2025 (4) TMI 1056 - HC - GST

Jurisdiction to levy GST on the affiliation fees collected by the petitioner University from its affiliated colleges - validity and legality of the Circular dated 17.02.2021 and paragraph 2 of the Circular dated 11.10.2021 - legality of paragraph 6 (ii) of the Press Note dated 09.09.2024 issued to summarize recommendations made in the 54th meeting of the GST Council - HELD THAT - The Constitution of India has been amended vide Constitution (101st Amendment) Act 2016 with effect from 16th September 2016. In terms of the above-referred Constitutional Amendment the legislative competence of the Parliament and State Legislature to levy and collect tax on supply of goods and services is now traceable to Article 246A of the Constitution. Article 246A (1) of the Constitution empowers the Parliament and the State Legislatures to concurrently make laws with regard to tax on intra-state supply of goods and services. Article 246A (2) of the Constitution states that Parliament alone shall have exclusive power to make laws with regard to tax on supplies of goods or services or both made in the course of inter-state trade or commerce . The GST is being levied with concurrent jurisdiction of the Centre and the States on the supply of goods or services or both. GST is a destination-based value added tax on supply of goods or services or both which has come into force in India from 01/07/2017. GST is based on fundamental principle of consumption-based tax. In other words tax shall accrue to the jurisdiction where consumption takes place. It is well settled that the authority to act depends on the existence of jurisdictional fact. A jurisdictional fact is a fact which must exist before a Court Tribunal or an authority assuming jurisdiction over a particular matter. If an authority wrongly assumes the existence of such fact the order could be questioned under Article 226 of the Constitution. Section 9 of CGST Act 2017/GGST Act 2017 is the charging section which provides for levy of GST on supply of goods or services or both. Section 7 of the aforesaid statutes defines the scope of the phrase supply in terms whereof all forms of supply of goods or services or both such as sale transfer barter exchange license rental lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business. In Laxmi Engineering Works Vs P.S.G. Industrial Institute 1995 (4) TMI 294 - SUPREME COURT the Supreme Court held that the term commercial activity in turn has been held to mean something pertaining to commerce or connected with or engaged in commerce; mercantile; having profit as the main aim. The requirements of Section 7 of the CGST Act. Section 2 (31) of the CGST Act defines the phrase consideration in terms whereof the money or money value in respect or in response to the supply would be a consideration. The affiliation is undertaken by the University in terms of the requirement of the statute and in discharge of public functions the fee so collected for affiliation fails to qualify as consideration . The fees collected by the University i.e. Affiliation fees PG registration fees and convocation fees are not amenable to GST in as much as the fees collected by the University is not a consideration as contemplated in section 7 of CGST Act/GGST Act as the fees are collected in the nature of statutory fee or regulatory fee in terms of the statutory provisions and not contractual in nature. The same cannot be given a colour of commercial receipts as there is no element of commercial activity involved in the subject transaction. The Impugned Show Cause Notice relies on the clarifications issued by the Respondent No. 2 vide Circular dated 17/06/2021. The Circular while clarifying the exemptions available to the National Board of Examination in paragraph 4(iii) of the circular states that GST at the rate of 18% applies to other services provided by such Boards namely of providing accreditation to an institution. Based on the recommendations of the 54th GST Council meeting the Respondent No. 2 vide paragraph 2 of the Circular dated 11/10/2024 clarified that affiliation services provided by universities to their constituent colleges are not covered within the ambit of exemptions provided to educational institutions. The petitioner University has reported income in the income and expenditure account and its schedules and sub-schedules have been listed and the GST is demanded on the same without establishing as to how these incomes would be liable to GST. The GST is proposed on the sale of prospectus sale of old newspaper various fees towards sports eligibility certificate migration certificate admission fee etc. received from students are also taken for the purpose of demand. Further demand of tax is also proposed on interest income earned by the university. The Petitioner University has also tabulated the details of income which are listed for tax and also provided the reasons why such income cannot be subjected to tax. Learned Senior Advocate for the Petitioner University is justified in contending that where the main activity is not a business then any incidental or ancillary transaction held would normally amount to business only if an independent intention to carry on business in the incidental or ancillary transaction is established. The burden to prove such intention rests on the Department. Hence where the main and dominant activity of the University is education it cannot be termed as business activity to demand tax. Conclusion - The activities of the petitioner University not being commercial in nature are not amenable to GST. There is a complete absence of jurisdictional facts to issue the impugned show cause notice. Petition allowed.

