F.No137/23/2007- CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
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New Delhi, dated 28th January 2009
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Various educational institutions impart training and conduct courses in
different fields. Many of these institutions issue certificates/
degrees/diplomas to the candidates upon their successfully completing such
courses. Apart from government run or aided institutes imparting education,
training or coaching, there are several private run institutes or centers,
which impart education/ training/ coaching, teach skills, help in preparing
for competitive examinations or run classes on various subjects. Service tax
is leviable on services provided by 'commercial training and coaching
centers', since the year 2003. Over a period of time, certain doubts
/disputes have arisen in the field in respect of the chargeability of
service tax on the fees/ charges collected by such institutes and education
centers. Some of such issues have been discussed below.
2. COMMERCIAL NATURE OF INSTITUTE
The first issue arises from the very name i.e.* Commercial** training or
coaching center'*. Many service providers argue that the word
'*commercial'*appearing in the aforementioned phrase, suggests that to
fall under this
definition, the establishment or the institute must be *commercial (i.e.
having profit motive) *in nature. It is argued that institutes which are run
by charitable trusts or on no-profit basis would not fall within the phrase
*commercial training or coaching center *and none of their activities would
fall under the taxable service. This argument is clearly erroneous. As the
phrase *'commercial training or coaching center* 'has been defined in a
statute, there is no scope to add or delete words while interpreting the
same. The definition *commercial training or coaching center *has no mention
that such institute must have 'commercial' (i.e. profit making) intent or
motive. Therefore, there is no reason to give a restricted meaning to the
phrase. Secondly, service tax, unlike direct taxes, is chargeable on the
gross amount received towards the service charges, irrespective of whether
the venture is 'profit making, loss making or charity oriented' in its
motive or its outcome. 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 fulfills the
requirements of definition, are leviable to service tax. *
3. POST SCHOOL EDUCATION
3.1 Determination of taxability of education, other than school
education is more complex and poses more questions. This is because, it
covers an entire gamut of educational courses, such as formal higher
education (i.e. bachelors, masters, doctoral, post doctoral course),
specialized education, vocational education, language (including foreign
language) courses etc. These vary in terms of their content; purpose; scope;
and the type of institutes or establishments, which impart them.
3.2 The system of statutory recognition of educational establishments or
institutions in India is still in the state of evolution. As regards
university education, University Grants Commission (UGC) is the apex
regulating body. As per the objects of the University Grants Commission Act,
1956 (which established UGC) the said Act is 'to make provision for the
co-ordination and determination of standards in Universities and for that
purpose, to establish a University Grants Commission'.
·
As per the definition, in terms of Section 2(f) of the Act, a
University means a University established or incorporated by or under a
Central Act, a Provincial Act or a State Act, and includes any such
institution as may, in consultation with the University concerned, be
recognized by the Commission in accordance with the regulations made in this
behalf under this Act. . Therefore, all universities which are a creature of
a State or Union Act fall within this definition of 'University'.
· Further, Section 3 of the Act, explains the scope of a
'deemed university' and defines that the Central Government may, on the
advice of the Commission, declare by notification in the Official Gazette,
that any institution for higher education, other than a University, shall be
deemed to be a University for the purposes of this Act, and on such a
declaration being made, all the provisions of this Act shall apply to such
institution as if it were a University within the meaning of clause (f) of
section 2.
· Also, UGC, with the approval of Central Government and
under the Recognition of College in Terms of Regulations, 1974 framed under
the UGC Act, can grant recognition to a college or institution run by a
trust, a registered society or a body corporate or body incorporated under
Central or state Act as an institution *affiliated to or form as constituent
member with a university*, providing education up to a bachelors degree,
masters degree or diploma of a duration of minimum one academic year
· As per National Policy on Education, 1986, a scheme of
autonomous colleges was promoted. In the autonomous colleges, whereas the
degree continues to be awarded by the university, the name of college is
also included. These colleges develop and submit new courses of study for
approval by the university. These autonomous colleges are fully responsible
for the conduct of examination.
As all these institutions or establishment are either created or recognized
in terms of the power conferred by statutes, they would fall in the category
of institutes/ establishments which issues diploma or certificate *recognized
by the law for the time being in force.* As regards issuance of degree,
section 22(1) of the said Act, provides for right of conferring or granting
degrees only by a 'university' (as defined above) or a 'deemed university'
(as defined above).
3.3 In addition, for recognition of professional courses, promotion of
professional institutions and providing grants to various programmes, a
number of 'professional councils (Such as All India Council for Technical
Education-AICTE, Medical Council of India-MCI, Indian Council for
Agricultural Research-ICAR, Bar Council of India-BCI) have been created
through independent Union Acts. Since, *inter alia* these councils are
entrusted with ensuring norms and standards of the courses, physical and
instructional facilities, undertaking assessment etc., they have also been
provided with powers to make subordinate legislations (i.e. through
notifications, circulars, rules) that the institutions or the establishments
within their ambit must abide. In case of default, the councils have the
power to derecognize an institution or establishment or a particular course
being conducted by them, even if they are recognized as a university, a
deemed university or an affiliated college. If an institution or
establishment is derecognized, then such institution or establishment cannot
be called to be an institute or establishment which issues any certificate
or diploma or degree or any educational qualification recognized by the law
for the time being in force. With the result, the courses conducted would
fall under the ambit of 'commercial training or coaching centers' and would
be charged to tax. It may however, be noted that for exercising such power,
there should be a valid rule / notification / circular, prescribing the
minimum requirements or standards as also the consequences of default.
