GST exempt on services provided by applicant to schools/education organizations in relation to ASSET examination

Brief summary of the case

Court: IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Number: R/SPECIAL CIVIL APPLICATION NO. 16476 of 2021
Petitioner:Educational Initiatives Pvt. Ltd.
Respondent: Union of India
Date of decision: 18/02/2022
Judges: Mr. Justice J.B Pardiwala and Ms Justice Nisha M.Thakore

Facts

1. The company supplies customized software called ASSET (Assessment of Scholastic Skill Through Educational Testing) which is an examination tool for educational assessment of students and mainly intended to be used by the K-12 (class 3 to 10) education segment.
2. It also prepares question papers and evaluates answers on behalf of school in this software.
3. The exams are conducted by schools on their premises or online.

GAAR held

1. The Petitioner approached the Gujarat Authority of Advance Ruling (GAAR) seeking a declaration of exemption from GST for its ASSET services for schools and cited the Centre’s notification No.12/2017-Central Tax (Rate) dated 28th June 2017.
2. GAAR accepted its contention and declared that exemption is available for providing ASSET services to educational intuitions.

GAAAR held

1. Appellate authority (GAAAR) pass order against the GAAR ruling of exemption from GST.
2. The examination is actually conducted by the company (Educational Initiatives Pvt. Ltd) and not by schools, and the company pays 10% administrative cost to schools
3. ASSET conducted by M/s. Educational Initiative Private Limited is not covered within Entry at Sr. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended and hence not exempted from payment of Goods and Services Tax.

Petitioner’s argument in High Court

1. The term ‘education’ has not been defined. The Supreme Court, in the case of Sole Trustee, Loka Shikshana Trust vs. CIT, (1976) 1 SCC 254: AIR 1976 SC 10, has explained the term ‘education’ as a process of training and developing knowledge, skill, mind and character of students by formal schooling.
2. GST flyer 40 dated 1.01.2018 was issued for explaining taxability of education sector where the issue of taxability of auxiliary services procured by educational institutions was clarified as under:
   1. “Education is fundamental to the nation building process. Right to Education is now a fundamental right of every child in India.
   2. GST Law recognizes this and provides exemption to educational institutions, providing education up to higher secondary school or equivalent, from the levy of GST.
   3. Auxiliary services received by such educational institutions for the purpose of education up to Higher Secondary level is also exempt from GST.
   4. The Government has a constitutional obligation to provide free and compulsory elementary education to every child. Thus, to promote education, it would be beneficial if educational services are exempted from tax
3. The petitioner has also placed reliance on the various decision of AAR likes West Bengal AAR in case of Ashok Kumar Basu; Gujarat AAR in case of M/s.Edutest Solutions Pvt. Ltd., Karnataka AAR in case of The Bangalore Printing and Publishing that the supply of printing question paper is eligible for exemption under Sr. No. 66(b)(iv) of Noti. No. 12/2017-CT (Rate) dated 28.06.2017,
4. The petitioner has also contended that ASSET is conducted by the schools by using their infrastructure and the applicant merely provides the question papers and test materials, only based on their internal policy makes ASSET a part of their examination evaluation system.
5. The interpretation placed by the appellate authority (GAAAR) while passing the impugned order completely defeat the intent of the Government to provide exemption to schools providing education upto the higher secondary to keep them free from the GST while availing various services, as education itself has been kept out of the GST, (Flyer) and the schools will not be in a position to avail the input tax credit too.
6. The Petitioner is justified in submitting that the GAAAR misdirected itself while formulating the question, whether the ASSET could be said to be conducted by the schools or otherwise without going into the question whether the ASSET is ‘examination’ or ‘assessment’.
7. CBIC Circular No.151/07/2021-GST dated 17.06.2021, in para 4

“GST is also exempt on input services relating to admission to, or conduct of examination, such as online testing service, result publication, printing of notification for examination, admit card and questions papers etc., when provided to such Boards.” [under S. No.66(b)(iv) of notification No. 12/2017-CT(R)]

Respondent’s argument

1. The words “relating to” used in sub-clause (iv) of clause (b) of Sl. No.66 of the Notification No.12/2017 cannot be interpreted in a manner so as to enlarge the scope of the said entry to include the ASSET within its scope.
2. The physical infrastructure of the schools is used to conduct various examinations, however, such usage of physical infrastructure of schools cannot be the basis to determine who conducts examination.
3. Even the Central and State Educational Boards which conduct Standard X and XII examinations (prepares and get printed question papers, gets the answer sheet evaluated and declares the results) use the infrastructure of various schools. However, in such cases also, the examinations are said to be conducted by the Central and State Educational Boards, and not by the schools.
4. Respondent has also made a reference to a ‘Flyer’ issued by CBIC. In the said ‘Flyer’, it has been inter-alia mentioned as follows –
   1. Taxing the Education Sector has always been a sensitive issue.
   2. The distinction between core and ancillary education is blurring and education is now an organized industry with huge revenues.
   3. The GST Act tries to maintain a fine balance whereby core educational services provided and received by educational institutions are exempt and other services are sought to be taxed at the standard rate of 18%.”

Court observation

1. Indisputably, the question papers are set by the writ-applicant (Educational Initiatives) and the answers given by the students are assessed by the writ-applicant and the result of the ASSET is also prepared by the writ-applicant. The basic nature of the ASSET service is an examination to be conducted by the Educational Institution (School) but outsourced to the Educational Initiatives (EI). The observations made by the AAR in para 21.1 of its order clinches.
2. It is now well-settled that even in tax statutes, an exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting education or otherwise has some beneficial reason behind it.
3. The exemption notification should be given a literal meaning. The recourse to other principles or canons of interpretation of statute should be resorted to only in the event the same give rise to anomaly or absurdity.
4. There need not be any further debate on the question, whether the services provided by the petitioner (Educational Initiatives) to the schools, which are educational institutions, fall within the meaning of the aforesaid notifications.
5. The services, definitely, in our view, fall within the two notifications.

Judgment

1. The impugned order passed by the Gujarat Appellate Authority for Advance Ruling is not sustainable in law.
2. The impugned order passed by the Gujarat Appellate Authority for Advance Ruling dated 7th September 2021 is quashed and set-aside.
3. The examination services are part of education and are hence duly exempted by the government from being taxed under the GST regime.
4. The government cannot levy goods and services tax (GST) on services provided to educational institutions for conducting exams as “examination is an essential component of education”.

In the result, this writ-application succeeds and is hereby allowed.

Educational Initiatives Pvt. Ltd. Vs UOI GST Case