Hiring those whiz kids from IITs and IIMs is set to turn costlier. The government is planning to tap the placement services offered by management and engineering institutes under the ambit of service tax.
The indirect tax department has instructed its field formations to conduct surveys and gather data about the fees the institutions charge for the placement services. The survey will zero in on how many such institutes charge placement fees and whether they were paying service tax on it. Sources told that the survey will give them a fair idea of the quantum of the tax. The move follows an appeal won by IIM Bangalore against the imposition of the tax.
The issue had come to light after IIM Ahmedabad and IIM-B were issued show-cause notices in March this year by the service tax department. Both the IIMs had strongly disputed the claim and contested the notices. While the commissioner appeals in Bangalore had rejected the demand raised by the department, the notice to IIM-A is yet to be adjudicated upon.
The manpower recruitment service was brought under the service tax net in Budget 06. Subsequently in Budget 07, government substituted commercial concern with any other person with regard to taxation of 17 services and it came into effect from May 1, 06. This was basically aimed at expanding the scope of service providers. The claims raised by the department were for the last fiscal. Turning down the appeals, the Commissioner (appeals) had ruled that the institute (IIM-B) was not a commercial concern.
The CBEC is also examining the possibility of issuing a circular to clarify the issue, after examining in detail the data collected though the survey, sources said. IIMs and other such institutes pay service tax to the department for the management or other consultancy service provided by them. But they were not paying the tax on the recruitment fee.
Multinational recruiters pay about $5,000 per student to IIM-A while local companies pay a fixed fee depending on the day their recruitment is slotted, plus a charge per student. The fee ranges from Rs 40,000 to Rs 1.75 lakh, meaning that a company slotted for the first day (popularly called day zero), would pay a higher fee. Besides, there is Rs 50,000 charge per student. The fees differ among the IIMs.