Running of School Hostel - Whether Taxable Service ?

[Ramachandran and Ramachandran Associates Subramanian]

1. My client is a registered Charitable Trust and is running an academic institution - a  residential Public School with classes from 1st to 12th standard in own premises.
2. The Trust has rented out a building  to a person for the purpose of providing Hostel facility to the students.  The building is located inside the school campus.  It is the responsibility of that person to maintain the hostel and also provide food for the students.
3.  `Renting of Immovable Property Service’ is a taxable service with effect from 22.05.2007.  However,  the definition of “Immovable Property” for the purpose of Section 65(105)(zzzz) does not include building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. So, it appears that no service tax is chargeable under the Renting of Immovable Property Service. Is this view correct ?
4. The Hostel facility is meant only for the students pursuing their school education in this school.  No outsider is permitted.   The inmates of the Hostel are all students studying from 1^st to 12^th standard.
5. School Hostel is not in the nature of Short Term Accomodation Service since the resident students live in the hostel till the completion of their academic term ranging from 1 to 12 years in accordance with the time of admission. School Hostel is a  residential dwelling and we are advised that Hostel is not in the nature of the defined service and hence the same is not liable for service tax. And so no service tax.is being collected from the students. Whether this category of Service is taxable  ?
6. Persons providing catering services within the premises of academic institutions were made liable for service tax w.e.f 01.03.2006.  Since the person running the School Hostel is also providing food to the inmates i.e students, whether this will be construed as OUTDOOR CATERER'S SERVICE ?

Are there any case laws on the subject ?

 

Ramachandran Subramanian

 

[Dilip Darji]

Dear Sir.

Section 66 D (l) insered with effect from this budget, indicates that the service by way of (a) pre-school education and education upto higher secondary school or equivalent (b) and (c), are covered in a Negative list.

Boarding School provides services of education coupled with residence and food. This shall be a BUNDLED SERVICE, for which taxability shall be decided in terms od Section 66 F. In this case the dominent service is an education and than residence.(Section 66 D (M)), the entire Service would be covered in a Negative list.

DILIP DARJI. 

 

[Ramachandran and Ramachandran Associates Subramanian]

Dear Sir,

I thank you for the quick reply given. You have given your reply in the context of the Finance Bill 2012. I would request you to enlighten me on this issue under the existing provisions. Whether hostel service is a taxable service ? Whether the mess facility in the hostel meant for the inmates i.e students of the school will be construed as Outdoor Caterer's service ?

Thanks and regards,

Ramachandran Subramanian

[RadheyShyam Mangal]

The hostel service is not taxable as it is not meant for temporary stay of less than 3 months. Further the mess facility in the hostel meant for the inmates i.e students of the school, if run by your school itself, then it is not taxable. But if some other agency/ cpnytractor is given the contract for running the mess then it will be taxable and  will be construed as Outdoor Caterer's service subject to exemption of SSI limit and then if taxable the eligible abatement can be claimed.

AI Summary

Taxability of school hostel: education-dominated boarding exempt, outsourced mess may attract outdoor catering service tax. Whether operation of a school hostel and its mess is taxable hinges on service classification: where education is the dominant element boarding-school services fall within a negative-list exclusion under proposed amendments; under existing law hostels are generally not taxable because they are not short-term accommodation, and mess services run by the school are not taxable while outsourced messes are taxable as Outdoor Caterer's Service subject to SSI exemption and abatement.