Job concern

New Delhi, Nov. 1: IIMs and IITs will be liable to pay service tax on the placement fee they charge from recruiters from May 2006, but not with retrospective effect.

Tax authorities issued a circular today settling the question of whether they had to pay the tax from a date prior to last May by clarifying that these educational institutes could not be called “commercial concern”.

Confusion had arisen because the Finance Act of 1994 said that “any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower” is offering a taxable service.

There was thus fear that IIMs and IITs will be required to pay service tax with retrospective effect on the placement fees they charge from companies that annually recruit from their campuses.

Today’s circular says these institutes are not commercial concerns and, therefore, “not liable to pay service tax prior to 1.5.2006”.

In March, the tax authorities had issued show-cause notices to IIM Ahmedabad and IIM Bangalore, which had contested them.

In the Finance Act of 2006, the words “commercial concern” have been replaced with “any person”, bringing these institutes under the service tax net.

From May 2006, they are liable to pay service tax at 12.2 per cent of the placement fee. But the circular seems to have created another confusion while resolving an earlier one.

It says: “As regards the period after 1.5.2006, decision should be taken after taking into account all material facts on (a) case to case basis.

“Trade and field formations may be advised accordingly.”

IIMs, which have been opposing the levy, have a new mystery to grapple with: Does the circular mean charging of service tax will be discretionary, depending on the judgement of the officer concerned?