obtaining recognised degrees/ diploma/ certificates, also impart training for competitive examinations, various entrance tests etc. It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognised by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.
Recently similar issue arose before tribunal - Bangalore, in case of 'Tandem Integrated Services' (STO 2010 CESTAT 414). In this case, it was held that the colleges apart from imparting education for obtaining recognised degrees/ diploma /certificates, also impart training for competitive examinations, such institutes or establishments are outside the purview of "commercial training or coaching institute". The benefits, as accorded to the regular colleges which are affiliated to university can't be denied to the appellants. Regular colleges affiliated to university are exempted from paying service tax for imparting training for the competitive examinations and various entrance tests etc., there is no reason for not extending the benefit to of being outside the purview of the service tax under the category of "commercial training or coaching".
Finally, it is held that these educational institutes are not liable to pay service tax, thereby giving a sigh of relief to thousands of students who were ultimately bearing these taxes.