2025 (5) TMI 1227 - AT - Service Tax

Levy of of service tax - affiliation fees charged by the appellant from the educational institutions /colleges - benefit of SSI exemption on renting of immovable property service as the aggregate value of such rental services does not exceed Rs.10 lakhs in a particular financial year - HELD THAT - Both the issues have been decided in favour of the appellant by the Tribunal in the case of M/s Jiwaji Vishwavidhyalaya versus Commissioner CGST CE Bhopal 2025 (5) TMI 153 - CESTAT NEW DELHI . On the first issue of affiliation fees the Tribunal has relied on the decision of the Karnataka High Court in Rajiv Gandhi University of Health Sciences Karnataka 2022 (8) TMI 707 - KARNATAKA HIGH COURT where it has been held that the act of University in granting affiliation to a private college has to be considered as a service in furtherance of providing education and the decision of the respondents to consider otherwise is erroneous. The view taken by the High Court is concurred upon and the same is squarely applicable to the controversy in the present case. Activity of Renting of Immovable Property Service - HELD THAT - It is found that both the Hon ble High Court of Karnataka in the case of Rajeev Gandhi University of Health Sciences 2022 (8) TMI 707 - KARNATAKA HIGH COURT followed by the Tribunal in the case of M/s. Jiwaji Vishwavidhyalaya 2025 (5) TMI 153 - CESTAT NEW DELHI has held that Notification No. 33/2012-ST dated 20.06.2012 prescribes exemption from payment of tax if the amount received in the previous Financial Year is less than the threshold limit of Rs. 10 lakhs. On this principle the Commissioner (Appeals) have categorically recorded the finding that the aggregate value of such rental services does not exceed Rs. 10 lakhs in a particular one financial year and therefore the appellant is entitled to the benefit of SSI exemption. Consequently they are not liable to pay any service tax on such service. Conclusion - The demand for service tax on affiliation fees is unsustainable and that the appellant qualifies for exemption on renting of immovable property services under the SSI threshold. Appeal dismissed.

Summary

The core legal questions considered by the Tribunal are twofold: (i) whether the affiliation fees charged by the appellant university from educational institutions/colleges are subject to service tax under the Finance Act, 1994; and (ii) whether the appellant is entitled to the benefit of Small Scale Industry (SSI) exemption on renting of immovable property services, given that the aggregate value of such rental services does not exceed Rs. 10 lakhs in a particular financial year.

Regarding the first issue, the relevant legal framework includes the Finance Act, 1994 provisions on service tax, the negative list of services under Section 66D, and various notifications and circulars exempting educational services from service tax. The Tribunal relied heavily on precedents, notably the Karnataka High Court's decision in Rajiv Gandhi University of Health Sciences, which held that the act of granting affiliation by a university to private colleges constitutes a service in furtherance of providing education and is therefore exempt from service tax. This decision was upheld by the Supreme Court at the miscellaneous stage, dismissing the Special Leave Petition filed by the revenue, thereby affirming the High Court's interpretation.

The Tribunal also referred to the Madras High Court decision in Pondicherry University, which dismissed a writ petition challenging the levy of service tax on affiliation fees, but found the Karnataka High Court's reasoning more directly applicable. The Commissioner (Appeals) had analyzed the nature of affiliation fees and the activities involved, concluding that these fees are not chargeable to service tax. The Tribunal concurred with this view, emphasizing that the services provided by the university to affiliated colleges are integral to higher education and covered under the negative list of services exempt from service tax.

Specifically, the Tribunal noted that clause (l) of Section 66D of the Finance Act includes services related to education, such as pre-school education, higher secondary education, and education as part of a curriculum for recognized qualifications. Although these educational services were removed from the negative list by the Finance Act, 2016, the exemption was continued via the general exemption notification (Notification No. 25/2012-ST as amended). The Tribunal highlighted that services provided by educational institutions, including auxiliary educational services and renting of immovable property, are exempt from service tax under these notifications.

The Tribunal quoted the impugned order's detailed reasoning, which emphasized that the university's services to affiliated colleges involve setting curriculum structure, evaluation systems, eligibility criteria, teaching processes, and examination conduct. These services are core to higher education and fall within the exemption ambit. The adjudicating authority's error was found in not properly applying the negative list provisions and exemption notifications, particularly failing to consider clause (iv) of the exemption notification relating to services connected with admission or examination conducted by the institution.

Additionally, the Tribunal referred to earlier Board Circulars, including Circular No. 107/1/2009-ST, which clarified that higher education services, including those by autonomous colleges recognized by law, are exempt from service tax. The university's role in awarding degrees recognized by law further supported the exemption claim.

On the second issue concerning the renting of immovable property service, the Tribunal examined Notification No. 33/2012-ST dated 20.06.2012, which provides an exemption from service tax for small scale service providers whose aggregate value of taxable services does not exceed Rs. 10 lakhs in the preceding financial year. The Tribunal relied on the Karnataka High Court's decision in Rajiv Gandhi University of Health Sciences and the Tribunal's own prior ruling in M/s. Jiwaji Vishwavidhyalaya, which upheld the applicability of this SSI exemption.

The Commissioner (Appeals) had found that the aggregate rental income of the appellant did not exceed the Rs. 10 lakh threshold in any financial year, entitling the appellant to the SSI exemption. The Tribunal affirmed this finding, holding that the appellant is not liable to pay service tax on renting of immovable property services under the SSI exemption.

The Tribunal dismissed the revenue's appeal and upheld the impugned order, affirming that (i) affiliation fees charged by the university to affiliated colleges are not subject to service tax as they constitute services in furtherance of education exempt under the negative list and exemption notifications; and (ii) the appellant is entitled to SSI exemption on renting of immovable property services as the rental income falls below the prescribed threshold.

Significant legal principles established include the recognition that affiliation fees charged by a university to affiliated colleges are integral educational services exempt from service tax under the negative list and related exemption notifications. The Tribunal's reasoning preserves the principle that services forming part of the educational process leading to recognized qualifications are exempt. The decision also reinforces the applicability of the SSI exemption threshold for rental services rendered by educational institutions.

Key verbatim excerpts from the impugned order elucidate the Tribunal's reasoning: "The services provided by a university to affiliated colleges are in relation to higher education as under: Curriculum structure, System of evaluation and examination, Content, Eligibility criteria for admitting students, Process of teaching and learning." Further, "The clause (l) of section 66D of the Act [Negative List] covers specified educational services... all services relating to education have been exempted including the auxiliary educational services."

Moreover, the Tribunal emphasized that the adjudicating authority erred in not examining the applicability of clause (iv) of the exemption notification relating to services connected with admission or conduct of examination by such institution. The Tribunal also noted the continuity of exemption for educational services pre- and post-introduction of the negative list.

In conclusion, the Tribunal's final determinations are that the demand for service tax on affiliation fees is unsustainable and that the appellant qualifies for exemption on renting of immovable property services under the SSI threshold. The appeal filed by the revenue is dismissed, and the impugned order is affirmed.