Educational institutes like IIMs and IITs have got a bitter-sweet pill on service tax. The Central Board of Excise and Customs (CBEC) have given them a breather from any retrospective tax liability on the placement services they provide to their students, reports Our Bureau.

CBEC, which examined the matter in detail, issued a circular on Wednesday stating that these academic bodies were not liable to pay service tax prior to May 1, 06 under the category of manpower recruitment or supply service.

The definition of the manpower recruitment or supply of service, prior to May 1, 06 was any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to a client.

The department has concluded that these institutes cannot be clubbed as commercial concerns and hence no service tax would apply on them, for the period before May 1, 06. It has now replaced the word commercial concern by substituting it with any person.

The changes were made in the service tax rules that came into effect from May 1, 06. It was meant to expand the scope of service providers. The circular added that for the period after May 1, 06, the decision to charge a service tax or not on these educational bodies, would be taken on a case-to-case basis after taking into account all relevant facts.

The issue came to light after IIM-A 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. The claims raised by the department were for last fiscal.

While IIMs and other such institutes pay service tax to the department for the management or other consultancy service provided by them, they were not paying any service tax on recruitment fees so far.

IIMs get close to $5,000 per student from a multinational recruiter while a domestic company pays a fixed fee depending on the day they are slotted, ranging from Rs 40,000 to Rs 1.80 lakh. The fees differ for different IIMs.