In July 2017, I had done a blog (https://ravilochansingh.com/2017/07/12/india-introduces-its-complicated-gst-with-implications-for-the-education-counselling-agencies-contracted-by-overseas-universities/ )where the dilemma before the sector was detailed. To understand the situation, it might be useful to check out that blog before you read further.
A lot has happened between then and now.
AAERI, the peak education agent body in India for Australian Universities, engaged Deloitte and have been successful in getting the attention of the policy makers to the issues at hand. An AAERI committee has also met with the Ministry of Finance and details of the meeting is publicly available on the AAERI FB page. Universities Australia too has made its own efforts though it is not clear as to where their plea for a private ruling has reached. If it has indeed been lodged it would have had some outcome as there is a 90 days timeline.
Indian entities rendering education services to Indian Universities have also pleaded with the Indian Government for a reconsideration of the 18% GST on the education services. There have been newspaper adverts and articles released in public interest.
On 25th January 2017, Indian Government issued a notification and has now exempted the Education Services even beyond the HSC level.
A copy of the decision taken by the GST Council is on this link and the notification was subsequently issued that indicated that the exemption that had applied only till HSC level of education has now been extended beyond that level.
So does this mean that education agencies providing admission related services to Foreign Universities can assume that their services too are now exempt from the 18% GST?
The answer to this is tricky and can be subject to interpretation by the assessing officers and the way the facts are presented.
Through Notification 2/2018 (Central Tax – Rate) the Government has amended ‘Exemption notification’ 12/2017 (Central Tax – Rate) on supply of services, to exempt services provided in relation to admission to all educational institutions. The earlier restriction of such exemption being available to admission related services provided to educational institutions, only up to higher education, has been removed by the Government. As per the Guidance note of the Government on ‘GST on Education services’, the Government has clarified that “education as a part of a prescribed curriculum for obtaining a qualification recognized by a law” means the qualification / course which is recognized by Indian Law and not qualification recognized by a law of foreign country.
Though one may interpret and argue that recognized ‘by any law’ provided in the definition of Educational institution means “any qualification from around the world that is recognised by “Indian law”, such as qualification / degrees of certain Foreign Institution recognized by Ministry of HRD through Association of Indian Universities (AIU), as qualification / degree recognized under Indian law.
Experts opine that while this argument can be made though there still exists an element of risk as to whether such admission related services provided to foreign universities / institutions, gets squarely covered by the Exemption Notification, considering such institutions provide qualification / degree recognized by Indian law. It may also be noted that at this time there are several programs delivered by foreign Universities such as the Masters by UK Universities of less than 2 years duration or even the pathway or TAFE led degrees in Australia that are often not deemed as recognised in India.
AAERI is making efforts to take further clarity from the Government, whether such exemption is also available to admission related services provided to foreign educational institutions / universities. Any MOU between governments for mutual recognition of each other’s qualification such as the one being entered between India and France recently may be useful.
However there is a need for some communication between the Ministry of HRD and Ministry of Finance for a comprehensive clarity and till that happens, the assessing officers at local level will continue interpret “by any law” as per their own subjective wisdom. A risky territory to be in and difficult to navigate.
The contracted education agents of the International Universities have another argument in their favour and that is linked to the role being not just that of a provider of “Education Services” but also that of it being considered as “Export of Service”. In my personal opinion, this is a steadier approach and worthy of consideration.
If the education service rendered does get clarified as “export of service”, which I believe to be the right interpretation, the matter will be put to rest and there would not be a need to for any further consideration as “education service” altogether.
As was detailed in my earlier blog, the services of education representatives of the Universities clearly meet most of the requirements to be an “export of service” and the differing interpretation of one condition led to some experts bracketing the role as that of an “intermediary”.
I do expect a ruling in the coming months that will definitively settle the matter. Now I share herewith the contention put forth in the plea made by Global Reach Education Services Pvt Ltd (GRES).
GRES i.e. applicant is engaged in providing the main service i.e. “Business Auxiliary Service” to foreign universities and on its own account. As it is clearly evident from the definition of ‘intermediary’ under Rule 2(f) of Place of Provision of intermediary Services do not include a person who provides the main service on its own account. It can be observed that business auxiliary services are proposed to be provided by GRES to foreign universities on principal to principal basis. In case, GRES was providing service to students, it would have received “consideration” from such students as well. Fact is that no remuneration / consideration is received by the GRES from students. GRES only receives consideration from foreign universities.
Also, there is no role of GRES in the activity of rendering education by foreign universities to students. The universities selects the students on its own criteria and once the selection is made, students directly remits the course fee to the university electronically. GRES has no role in the same.
Considering the above and legal provisions w.r.t. export of service, we submit as follows-
- a) The supplier of service i.e. GRES is located in India.
- b) The recipient of services i.e. the universities abroad are located outside India.
- c) The place of supply of service, as per sub-section 2 of Section 13 of the IGST Act, 2017, where the location of supplier or the location of recipient of service is outside India, is the location of the recipient of services i.e. location of the Universities abroad.
- d) The consideration for the services provided by GRES is received from the universities abroad in convertible foreign exchange, and
- e) The supplier of service i.e. GRES and the recipient of service i.e. Universities abroad are not merely establishments of a distinct person.
Since all the conditions for a service to qualify as export as per the IGST Act are fulfilled, we are of the view that service provided by GRES to Universities abroad are clearly in the nature of export.
Another contention here is that whether the services rendered by GRES qualify to be an ‘intermediary’ service and accordingly, place of supply shall be determined as per sub-section 8 of section 13 of IGST Act i.e. location of provider of services, which is in India.
We would like to submit as follows with respect to this contention.
The following is the definition of “intermediary” as per sub-section 13 of Section 2 of IGST Act: “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;
As it is clear from the definition stated above, an intermediary is an agent who facilitates a supply between two or more persons, and does not include a person who supplies such services on his own account.
In the instant case, GRES acts as an independent organization and is not acting as an agent for the universities abroad. It does not facilitate provision of services by such universities to students. Its role is limited to promote the courses of the universities in India and thus, earns consideration out of it. It has been clarified in the agreements between GRES and Universities abroad that the relationship between GRES and the university is not one of principal and agent.
This contention is also clear from the Fee clause of the agreement, wherein it has been stated that consideration shall be payable to GRES from the university and no fee shall be charged from the students for any sort of services provided in relation to such university.
Another interesting development is that in December 2017, the parliamentary standing committee of the Upper House (Rajya Sabha) comprising of Members of Parliament made a substantive recommendation to the GST council. A copy of the same is on this link. This recommendation is very much in favour of those engaged in export of service.
So the next steps:
ASSUME that GST of 18% is still applicable even though Education Services has now been exempt by the Government of India, till such a time that either Ministry of Finance or Ministry of HRD reaffirm that foreign degrees rendered overseas may be taken as recognised under Indian law. Or some other variance that indicate that relying on mutual recognition of qualifications, they may be taken as recognised for the purposes of the GST.
AWAIT the clarification on whether the assumption of the service being an export is supported by the Government of India.
HOPE for the GST council to accept the recommendations made by the parliamentary standing committee of the Rajya Sabha and thus any ambiguity that may persist is resolved for good.
Till such happens, the applicability of GST on the education services provided by the education agencies of foreign Universities will continue to remain subject to subjective interpretations.