ICT@School Services Exempt from Service Tax, Holds Computer Education Contracts as Naturally Bundled Educational Services: CESTAT

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that services provided under the Information and Communication Technology (ICT)@School Scheme constitute educational services and are exempt from service tax. The bench of P. K. Choudhary (Judicial Member) Member and P. Anjani Kumar (Technical Member) has emphasized that the various activities undertaken under the ICT scheme could not be artificially split into independent taxable elements. Applying Section 66F of the Finance Act, 1994 dealing with bundled services, it held that the services were naturally bundled and possessed the essential character of educational services. The dispute arose from an Order-in-Original dated July 31, 2020, under which a service tax demand of approximately ₹39.56 crore had been confirmed against Schoolnet India while another demand of approximately ₹34.11 crore had been dropped. The Revenue challenged the portion of the order dropping the demand, while Schoolnet contested the tax liability imposed upon it. The controversy related to implementation of the ICT@School Scheme launched by the Ministry of Human Resource Development to promote computer literacy and computer-aided learning in government and government-aided secondary and higher secondary schools. Under the scheme, private entities were selected under the Build-Own-Operate-Transfer (BOOT) model to establish ICT infrastructure, install computer laboratories, deploy instructors, provide computer education and maintain the infrastructure for specified periods. Schoolnet had entered into agreements with education authorities in several states including Maharashtra, Odisha, Bihar, West Bengal, Rajasthan and Himachal Pradesh for implementing the scheme. The company undertook activities such as installation and commissioning of computer hardware, provision of educational software, deployment of teachers and instructors, management of computer labs, maintenance of equipment and delivery of computer education services. The Revenue argued that the activities undertaken by Schoolnet were separate and independent services involving installation and commissioning of IT infrastructure, maintenance services and computer education services, and therefore required separate tax treatment. According to the Department, exemption available to auxiliary educational services had ceased after July 11, 2014 and the services were taxable thereafter. Schoolnet, on the other hand, argued that the services constituted a naturally bundled supply where the predominant objective was education. It contended that the infrastructure and technological components merely supported the larger objective of imparting computer education and therefore the activities fell within the scope of educational services exempt under the negative list provisions and later under the Mega Exemption Notification. The Tribunal examined the structure of the agreements and observed that Schoolnet was not merely supplying computers or installing hardware. Rather, it was creating complete educational ecosystems that included software, infrastructure, training modules, instructors and support systems. The Bench noted that part of the payments under the contracts was linked to students’ academic performance in computer examinations, indicating that education formed the core objective of the contracts. The Tribunal also relied on judicial precedents and CBEC clarifications interpreting the expression “education” broadly. It observed that education includes not only classroom teaching but the complete process of learning, curriculum development, examination and obtaining qualifications recognized by law. The Bench noted that the ICT services formed part of school curriculum and contributed to recognized educational qualifications. Further, the Tribunal rejected the Revenue’s contention that the omission of Section 66D(l) from the negative list in May 2016 created a fresh service tax liability. Referring to official tax policy clarifications, it held that the legislative change merely shifted educational exemptions from the negative list framework into the Mega Exemption Notification without altering substantive tax treatment. The Bench ultimately concluded that for the period up to May 13, 2016, the services fell within the negative list under Section 66D(l), and thereafter continued to remain exempt under Entry 9 of the Mega Exemption Notification. It held that Schoolnet qualified as an educational institution for purposes of the exemption and therefore no service tax liability arose. CESTAT set aside the service tax demand against Schoolnet and dismissed the Revenue’s appeal, holding that once the underlying services themselves were exempt, questions regarding valuation methodology and abatement became irrelevant. Case Details Case Title: M/s Schoolnet India Limited Versus Commissioner, Central Goods & Service Tax, Noida Citation: JURISHOUR-1323-CES-2026(ALL) Case No.: Service Tax Appeal No.70470 of 2020 Date: 20.05.2026 Counsel For Appellant: B. L. Narasimhan, Advocate Counsel For Respondent: Santosh Kumar, Authorized Representative Click Here To Read Order Read More: Scheduled Offences and Prima Facie Money-Laundering Allegations Made Out: Rajasthan High Court Denies Bail in PMLA Case

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