No Service Tax Payable On Education Services By Way Of Pre-School Education And Education Up To Higher Secondary School: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on education services by way of preschool education and education up to higher secondary school.

The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that the hostel service and education services are naturally bundled in the ordinary course of business, and it is the education service that gives the essential character to such a bundle. Education services by way of preschool education and education up to higher secondary school or equivalent are enumerated in the negative list of services enumerated in Section 66D of the Finance Act.

The appellant/assessee is a society registered under the Societies Registration Act, of 1860. It runs a boarding school called Mody School, located at Laxmangarh in Sikar, Rajasthan, for girls from third to twelfth standard. The school is affiliated with the Central Board of Secondary Education. It has accreditation from the National Accreditation Board for Education and Training. The school is also affiliated with the International Baccalaureate of Geneva, Switzerland, for the IB Diploma Program for Classes XI and XII.

The appellant, with respect to the boarding school, receives hostel fees from the students in addition to the tuition fee and other charges. A small portion of the students are day scholars who do not opt for the hostel facility, and thus, no hostel fees are collected from such day scholars.

The appellant rented out a building to M/s. Mody University of Science and Technology has received rent for the period 2014–15. The appellant has also provided transportation services to its students and staff. The appellant has also received goods transport agency services.

An investigation was initiated against the appellant, and it was observed that the appellant had failed to pay service tax in respect of various services provided/received by it.

A show cause notice dated September 20, 2016, was, therefore, issued to the appellant, proposing a demand for service tax of Rs. 02,02,01,879 with interest and penalties.

The appellant contended that hostel services are naturally bundled with education services, which are covered under Section 66D(l) of the Finance Act. As the two services, i.e., hostel services and education services, are naturally bundled in the ordinary course of business in accordance with the provisions of Section 66F(3)(a) of the Finance Act, the essential character of this bundle is education services, which are covered under Section 66D(1) of the Finance Act.

The department contended that the hostel service is a distinct service provided by the appellant and is not bundled together with education services. The appellant is not covered under Section 66D(m) of the Finance Act.

The tribunal noted that Section 66D of the Finance Act provides for the negative list of services and it includes service by way of pre-school education and education up to higher secondary school or equivalent. Thus, education services would be covered within the purview of the negative list contained in Section 66D of the Finance Act. It would, therefore, not be taxable.

Case Title: Mody Education Foundation Versus Commissioner of Central Excise

Case No.: Service Tax Appeal No. 50636 Of 2017

Date: 15.05.2023

Counsel For Appellant: B.L. Narasimhan and Poorvi Asati

Counsel For Respondent: Harsh Vardhan

Click Here To Read The Order