TRANSPORT CHARGES RECEIVED BY EDUCATION INSTITUTES - TAXABLE OR NOT?

[Rishi Chanan]

Education sector is one of the most important sectors in the Indian Economy in terms of the quantum of finances involved. Taxation on educational institutions has always been a matter of various issues and disputes. I am summarizing below the provisions under the Service Tax Laws as applicable to Educational Institutions as amended by Finance Bill 2013.

There are 2 types of tax provisions in terms of educational institutions under the service tax laws.

• Services provided BY the Educational Institutions
  • Here educational Institution is Service Provider
• Services provided TO the Educational Institutions
  • Here educational Institution is Service Receiver

There are different provisions for above 2 cases. In this article I will try to summarize the provisions relating to transportation Services Provided by the Educational Institutions.

SERVICES PROVIDED BY THE EDUCATIONAL INSTITUTIONS

Generally an educational institution collects charges and fees under different heads from the students and other persons. Broadly these heads can be illustrated as below.

Admission Fees, Tuition Fees, Prospectus Charges / Admission Form Charges Sale of Books and Uniforms, Examination Fees, Computer Fees, Hostel Fees, Day Boarding Charges, Digital Classroom Fees, Mess/ Canteen Charges, Transportation Charges, Renting of Auditoriums/ Halls, Staff Quarter Charges, Extra Curricular Activities Charges, Picnic Fees / Special Tour Charges, Library Fees

I am examining the applicability of service tax on transportation charges received by educational institutes in respect of transportation by buses of school children and staff under provisions of service tax law.

EDUCATIONAL SERVICES IN THE EXEMPTION LIST

Service Tax notification No. 25/2012 dated 20-06-2012 as amended by Service Tax Notification No. 03/2013 dated 01-03-2013 covers all the exemption available under the Service Tax Provisions. Point numbers. 4, 8, 9, 18, 19, 23 and 35 in said notification covers the exemptions relevant to Educational Institutions in respect of services provided by them. taxmanagementindia.com

I am trying to summarize the exemption available under Point 23 to Educational Institutions as Service Providers under following point:

POINT NO. 23 OF MEGA EXEMPTION NOTIFICATION

Transport of Passengers, With or without accompanied belongings BY

(i) Air embarking from or terminating in an airport located in the state of Arunanchal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or a Bagdogra located in West Bengal. (ii)   A contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or (iii)  Ropeway, cable car or aerial tramway.

 Meaning Of Relevant Terms

“Contract Carriage”

Clause (m) of Definitions part of mega exemption notification defines “Contract Carriage” as “Contract Carriage” has the meaning assigned to it in clause (7) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988)

“Contract Carriage” As per Section 2(7) of Motor Vehicles Act, 1988

Contract Carriage means a motor vehicle which Carries a passenger or passengers for hire or reward and is engaged under a contract, whether express or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any other person authorized by him in this behalf on a fixed or an agreed rate or sum – (a) On a time basis, whether or not with reference to any route or distance; or (b) From one point to another  And in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey and includes (i)   A maxi cab, and (ii)  A motor cab notwithstanding that separate fares are charged for  its passengers;

Important Points

This point covers the educational institutions which are providing transport services to its students or staff, the clause (ii) of point no. 23 of mega exemption notification will be applicable here for exemption.

• Here, it is important to understand the meaning of Contract Carriage. For a vehicle to be classified as a contract carriage, should satisfy all of the following conditions.
  • Vehicle carries passengers under a contract (whether express or implied)
  • There is a pre determined specific list of passengers who use the transportation facility
  • Transportation is fixed between one point to another and can be different for each passenger.
  • Vehicle operator cannot pickup or set down any person other than the list of passengers in the contract.

Generally, the transport facilities provided by educational institutions satisfy all the above conditions and they generally fall into the definition of “Contract Carriage”. Thus by virtue of this point, the transport facility provided by educational institutions to its students and staff will be exempt.

However, there is a fine exception here.

 If we again look at the clause (ii) of point no. 23 of mega exemption notification, there is a exclusion in the point which is highlighted below.

Clause (ii):  A contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;

It means that Contract carriage used for tourism, conducted tour, charter or hire cannot claim the benefit of exemption under this point, and they will have to pay service tax on such receipts.

Regards 

Rishi Chanan, Advocate

098158-28244, 098157-38244

 —————

Disclaimer: The views expressed by author are personal in nature.