CESTAT Hyderabad Holds School Examination Services Exempt From Service Tax, Sets Aside ₹1.94 Cr Demand

The Hyderabad Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 31 July held that services provided to schools for conducting examinations, including Olympiads and talent search examinations, are exempt from Service Tax as they relate to the conduct of examinations by educational institutions.

A Bench comprising Judicial Member Justice Angad Prasad and Technical Member A.K. Jyotishi set aside the Service Tax demand of Rs. 1.94 crore, along with interest and penalties, raised against Unified Council Educational Services Pvt. Ltd. for the period April 2014 to June 2017. The Tribunal held: 

"...the appellant satisfies all the essential ingredients of Entry No. 9(b) of Notification No. 25/2012-ST. The educational institutions are the recipients of the services; the services rendered by the appellant are directly and intrinsically connected with the conduct of examinations; and no additional condition requiring the examinations to form part of the prescribed curriculum can be read into the exemption notification."

Unified Council Educational Services Pvt. Ltd. organises various national-level academic examinations, including the National Level Science Talent Search Examination (NLSTSE), Unified Cyber Olympiad (UCO), Unified International English Olympiad (UIEO) and other competitive assessments conducted through schools across the country.

The Department alleged that these activities constituted taxable commercial services and confirmed the Service Tax demand along with an equivalent penalty by invoking the extended limitation period.

The appellant argued that its services were provided to schools for conducting examinations and were therefore covered by Entry 9(b) of Notification No. 25/2012-ST, which exempts services provided to educational institutions relating to admission or conduct of examinations. It also contended that the demand was time-barred as the issue involved interpretation of the exemption provision and there was no suppression of facts.

Accepting the submissions, the Tribunal observed that conducting examinations is an inseparable component of the educational process. It held that education cannot be confined only to classroom teaching, as examinations are a recognised method of assessing students' learning and academic progress.

The Bench rejected the Department's argument that the services were provided directly to students rather than educational institutions. It observed that schools engaged the appellant for organising examinations, coordinated the process, facilitated student participation and remained the recipients of the services. It also held that the fact that students ultimately appeared for the examinations did not change the identity of the recipient.

Further, it observed that Entry 9(b) of Notification No. 25/2012-ST cannot be interpreted in a restrictive manner. It held that services integrally connected with the conduct of examinations fall within the scope of the exemption and that the notification does not require the service provider itself to be an educational institution.

The Members also held that mere non-payment of tax or adoption of a legal interpretation that is later found to be incorrect does not amount to suppression of facts or wilful misstatement. They observed that, in the absence of any material showing deliberate intent to evade tax, the extended limitation period could not be invoked. They stated:

"...the services render by the appellant are covered by Entry No. 9(b) of Notification No. 25/2012-ST dated 20.06.2012 as services provided to educational institutions relating to the conduct of examinations..."

Accordingly, CESTAT allowed the appeal, quashed the Service Tax demand of Rs. 1.94 crore along with interest and penalties, and granted consequential relief in accordance with law.

For Appellant: Shri Venkat Prasad, Chartered Accountant

For Respondent: Shri K. Sreenivasa Reddy, Authorized Representative