Service Tax cannot be levied on affiliation fees and rent collected by universities

By:

The Hon’ble High Court, Karnataka in the matter of M/s Rajiv Gandhi University of Health Science v. Principal Additional Director General and Ors. [Writ Petition No.57941 of 2018 dated July 26, 2022] held that Service Tax cannot be levied on affiliation fee and fees collected for other incidental activities by the universities for providing educational services.

Facts:

M/s Rajiv Gandhi University of Health Science (“the Petitioner”) is imparting education and the entire affiliation fee is received towards the same. The Revenue Department (“the Respondent”) has issued the Show Cause Notice (“SCN”) proposing to levy service tax on the affiliation fees, penalty/ fine for delayed payment from Colleges affiliated to it and also rents from certain buildings rented out by it. Aggrieved by the same, the present writ petition is filed.

Petitioner’s Contention:

  • As per the provisions of Section 66D of the Finance Act, 1994 (“the Finance Act”) and Notification No.25/2012-ST dated June 20, 2012-(services provided by educational institution) the consideration received by providing service by way of education as a part of curriculum for obtaining a qualification recognize by any law for the time being in force is exempted from service tax and thereby, the affiliation fee received by the petitioner is also exempted from service tax.
  • The Revenue Department does not have the jurisdiction to issue show cause notice proposing to levy service tax on the affiliation fee.

Respondent’s Contention:

  • Admitted that the consideration received by the Institutions for services by way of education for obtaining qualification recognized by any law for the time being in force is exempted from service tax. However, the affiliation fee received by the Petitioner cannot be considered as part of the said services and that it is a consideration received towards the services provided to private Institutions by affiliating the same.

Issue:

  • Whether the Petitioner is liable to pay service tax on affiliation fee and on building rent received by them?

Held:

The Hon’ble High Court, Karnataka in Writ Petition No.57941 of 2018 dated July 26, 2022 has held as under:

  • The negative list Section 66D of the Finance Act are not chargeable to service tax. Clause (l) of Section 66D of the Finance Act covers services provided by educational institutions and consequently the educational services are not chargeable to service tax.
  • Noted that, the Petitioner has to be considered as an Educational Institution for imparting education by itself and also through its affiliated colleges. Therefore, the said universities would qualify to be educational institutions and services provided would not be chargeable to tax on the affiliation and other incidental charges collected by Petitioner.
  • Held that, in furtherance to imparting education some of the buildings for canteen, bank are rented out, the said activity has to be considered as an activity incidental to provide services of education and it is a service naturally bundled in the ordinary course of business as per Clause (3) of Section 66 (F) of the Finance Act and the rent received also deserves to be exempted once the activity of providing education by the Petitioner is exempted from Service Tax.

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