Summary

The core legal questions considered by the Court in this petition include:

1. Whether the Respondents have jurisdiction to levy Goods and Services Tax (GST) on the affiliation fees collected by the petitioner University from its affiliated colleges.

2. Whether the educational activities of the petitioner University, including collection of affiliation fees, prospectus fees, convocation fees, and other related charges, constitute a "supply" of taxable services under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Goa Goods and Services Tax Act, 2017 (GGST Act).

3. Whether the activities of the petitioner University fall within the definition of "business" under Section 2(17) of the CGST Act, 2017, thereby attracting GST liability.

4. The validity and legality of the Circulars dated 17.06.2021 and 11.10.2024 issued by the Central Board of Indirect Taxes and Customs (CBIC) and their impact on the taxability of affiliation fees.

5. Whether the exemption notification No. 12/2017-CT (R) dated 28.06.2017, particularly Entry No. 66, exempts the services provided by the petitioner University in relation to education, including affiliation services, from GST.

6. Whether the show cause notice issued under Section 74 of the CGST Act, 2017 demanding GST on affiliation fees and other income is without jurisdiction due to absence of jurisdictional facts.

7. The scope and applicability of the concept of "consideration" under Section 2(31) and "supply" under Section 7 of the CGST Act in the context of statutory fees collected by the University.

8. The extent to which the petitioner University's activities are statutory/regulatory functions and whether such activities are amenable to GST.

Issue-wise Detailed Analysis:

1. Jurisdiction to Levy GST on Affiliation Fees and Educational Activities

The Court examined whether the petitioner University's activities amount to taxable "supply" under the CGST Act. The relevant legal framework includes Sections 2(17) (definition of business), 2(31) (consideration), 7 (scope of supply), and 9 (levy and collection) of the CGST Act, along with Notification No. 12/2017-CT (R) dated 28.06.2017 which exempts certain educational services from GST.

The Court noted that the petitioner University is a statutory body created under the Goa University Act, 1984, tasked with imparting higher education and regulating affiliated colleges. The fees collected, such as affiliation fees, are statutory or regulatory fees and not contractual or commercial in nature. The Court relied on precedents including the decision in Assistant Commissioner of Income Tax (Exemptions) v. Ahmedabad Urban Development Authority, which held that fees collected by statutory bodies for public functions are not consideration for business or commercial activities.

The Court reasoned that affiliation fees do not involve a quid pro quo contractual relationship typical of taxable supplies under GST. Instead, they are collected in discharge of statutory functions. The Court also referenced the Karnataka High Court's decision in Principal Addl. Directorate General DGGSTI v. Rajiv Gandhi University of Health Sciences, which held that affiliation services by universities are statutory functions and not taxable services.

The Court concluded that the petitioner University's activities do not constitute "business" as defined under Section 2(17) of the CGST Act, and the fees collected do not amount to "consideration" under Section 2(31). Therefore, the impugned show cause notice demanding GST on such fees was issued without jurisdictional facts.

2. Validity and Impact of Circulars Dated 17.06.2021 and 11.10.2024

The petitioner challenged the Circulars issued by the CBIC, which clarified that GST at 18% applies to accreditation and affiliation services provided by educational boards and universities. The petitioner contended that these Circulars are contrary to the statutory provisions and the exemption notification and thus lack legal authority.

The Court observed that Circulars cannot override or restrict the scope of exemption notifications issued under the GST Act. It relied on Supreme Court precedents such as CCE v. Ratan Melting and Wire Industries and Sandur Micro Circuits Ltd. v. CCE, which held that clarifications or Circulars inconsistent with statutory provisions or exemption notifications are not legally binding.

The Court found that the Circulars improperly narrow the exemption by excluding affiliation fees from the ambit of exempt educational services, which conflicts with the plain language of Entry No. 66 of Notification No. 12/2017-CT (R). The Court held that the Circulars cannot add new conditions or restrict the exemption scope granted by the statute.

Accordingly, the Court held that the Circulars are not valid to impose GST on the petitioner's affiliation fees and related educational activities.

