The Department of Revenue under the Union Finance Ministry has termed as baseless complaints lodged by private educational institutions across the country of being forced to pay service tax at the rate of 12.36 per cent for provision of auxiliary educational services such as hostels, housekeeping, security services and canteen.

Responding to representations sent by 13 different associations of educational institutions from Madurai, Chennai, Rajasthan, Chandigarh, New Delhi, Thanjavur and Mumbai, the Tax Research Unit (TRU) of the Central Board of Excise & Customs under the Department of Revenue has asked them not to give credence to “rumours or mischievous suggestions.” A circular issued by J.M. Kennedy, Director, TRU, on Thursday states: “All services relating to education are exempt from service tax… The apprehensions conveyed in the representations submitted by certain educational institutions and organisations have no basis whatsoever.” It has been forwarded to Commissioners of Central Excise and Service Tax all over the country.

Asked why the educational institutions had been creating such a hue and cry over the issue for the last few months, M.C. Abilash, secretary of Private Schools Correspondents Confederation Madurai, said: “We did not create any rumours. The issue came to the fore only after the Central Excise Commissioners in every region began issuing notices to individual educational institutions demanding service tax.” The confederation’s president M. Senthilnathan pointed out that education as such remained out of the purview of service tax as it had been included in a negative list under Section 66D of the Finance Act. The Centre issued a notification on June 20, 2012 and exempted from payment of tax even auxiliary educational services and renting of immovable property “to or by” educational institutions.

Usage of the terms “to or by” meant that educational institutions need not pay service tax even if they rent out their immovable properties such as school grounds and auditorium for commercial purposes. Therefore, in order to set right the anomaly, another notification was issued on March 1, 2003 stating that the words “provided to or by” in the earlier notification would be substitute by the words “provided to.”

“This amendment was applicable only to renting of immovable property but Central Excise Commissioners in many parts of the country misunderstood the term to mean that it amounts to imposition of service tax on auxiliary educational services provided by educational institutions. Immediately, notices were issued to schools, colleges and universities demanding payment of tax from April 1, 2013,” Mr. Senthilnathan said.

He pointed out that auxiliary educational services had been defined to mean services relating to imparting any skill, knowledge, education or development of course content or any other knowledge enhancement activity for the students as well as faculty apart from services related to admission to such institution, conduct of examination, catering for the students and transportation of students, faculty or staff. “If tax had been imposed on such auxiliary services, then educational institutions would have had no choice but to shift the burden on the parents who, in turn, would have had to bear an additional burden of shelling out Rs. 3,000 to 4,000 every year. But thanks to joint efforts of one and all, the issue has been settled now,” he said.