The Directorate of Education failed to take cognizance of Notification exempting payment of service tax by educational institutions for auxiliary services resulting in avoidable expenditure of Rs. 1.09 crore to a firm.
In exercise of powers under Section 93 (1) of the Finance Act, 1994, the Ministry of Finance (Department of Revenue), Government of India, vide its Notification dated 20 June 2012, exempted services provided to or by an educational institution in respect of education by way of (a) auxiliary educational services or (b) renting of immovable property from service tax leviable under Section 66B of the Finance Act, 1994.
The Directorate of Education (the Directorate) entered into an agreement with a firm for Information Technology (IT) related office work/data entry of school records by IT Assistants in 500 government schools for a period of one year from 01 July 2012 to 30 June 2013. Subsequently, the Agreement was extended up to 31 July 2014. According to the terms and conditions of the Agreement, the firm was to provide one IT Assistant in each identified school for the contracted period and the Department was required to pay to the firm a gross monthly amount of Rs. 11,277.09 for each IT Assistant. The annual contract value in respect of 500 IT Assistants was Rs. 6.77 crore which included a component of service tax.
Audit scrutiny of records revealed that the Directorate paid Rs. 9.88 crores to the firm during the period July 2012 to November 2013 for services provided by it under the Agreement which included an amount of Rs. 1.09 crore on account of service tax. Subsequently, the Department stopped paying service tax to the firm in December 2013 after it observed that payment of service tax was not applicable on educational services.
Inclusion of service tax component in the contractual amount to be paid for IT Assistants resulted in avoidable payment of Rs. 1.09 crore on outsourced services which were exempt from the service tax under the Notification of June 2012.
On its being pointed out, the Directorate stated (January 2016) that the Agreement was signed with the prior approval of the competent authority i.e. Finance Department of GNCTD, and payment was made to the firm according to terms and conditions of the Agreement. When it was observed that payment of service tax was subsequently not applicable, the Directorate immediately stopped paying service tax with effect from December 2013. In response to an audit query, the Directorate added that they had not initiated any correspondence with the firm for a refund of the service tax paid since the firm had deposited the service tax with the Central Board of Excise and Custom.
The reply is not tenable as the Agreement was signed on 19 June 2012 whereas the Notification was issued on 20 June 2012 and the Directorate should have taken care to exclude the service tax component from the amounts paid to the firm. Further, a deposit of service tax by the firm with the Government of India does not absolve the Directorate from seeking a refund of the amount. The matter was referred to the Government in June 2016 their reply was awaited (December 2016).