3.4 All India Council for Technical Education-AICTE, was started in 1945
with the objectives stated above. Based on the recommendations of a
'National Working Group' (constituted by the Government of India) that AICTE
be vested with the necessary statutory authority, it was given legislative
support through an Act, called the AICTE Act, 1987. AICTE, using the powers
conferred on it through 1987 Act, issued the 'AICTE (Grant of Approval for
Starting New Technical Institutions, Introduction of Courses or Programme
and Approval), Regulation 1994. Theses were amended in the years 1997 and
2000. Under Regulation 4 (Requirement of Grant of approval) of these
Regulations, AICTE prescribed that,-
"After the commencement of these regulations, -
a. No new Technical Institution or University Technical
Department shall be started; or
b. No course or programme shall be introduced by any
Technical Institution, University including a Deemed University or
University Department or Collage; or
c. No Technical Institution, University or Deemed
University or University Department or College shall continue to admit
students for Degree or Diploma course; or
d. No approved intake capacity of seats shall be increased
or varied;
Except with the approval of the council.
The powers to issue regulations for approval are conferred on AICTE under
Section 23 read with Section 10 of the AICTE Act.
3.5 In 2003, when service tax was first imposed on commercial training
and coaching centers, the AICTE regulations required that for (a) starting
or establishing new technical institutions; (b) introduction of additional
programmes; or (c) increase in 'intake' in the existing programmes of AICTE
approved institutions, a 'no objection certificate' from the concerned State
government /UT would be required (notification F.37-3/Legal (iii)/2002 dated
10.09.2003). This notification does not prescribe any certification for
existing institutes or establishments, which did not introduce any
additional programme or did not increase in 'intake' in an existing
programme. Thus, at that stage, not having a AICTE approval for such
existing institution or establishment did not make them ineligible for being
an institute or establishment which issues any certificate or diploma or
degree or any educational qualification recognized by the law for the time
being in force.* *Thus, if otherwise recognized or accepted, this sole
reason of absence of AICTE approval did not cause such institutions or
establishments to be within the service tax net. On 6.01.2005, vide
notification No. F.37-3/Legal/ 2004, the previous AICTE Regulations was
replaced by new Regulations. These Regulations expanded the scope and stated
(Regulation No. 5) that no new technical institution of the Government,
Government Aided or Private institution shall be introduced; no new courses
or programs in technical education shall be introduced or no variation of
intake shall be effected or* no existing technical institution of the
Government, Government Aided or Private institution shall conduct any
technical course *without prior approval of the council. The Regulation No.
7 of these Regulations also stated that the council shall, in every year
publish the names of approved technical institutions, conducting course in
technical education, the course and programs approved by the council and the
number of seats permitted for each course etc. These Regulations were again
superseded by another set of Regulations issued vide Not. No. F-37-3/Legal/
2004 dated 28.11.2005, where the requirement of grant of approval by AICTE
was further elaborated to specifically include universities, deemed
universities and any admission authority etc. Vide notification No.
F-2-1/2006 U.3 (A) dated 5.04.2006 the Central Government issued
clarification regarding the role and the powers of AICTE and UGC with
respect to 'Deemed to be University'. From the above it emerges that from
the year 2005 onwards, a technical institution or establishment (which is
otherwise recognized being a university, or affiliate college) not having
AICTE approval cannot be called to be the one issuing any certificate or
diploma or degree or any educational qualification recognized by the law for
the time being in force and thus be within the ambit of service tax. However
'Deemed to be University' have been exempt from this requirement. As per the
said notification for the institutes 'Deemed to be University', it is not a
pre-requisite to obtain the approval of AICTE to start any programme in
technical or management education leading to an award, including degrees in
disciplines covered under the AICTE Act, 1987. However, such institutes are
required to ensure the maintenance of the minimum standards prescribed by
the AICTE for various courses under the jurisdiction of the said council.
3.6 Similar would be the situation in case of other Statutory Councils.
3.7 A related issue is, that since the concept of recognition of an
educational qualification in India has been dynamic in nature (i.e. the
degree/ diploma/ certificate an institute or establishment may be recognized
by the law at one time and not recognized at other, due to change in legal
provisions) the taxability of the courses conducted would depend on the
legal status of such institute or establishment at the point of time when
such service is provided (i.e. course is conducted). It cannot be said that
once recognized an institute or establishment would remain so even in future
or was so in the past.
3.8 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.
4. VOCATIONAL TRAINING INSTITUTE
The vocational training institutes are exempted from service tax
vide notification no. 24/2004-ST, dated 10.09.2004 (as amended). By
definition, such institutes should provide training or coaching that imparts
skill to enable the trainee to seek employment or undertake self-employment,
directly after such training or coaching. Disputes have arisen in respect of
institutes that offer general course on improving communication skills,
personality development, how to be effective in group discussions or
personal interviews, general grooming and finishing etc. It is claimed that
such training or coaching improves the job prospects of a candidate and
therefore they are eligible for exemption as 'vocational training
institutes. However, a careful reading of the definition shows that the
exemption is available only to such institutes that impart training to
enable the trainee to seek employment or self-employment. The courses
referred to above do not satisfy this condition because on their own such
courses do not prepare a candidate to take up employment or self-employment
directly after such training or coaching. They only improve the chances of
success for a candidate who already has the required skill. Therefore, such
institutes are not covered under the exemption.
5. CONCLUSION
All pending cases may be disposed of accordingly. In case any
difficulty is faced in implementing these instructions, the same may be
brought to the notice of the undersigned.
(Gautam Bhattacharya)
Commissioner (Service Tax)
CBEC, New Delhi