3. Interpretation of Exemption Notification No. 12/2017-CT (R) Entry No. 66

The Court analyzed Entry No. 66 of Notification No. 12/2017-CT (R) dated 28.06.2017, which exempts services provided by educational institutions to their students, faculty, and staff, including conduct of entrance examinations and related services.

The Court agreed with the petitioner's submission that the University itself qualifies as an educational institution and that the students of affiliated colleges are ultimately students of the University. Thus, services related to affiliation, examination, and awarding of degrees are integral to the educational process and fall within the exemption.

The Court relied on decisions from other High Courts and the Supreme Court, which have recognized that examination and affiliation are indispensable parts of education and exempt from tax. It held that the exemption notification covers the petitioner's activities, including affiliation fees, prospectus fees, and convocation fees.

4. Definition and Scope of "Education" and "Business" under GST Law

The Court referred to authoritative judicial interpretations of the term "education," which is not defined in the GST Act. It cited Supreme Court judgments such as Gujarat University v. Krishna Ranganath Mudholkar, T.M.A. Pai Foundation v. State of Karnataka, and P.A. Inamdar v. State of Maharashtra, which describe education as a broad concept encompassing systematic instruction, training, and development of knowledge and character.

It further noted that "business" under Section 2(17) of the CGST Act includes trade, commerce, profession, vocation, or adventure, but does not extend to statutory functions discharged by a University in furtherance of education.

The Court emphasized that the petitioner's activities are statutory and regulatory in nature, not commercial or business activities, and hence not taxable.

5. Jurisdictional Fact and Validity of Show Cause Notice

The Court reiterated the principle that jurisdiction to levy tax depends on the existence of jurisdictional facts, namely, that the activity constitutes a taxable supply under the GST Act. It held that the impugned show cause notice was issued on an erroneous assumption that the petitioner's activities constitute taxable supply.

Since the activities do not amount to "business" or "supply" under the GST law, the show cause notice lacked jurisdictional basis and was liable to be quashed.

6. Taxability of Other Income and Ancillary Activities

The Court examined the demand of GST on other income streams such as rent from third parties, sale of prospectus, sports fees, migration certificate fees, and interest income.

It noted that rent/license fees related to residential accommodation for faculty are exempt under the exemption notification. Interest income is also exempt under serial 27 of Notification No. 12/2017-CT (R). The Court found that GST has already been paid on rent from third parties where applicable.

The Court held that incidental or ancillary transactions would amount to business only if there is an independent intention to carry on business in those transactions, which was not established by the Department.

Treatment of Competing Arguments

The petitioner argued that affiliation fees are statutory/regulatory fees collected in discharge of public duties and not contractual consideration for taxable supply. The respondents contended that affiliation services constitute supply of taxable services not exempted under the Notification and that Circulars clarify this position.

The Court sided with the petitioner, finding the respondents' reliance on Circulars misplaced as they conflict with statutory provisions and exemption notifications. The Court also rejected the argument that the petitioner falls within the definition of "government" or "local authority" for GST purposes, noting that the University is a creature of statute but not a government or local authority under the CGST Act.

Significant Holdings

"The fees collected by the University i.e. Affiliation fees, PG registration fees and convocation fees are not amenable to GST in as much as the fees collected by the University is not a consideration as contemplated in section 7 of CGST Act/GGST Act, as the fees are collected in the nature of statutory fee or regulatory fee in terms of the statutory provisions and not contractual in nature."

"The impugned Circular dated 11.10.2024 in its application to the Petitioner University is contrary to the plain language of the notification which exempts services by educational institution to its students, faculty and staff and also services provided to educational institution."

"The Respondents cannot whittle down the exemption notification and restrict the scope of the exemption notification by issuing a circular, whereby a new condition is sought to be incorporated thereby restricting the scope of the exemption."

"The activity of the Goa University in collecting the affiliation fees is exempt from GST and hence the fees collected by Goa University is not liable to tax."

"There is a complete absence of jurisdictional facts to issue the impugned show cause notice."

The Court thus established the core principles that statutory fees collected by a State University in discharge of its statutory and regulatory functions, including affiliation fees, are not taxable supplies under GST. The Circulars issued by the CBIC that seek to impose GST on such fees are contrary to the statute and exemption notifications and hence invalid. The show cause notice issued demanding GST on such fees is without jurisdiction and liable to be quashed.