Transportation and catering services to students ineligible for exemption under notification 12/2017-CT(Rate) serial 66(b)

AAR Gujarat ruled that the applicant was not eligible for exemption under serial no. 66(b)(i) & (ii) of notification No. 12/2017-CT(Rate) for transportation and catering services provided to students. The authority determined that since the applicant collected charges directly from students rather than from the school, the services were not provided "to the school" as required for exemption. The primary condition of services being provided to an educational institution was not satisfied, disqualifying the applicant from the exemption.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

(i) Whether the applicant is eligible for exemption under serial no. 66(b)(i) of Notification No. 12/2017-CT (Rate) dated 28.6.2017 in respect of transportation services provided exclusively to students on behalf of the school, when the applicant charges fees directly from the students.

(ii) Whether the applicant is eligible for exemption under serial no. 66(b)(ii) of the same notification in respect of catering services provided exclusively to students on behalf of the school, when fees are charged directly from the students.

(iii) If eligible for exemption under the above entries, what is the relevant section and rule under which refund of tax paid on such exempted services in earlier years can be claimed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Eligibility for exemption under serial no. 66(b)(i) & (ii) of Notification No. 12/2017-CT (Rate) dated 28.6.2017 for transportation and catering services provided exclusively to students on behalf of the school, when fees are charged directly from students.

Relevant legal framework and precedents:

The exemption notification No. 12/2017-CT (Rate) dated 28.6.2017, serial no. 66, provides nil rate of tax for services provided:

• by an educational institution to its students, faculty and staff; and
• to an educational institution by way of transportation of students, faculty and staff, catering (including mid-day meal schemes), security, cleaning, housekeeping, and examination-related services, provided the institution offers pre-school education up to higher secondary school or equivalent.

Section 2(31) of the CGST Act, 2017 defines "consideration" as any payment made or to be made in respect of supply of goods or services. Section 7(1)(a) defines "supply" to include all forms of supply made for a consideration in the course or furtherance of business.

The applicant relied on rulings including Muniyasamy Abhiyana (2023), Akshar Travels (2012), and Sangam Travels (2017). However, the latter two pertain to the erstwhile service tax regime and thus have limited relevance under GST.

Court's interpretation and reasoning:

The AAR examined the nature of the service agreements between the applicant and the Fountainhead Education Trust, which manages the school. Two agreements were presented: one for transportation services and one for catering services, both dated 1.4.2023.

Clause 3 of these agreements stipulates that the Trust shall pay the service provider a specified fee inclusive of taxes and other levies, and the service provider shall invoice the Trust monthly for transportation and catering services provided to staff. However, the applicant admitted and the record showed that transportation and catering charges for students were collected directly from the students' parents, not from the Trust or the school.

The notification requires that services be provided "to an educational institution" to qualify for exemption. The AAR noted that since the applicant receives no consideration from the school or Trust for services rendered to students, the services are not provided to the educational institution but directly to the students. Consequently, the exemption cannot apply.

The AAR also highlighted that the exemption applies only to educational institutions providing pre-school to higher secondary education or equivalent, which the Fountainhead School qualifies as.

Key evidence and findings:

• Service agreements showing invoicing and payment obligations.
• Admission by applicant that fees for student transportation and catering are collected directly from students' parents.
• School bus permit obtained by the applicant under its own name, authorized by the school.
• FSSAI license for catering services obtained for the school premises.

Application of law to facts:

The AAR applied the legal definition of "consideration" and "supply" and the terms of the exemption notification. Since the applicant's consideration for student services comes directly from students and not from the educational institution, the services cannot be deemed provided "to an educational institution" as required for exemption under serial no. 66(b)(i) and (ii).

Treatment of competing arguments:

The applicant argued that the services were provided on behalf of the school and that the school authorized the applicant, including displaying the school's name on buses and communicating the arrangement to parents. They also relied on the definition of "consideration" and prior rulings allowing direct collection from parents while still qualifying for exemption.

The AAR distinguished these arguments by emphasizing the contractual terms and actual flow of consideration. The absence of payment from the school for student services was determinative. The reliance on prior rulings under service tax was rejected due to the change in tax regime and binding nature of advance rulings only on the applicant.

Conclusions:

The applicant is not eligible for exemption under serial no. 66(b)(i) and (ii) of Notification No. 12/2017-CT (Rate) dated 28.6.2017 for transportation and catering services provided exclusively to students when fees are charged directly from students rather than the educational institution.

Issue (iii): Relevant section and rule for refund of tax paid on exempted services in earlier years.

Relevant legal framework:

Section 97 of the CGST Act, 2017 governs applications for advance ruling and specifies the types of questions on which advance rulings can be sought. These include classification, applicability of notifications, determination of time and value of supply, admissibility of input tax credit, liability to pay tax, registration requirements, and whether a particular act amounts to a supply.

Court's interpretation and reasoning:

The AAR noted that refund claims do not fall within the scope of Section 97(2) and thus are not questions on which an advance ruling can be sought. Hence, the AAR declined to answer the question regarding the relevant section and rule for refund of tax paid on exempted services in earlier years.

Conclusions:

The question relating to refund of tax paid on exempt services is outside the purview of advance ruling and was not answered.

Additional procedural issue:

The applicant informed the AAR of a change in constitution from LLP to a Private Limited Company and requested that the order be issued in the name of the new entity. The AAR rejected this request as the application was filed by the LLP and the change occurred post-filing.

3. SIGNIFICANT HOLDINGS

"We, therefore, hold that the services provided by the applicant to the school students by way of transportation and catering of students cannot be considered as services provided to the school. Since the primary condition of the service having been provided to a school is not satisfied, as far as the first issue is concerned, we hold that the applicant is not eligible for exemption in terms of serial no. 66(b)(i) & (ii) of the notification No. 12/2017-Central Tax (Rate) dated 28.6.2017 in respect of transportation and catering services provided to the students."

"Since refund does not figure in any of the clauses under subsection 97(2), ibid, we do not intend to answer this question."

"We find it difficult to agree with the contention more so since the application has been filed by M/s. Protego Services LLP. The request therefore is rejected."

Core principles established include:

• Exemption under serial no. 66(b)(i) and (ii) applies only when services are provided to an educational institution, not directly to students.
• Consideration must flow from the educational institution to the service provider for exemption to apply.
• Advance ruling jurisdiction under Section 97 does not extend to questions relating to refund claims.
• Changes in the constitution of the applicant entity after filing of the application do not entitle the applicant to have the ruling issued in the name of the new entity.

Final determinations:

• The applicant is not eligible for exemption on transportation and catering services provided to students when fees are charged directly from students.
• The question on refund of tax paid on exempt services is outside the scope of advance ruling and remains unanswered.
• The ruling will be issued in the name of the LLP that filed the application, not the subsequently formed Private Limited Company.

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