Ever since details of the GST act started being interpreted by “experts”, I and most of our colleagues in the industry have been left wondering on the lack of similarity in their opinions. I am familiar with the Australian version of GST and find the Indian version only similar in name.
Education Counsellors and the agencies operate in differing formats. While some charge students for their services, the others are retained by Universities overseas to represent them in India and act on their behalf. When the students are charged for the services either counselling or coaching, the recipient of service is the student and thus there is no ambiguity pertaining to the applicability of GST (Goods and Services Tax).
India has exempted education or services for education but this is not applicable for institutions beyond the Higher Secondary level.
It is when the recipient of the service is Universities located overseas and the services delivered by the agencies is paid for solely by them from overseas in forex, that the need for detailed expert opinions arises. This is also where it is difficult to levy the GST on the Universities overseas.
Unfortunately, there remains a divided opinion even amongst the experts. This is not unusual in India and it will take either a court ruling or further clarification from the department over the coming months/years for the confusion to be removed. (I wonder why do we have to make things so complicated as it is such complications that leads to tax avoidance and corruption).
There are experts who believe that the services are exempted from GST as they are “export of services” while there are others who believe that it is not, as Place of Service Provision criteria for it being an export is not being met and the services may actually be of “intermediary”, thus GST will be applicable. I present both the arguments here:
Expert Opinion 1:
Services rendered to “overseas Universities” by their contracted representatives will not require the representatives to add GST on their invoices:
India has also exempted “export of services” and this is precisely where the expert opinions contradict. The question being whether the services rendered by the representatives of overseas Universities in India will be considered as “export of services”.
To qualify for the service as “export of services”, it will need to meet certain definite criteria. They are:
- the supplier of service is located in India,
- the recipient of service is located outside India,
- the place of supply of service is outside India,
- the payment for such service has been received by the supplier of service in convertible foreign exchange, and
- the supplier of service and recipient of service are not merely establishments of a distinct person in accordance with explanation 1 of section 5;
It is quite clear that barring the criteria for Place of Supply (POS), the others are being met. For the POS condition, there is a general rule in the act: Section 13(2) of The IGST Act, 2017 which provides the General Rule for determination of Place of Supply of Service as the Location of Service Recipient.
This states that:
… the location of supplier or location of recipient is located outside of India, the POS (Place of Supply) shall be the location of the recipient of the services.
Thus, the expert opinion concludes that the services being rendered by contracted education agencies to the Universities overseas can qualify as “export of service” and thus the GST may not be levied on the Universities located overseas.
Expert Opinion 2:
This opinion rebuts to the above indicating that the GST is applicable.
There are experts who point out the contradiction in the act and give reference to Section 13(2)(b) of the same act which states that the POS shall be the Place where the Service is actually performed if the services are supplied to an individual, represented either as the recipient of the service or a person acting on behalf of the recipient which requires the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of service. This is where the ambiguity creeps in and contradicts the General Rule. In the case of education agencies, the service may be interpreted as being performed “in India”.
It is these contrary views which opine that the agencies working for the Universities in India are “intermediaries” or “brokers” and thus the GST is applicable.
So, what is the way forward:
First and foremost, till we have further clarity, we have to assume that the GST is to be levied on the Universities overseas by the representatives in India. Knowing India, the desired clarity will take months, if not years.
Some questions linger:
- How to raise the GST compliant invoice when the recipient of the service will not have the GSTIN as the Universities are in non-taxable region. This confirms that the relationship is not going to be B2B but will be B2C with the University being the customer who is located overseas. So should we conclude the service as an export?
- Several Overseas Universities have started paying for the services automatically using the various accounting systems at their end. There are growing numbers who don’t require even an invoice anymore. How to levy GST on them?
- If indeed levied, it is an ‘Indian GST’ which is not really a ‘GST’ for the recipient located overseas. It is more like additional expense which they can’t account for in their own GST returns as per their local laws and accounted for as per the accounting system overseas. GST paid and GST received need to be under the same accounting system for it to be accounted.
- If the Universities are not able to pay this component, where does the supplier find resources to cover for it? By the very principle, the GST is to paid by the final recipient of the service and in this case the recipient is in non-taxable circumstance.
- Universities and Governments treat the dollar earned from international students as “export earnings” while the payment to agencies for their service as “expenses to facilitate this export… thus import”. Thus, when this is interpreted from the aspect of the contracted education agency in India, the earnings from the Universities should be “export of services”?
- 18% is a significant incidence on the P/L of the agencies and the contracted Universities should accommodate the recommendation of bodies such as AAERI and pay the additional expense that will be levied on the raised invoices.
In the medium term, only a further clarification from the Indian tax authorities, an advance ruling or a court ruling will settle the confusion. My personal desire is that the regulations be simplified and the ‘general rule’ listed in the act be the guide on this matter. If experts are interpreting it differently, how can compliance be assured.
The only clause that leads experts to not consider the service as an “export” is the one pertaining to Place of Service as detailed above. If the department issues one small clarification and reaffirms the “General Rule” over other contradictions, the matter will be resolved conclusively.
Every Education Consultants operations differ, a few also get recruitment fee from overseas education institute and also charge the student, the tax is applicable in such cases.
There is no ambiguity that if the payment to the agency is being made from India and in INR, the GST will apply on that payment…
Very good blog Ravi. It’s comprehensive and deals with the current volatile syndrome of GST rolled out by the Govr on 1st July. Ur views and advise should be taken seriously and the institutions should adhere to it. The advance ruling is the way forward and also the tax authorities should come out openly to clearly what exactly the tax implies to our industry and settle the issue once for all. Until then the ambiguity will remain !! This is imperative and the most pragmatic way. !!
The filing for an advance ruling too will take time and thus the situation of confusion will prevail for sometime. Interpretations will differ too. 18% is huge, possibly the highest on services anywhere in the world. I would urge any inputs on the matter be mentioned in the comments so that all parties are in total sync…
My view is that
A. agents have an agreement with the universities not having permanent establishments in India
B. The agents don’t have any agreement with students as such
C. Agents provides services to students who want to go to a university in a Foriegn land
Which the student can go ahead on its own too
D. So agents in one way are the onshore rep
Of Foriegn Uni and thus don’t charge even to students for that services, they might charge for other services like visa processing etc
E. However agents are acting onshore on behalf of Uni and paid for thier services by the uni only
F. So these services when income comes from abroad should be treated as deemed exports of services and must be GST exempt
Further to my previous comment
Is really agents are paid for counselling the students? Definitely not…
No , they are paid against the tuition fee paid by the student and point of accrual of commission is receipt of fee from the students
You have a very valid point…
Very informative blog Ravi. I think under the GST there is a system or technicality that we need to collect GST and give that to authorities by deducting GST paid. In this case institutions have refused my requests of paying GST to us as they say that service is rendered to student in respective country and they are required to pay GST to local government. Comments would be appreciated. Do we have a collective approach to file a stay in the court until it is clear.
A stay order should be initiated and get the clear view on it
AAERI has engaged Deloitte to take it further…