2025 (5) TMI 1828 - AT - Service Tax

Taxability of the affiliation/inspection fees - rental income - Demand of Service Tax along with interest and penalty - applicability of the negative list under section 66D(1) of the Finance Act 1994 - HELD THAT - Learned authorized representative for the Revenue reiterates the impugned order but accepts that the issue involved is the same as in Madurai Kamraj University 2021 (9) TMI 516 - MADRAS HIGH COURT . We therefore find that the demand on this count needs to be set aside. The appellant collected charges from the banks post offices etc. and the demand of service tax has been confirmed on the amounts received by the appellant. Learned counsel submits that the aim of providing the bank post offices etc. is not to earn income but to facilitate the students faculty and staff. This is part of the total service provided by the appellant namely education which is covered by the negative list under section 66D(l). He therefore submits that no service tax can be charged. Learned counsel therefore submits that this issue is also no longer res-integra and the demand needs to be set aside. Learned authorized representative for the Revenue supports the impugned order but concedes that the decision in Rajiv Gandhi University of Health Sciences 2025 (1) TMI 1550 - SC ORDER was on the same issue. Thus we find that question of law with respect to both the demands is decided in favour the appellants. Respectfully following the precedent decisions we set aside the demand in the impugned order. Consequently the demand of interest and the penalties also do not survive. The appeal is allowed and the impugned order is set aside with consequential relief to the appellant.

Summary

The core legal questions considered by the Tribunal are twofold: (a) whether the affiliation/inspection fees charged by the appellant university are liable to service tax under the Finance Act, 1994; and (b) whether the rental income received by the appellant from banks, post offices, canteens, and other entities for use of its buildings or auditoria is subject to service tax.

Regarding the taxability of affiliation/inspection fees, the Tribunal examined the applicability of the negative list under section 66D(1) of the Finance Act, 1994, which exempts certain services from service tax. The appellant contended that affiliation fees fall within the educational services exempted under this negative list. The Tribunal referred to authoritative precedent, notably the decision of the Madras High Court in a case involving a university, which held that educational services provided by universities, including affiliation services, are not liable to service tax. The relevant extract from the judgment stated: "the petitioner educational institution i.e., the university cannot be assessed for demanding any service tax for the services of education provided by them which includes affiliation or other services provided to the students, faculty as well as the staff of the university." This precedent was followed in several other decisions, leading to dismissal of service tax demands on affiliation fees. Although the Revenue initially maintained the demand, it conceded that the issue was identical to the Madras High Court ruling. Applying this legal framework and precedent, the Tribunal concluded that the demand for service tax on affiliation fees was unsustainable and set aside that portion of the impugned order.

Concerning the taxability of rental income, the Tribunal considered charges collected by the appellant for use of its buildings and auditoria by banks, post offices, canteens, photocopy shops, and similar entities. The appellant argued that these facilities were provided primarily to facilitate students, faculty, and staff, and not as a commercial venture to earn income, thus falling within the educational services exempted under the negative list in section 66D(1). The Tribunal relied on the Karnataka High Court decision in a similar matter, which held that rental income received by a university from such entities is not liable to service tax. This ruling was further fortified by the Supreme Court's dismissal of the Revenue's Special Leave Petition challenging the Karnataka High Court's decision, thereby affirming the non-taxability of such rental income. The Supreme Court's order explicitly stated: "Having heard the learned Additional Solicitor General appearing for the petitioners and having gone through the materials on record, we see no reason to interfere with the impugned order passed by the High Court." Given this binding precedent, the Tribunal found that the demand for service tax on rental income was also untenable and accordingly set aside that portion of the impugned order.

In analyzing both issues, the Tribunal applied the legal framework of the Finance Act, 1994, particularly the negative list under section 66D(1), and relied on binding judicial precedents from High Courts and the Supreme Court. The Tribunal carefully considered the appellant's submissions emphasizing the educational nature of the services and facilities, and the Revenue's acceptance of the precedents. The Tribunal rejected the Revenue's arguments supporting the impugned order, finding them inconsistent with established law.

As a consequence of setting aside the demands for service tax on both affiliation/inspection fees and rental income, the Tribunal also held that the associated interest under section 75 and penalties under section 78 of the Finance Act could not survive. The extended period of limitation invoked under the proviso to section 73(1) was rendered moot by the dismissal of the substantive tax demand.

The Tribunal's significant holdings include the following verbatim legal reasoning: "the petitioner educational institution i.e., the university cannot be assessed for demanding any service tax for the services of education provided by them which includes affiliation or other services provided to the students, faculty as well as the staff of the university." Furthermore, the Tribunal noted the Supreme Court's endorsement of the Karnataka High Court's ruling on rental income, emphasizing the authoritative nature of that precedent.

Core principles established by the Tribunal are that educational services provided by universities, including affiliation services and facilitation of ancillary services such as banks and post offices on their premises, fall within the negative list exemption under section 66D(1) of the Finance Act, 1994 and are not subject to service tax. This principle applies notwithstanding the generation of income through affiliation fees or rental charges, provided the underlying purpose is educational facilitation rather than commercial exploitation.

In final determination, the Tribunal allowed the appeal, set aside the impugned order confirming the service tax demand, interest, and penalty, and granted consequential relief to the appellant. This outcome aligns with established judicial precedents and reinforces the exemption of educational services and related ancillary services from service tax liability under the Finance Act, 1994.