2025 (6) TMI 1733 - AT - Service Tax

Levy of service tax - affiliation fees charged by the appellant from the educational institutions /colleges - HELD THAT - The issue is no longer res integra and has 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 . 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 department to consider otherwise is erroneous. The Commissioner (Appeals) after considering the provisions in the post negative era analysed the nature of affiliation fees paid by the educational institutions to the appellant and also the nature of activity involved in the process of receiving affiliation fees concluded that the same is not chargeable to service tax. There are no error in the findings arrived at by the Commissioner (Appeals) which are in conformity with the decisions of the superior forums. There are no reason to interfere with the findings recorded by the Commissioner and therefore accept the same. Conclusion - The affiliation fees collected by the university from affiliated colleges are not liable to service tax under the Finance Act 1994. The appeal filed by the Revenue accordingly stands dismissed.

Summary

The central legal question considered is whether the affiliation fees charged by a university from affiliated educational institutions/colleges are subject to service tax under the Finance Act, 1994.

The Court examined this issue in light of the relevant provisions of the Finance Act, the negative list of services under Section 66D, applicable exemption notifications, and judicial precedents. The key points of analysis are as follows:

Firstly, the Court considered the nature of the affiliation fees and the service provided by the university. The fees are charged for granting affiliation to colleges, which involves oversight and regulation of academic standards, curriculum structure, evaluation systems, eligibility criteria for admission, and teaching methodologies. These services are integrally connected to the provision of higher education and the ultimate awarding of degrees or diplomas recognized by law.

Secondly, the Court referred to the negative list under Section 66D(l) of the Finance Act, which exempts from service tax services by way of education up to higher secondary school or equivalent, education as part of a curriculum for obtaining a recognized qualification, and approved vocational education courses. Although these clauses were omitted from the negative list by the Finance Act, 2016, the exemption continued under the general exemption notification No. 25/2012-ST as amended.

The Court also analyzed the scope of the exemption notification, particularly serial number 9, which exempts services provided to or by an educational institution in respect of education, including auxiliary educational services. The Court noted that services provided by the university to affiliated colleges fall within the core educational services and are covered by this exemption.

Further, the Court reviewed authoritative clarifications issued by the Board, including Circular No. 172/7/2013-ST and Circular No. 107/1/2009-S.T., which confirm that all services relating to education, including those auxiliary to education, are exempt from service tax. The Board's circulars emphasize that universities and affiliated colleges, being statutory bodies authorized to confer recognized degrees, are entitled to exemption on services connected with education.

Judicial precedents were pivotal in the Court's reasoning. The Tribunal relied on a prior decision where it was held that affiliation services rendered by a university are part of education services and thus exempt from service tax. The Karnataka High Court's decision in the Rajiv Gandhi University case was cited, where the Court held that affiliation is a service in furtherance of education and not liable to service tax. This decision was affirmed by the Division Bench and the Supreme Court dismissed the Special Leave Petition challenging it, thereby upholding the exemption.

The Court distinguished the contrary decision from the Madras High Court, which upheld service tax on affiliation fees, by relying on the authoritative Karnataka decisions and the Supreme Court's dismissal of the challenge to those decisions.

The adjudicating authority's error was identified as failing to consider the applicability of the negative list exemption and the exemption notification correctly. The authority had incorrectly held that the services were neither covered by the negative list nor the exemption notification, and had not examined whether the services related to admission or conduct of examinations, which are exempt.

Applying the law to the facts, the Court concluded that the affiliation fees collected by the university from affiliated colleges are for services intrinsically linked to the provision of higher education and the awarding of recognized degrees. These services fall within the scope of exempted educational services under the Finance Act and related notifications. Therefore, the demand of service tax on such fees was unsustainable.

Competing arguments by the Revenue, which sought to impose service tax on the affiliation fees, were rejected on the basis that the law and judicial precedents clearly exempted such services. The appellant's reliance on binding precedents and Board circulars was accepted as authoritative.

The Court affirmed the impugned order setting aside the service tax demand and dismissed the Revenue's appeal.

Significant holdings include the following verbatim extract from the impugned order, which encapsulates the core legal reasoning:

"Therefore, that only the services provided by colleges to students leading to award of recognised degree is not chargeable to service tax, the services provided by university to the college is also in connection with award of degree and the same is also covered by exemption. Therefore, the appellant is not liable to pay service tax on the affiliation fee collected from the affiliated colleges."

Core principles established are:

• Services by a university in granting affiliation to colleges are services in furtherance of education and are exempt from service tax.
• The negative list under Section 66D and the exemption notifications collectively exempt educational services, including those ancillary to education such as affiliation.
• Judicial precedents, including High Court and Tribunal decisions, supported by Supreme Court dismissal of challenges, are binding and decisive on the issue.
• Service tax cannot be levied on affiliation fees charged by universities from affiliated colleges as these fees pertain to exempted educational services.

Final determinations:

• The affiliation fees collected by the university from affiliated colleges are not liable to service tax under the Finance Act, 1994.
• The demand of service tax confirmed by the adjudicating authority is quashed.
• The appeal filed by the Revenue is dismissed, and the order in appeal setting aside the service tax demand is affirmed.