KTBS cannot claim educational institution status as it only supplies textbooks, not educational services

AAR Karnataka ruled that Karnataka Text Book Society (KTBS) cannot be classified as an educational institution as it merely supplies textbooks rather than providing educational services. KTBS, being a society registered under Karnataka Societies Act 1960, is not considered State Government despite receiving government grants. The printing services provided to KTBS constitute supply of services under heading 9989, taxable at 18% GST rate instead of the previously applied 12% rate under entry 27 of Central Tax Rate Notification.

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Issues Involved:
1. Classification of Karnataka Textbook Society (KTBS) as an "educational institution" for GST applicability.
2. Classification of KTBS as "State Government" for GST applicability.
3. Correct rate of GST on printing services provided to KTBS.

Detailed Analysis:

1. Classification of KTBS as an "Educational Institution":

The applicant sought to classify KTBS as an "educational institution" under GST law, which would impact the tax rate on printing services. According to Notification No. 12/2017-Central Tax (Rate), an "educational institution" is defined as an institution providing services by way of pre-school education, education up to higher secondary school, education as part of a curriculum for obtaining a qualification recognized by law, or approved vocational education courses.

KTBS is a society registered under the Karnataka Societies Act, 1960, and receives grants from the Government of Karnataka for supplying textbooks to students in government and aided schools, as well as selling to private schools. However, KTBS does not provide educational services directly. It only facilitates the distribution of textbooks, which are essential but ancillary to the educational services provided by schools.

Thus, KTBS cannot be classified as an "educational institution" as it does not directly impart education or conduct examinations. This interpretation aligns with the definition provided in the notification and the comments from the Assistant Commissioner of Central Tax.

2. Classification of KTBS as "State Government":

The applicant alternatively argued that KTBS should be classified as "State Government" for GST purposes. KTBS is established by a government order and functions under the Education Department of Karnataka, receiving full funding from the state government. Despite this, KTBS is a registered society and not a direct government entity.

The Authority for Advance Rulings (AAR) referenced a similar case from Kerala, concluding that KTBS could be considered a "Governmental Authority" under Para 2 (4) of Notification No. 12/2017-Central Tax (Rate), but not as "State Government." Therefore, KTBS cannot be treated as "State Government" for GST applicability.

3. Correct Rate of GST on Printing Services Provided to KTBS:

The applicant is currently charging 12% GST on the printing of textbooks supplied to KTBS. The AAR clarified that the supply of printing services, where the printer provides physical inputs like paper and ink, constitutes a supply of service under heading 9989. This classification is based on Circular No. 11/11/2017, which states that such supplies are considered services when the content is provided by the recipient (KTBS).

According to Entry No. 27 of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 6/2021-Central Tax (Rate), the applicable GST rate for "Other manufacturing services; publishing, printing and reproduction services; material recovery services" is 18%. Therefore, the current rate of 12% is incorrect, and the correct rate should be 18%.

Ruling:

1. KTBS cannot be classified as an "educational institution" for the purposes of GST applicability on printing services provided by the applicant.
2. KTBS cannot be classified as "State Government" for the purposes of GST applicability on printing services provided by the applicant.
3. The rate of tax being charged at present by the printers on the printing of textbooks supplied to KTBS, i.e., 12%, is incorrect. The correct applicable rate is 18% as per Entry No. 27 of Notification No. 11/2017-Central Tax (Rate), as amended.

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