Transport services by educaitonal institutions

[CA Akash Phophalia]

Transport Services Provided by

Educational Institution – Always exempted

PHASE I

With effect from 1^st July 2012, there has been a sea change in the Service Tax Law. Every service has been made taxable unless mentioned in the Negative List or Mega Exemption Notification. Thus, prima facie any service provided by an Educational Institution (providing education exempted from service tax) has been made taxable. However, entry no 23 of Mega Exemption Notification provides as :-

“9. Services provided to or by educational institution in respect of education exempted from service tax, by way of –

1. auxiliary educational services, or
2. renting of immovable property.”

Thus with effect from 1^st July 2012 any service provided by the above mentioned educational institution is exempted from service tax.

However, vide notification no 03/2013 dated 01.03.2013 such entry is modified to exempt only services provided to educational institutions. The modification of such entry has made certain services provided by educational institutions taxable under Service Tax and it was apprehended that transportation services provided by educational institutions to its students or staff or faculty is taxable. But if we refer other entries of exemption notification then a sigh of relief can be gained under the Entry No 23 of Mega Exemption Notification 25/2012 dated 20.06.2012 specifies as under :

“ 23. Transport of passengers, with or without accompanied belongings, by –

(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;”

Where, Contract carriage has been defined in clause (m) of Mega Exemption Notification as “contract carriage has the meaning assigned to it in clause (7) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988)

Meaning of contract carriage under Motor Vehicles Act 1988 is as under

“contract carriage means a motor vehicle which carries passenger or passengers on hire or reward and is engaged under a contract, whether expressed or implied, for 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 person authorized by him in this behalf on a fixed or an agreed rate or sum-

1. on a time basis, whether or not with reference to any route or distance ; or
2. 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 –

1. maxicab; and
2. a motorcar notwithstanding the separate fares are charged for its passengers;

Thus, it transportation services provided by above stated educational institutions fulfill all the following conditions then such service is not chargeable to service tax.

1. It should be a motor vehicle.
2. Carries passengers on hire or reward.
3. It should wholly be used for carriage of passengers mentioned therein.
4. The agreement is with the holder of a permit in relation to such vehicle.
5. The contract is at fixed or agreed rate of fixed or agreed sum.
6. The contract is on time basis or destination basis.
7. It does not pick up or set down passengers not included in the contract.

However, if such educational institution provides services of tourism to its students through its motor vehicles then such exemption is not available. Further holding of permit of contract carriage is must for claiming exemption. Although basic exemption limit of ₹ 10 lacs is always available.

Now with effect from 11^th July 2014 vide Notification No 06/2014, further amendment has been introduced in the entry 9 as

“ 9. Services provided,-

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational institution;’

This amendment has put an end to all the confusion laid above and now any service provided by an educational institution to its students, faculty and staff is exempted. It includes transportation services and other services also.

Thus, it can be concluded that transport services provided by the educational institution to its students, staff and faculty was never taxable subject to some conditions.

CA Akash Phophalia

9799569294

[email protected]