NO SERVICE TAX ON AFFILIATION FEES

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi in a recent judgment has set aside a service tax demand on affiliation fees imposed on the University of Kota along with equal amount of penalty and quashed the impugned order.  The Tribunal held that affiliation fees collected by the university do not qualify as “services” rendered for consideration under the Finance Act, 1994, due to the absence of any commercial intent. [Registrar M/s University of Kota Versus Commissioner, Central Goods Service Tax & Central Excise, Jodhpur - 2025 (8) TMI 97 - CESTAT NEW DELHI]

On facts, the appellant, University of Kota, a state government University in Rajasthan was a University enacted under special Act of State Legislative Assembly and not registered under Service Tax. It is engaged in providing services of education including affiliation to various self-financing/non-Government colleges under its jurisdiction as per the education policy of the State Government. An enquiry was initiated against the appellant and it was observed that the appellant was collecting Affiliation Fee/Recognition Fees on which they had not discharged service tax.

The appellant was served with a demand for service tax amounting to Rs. 1,18,35,056 by the Commissioner of Central Goods and Service Tax (CGST), Jodhpur. The department alleged that the university had failed to pay tax on affiliation and recognition fees collected from self-financed colleges between 2012 and 2017, before the advent of GST. No relief was granted at first appeal stage. The Revenue Authorities also imposed penalties of an equal amount under Section 78 of the Finance Act Rs. 10,000 under Section 77 for failure to obtain registration and file returns, and ordered the recovery of applicable interest.

The appellant and the bench had relied on a string of earlier judgments and particularly emphasized the Karnataka High Court’s decision in Rajiv Gandhi University of Health Sciences vs. DG of GST Intelligence, which held that statutory functions like granting affiliation by public universities are not “activities for consideration.” The Apex Court had dismissed the revenue appeal against Karnataka High Court order reported in PRINCIPAL ADDITIONAL DIRECTOR GENERAL & ORS. Versus M/s RAJIV GANDHI UNIVERSITY OF HEALTH SCIENCES - 2025 (1) TMI 1550 - SC Order, thus, reinforcing the non-taxability of such affiliation fees. The issue is no longer res-integra and has been decided by this Tribunal in following cases:-

• Goa University, Through its Registrar, Mr. Vishnu Sakharam Nadkarni, Versus Joint Commissioner Of Central Goods And Service Tax, Goa Commissionerate, Central Board Of Indirect Taxes & Customs, Goods And Services Tax Council, GST Council, Delhi. - 2025 (4) TMI 1056 - BOMBAY HIGH COURT
• M/s Jiwaji Vishwavidhyalaya Versus Commissioner, Central Goods & Service Tax, & Central Excise, Bhopal - 2025 (5) TMI 153 - CESTAT NEW DELHI
• M/s. VISVESVARAYA TECHNOLOGICAL UNIVERSITY Versus ADDITIONAL DIRECTOR GENERAL, COMMISSIONER OF CENTRAL GST AND CENTRAL EXCISE BELAGAVI, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS NORTH BLOCK, UNION OF INDIA NEW DELHI, THE ASSISTANT COMMISSIONER OF CENTRAL TAX AND CENTRAL EXCISE - 2024 (10) TMI 948 - KARNATAKA HIGH COURT
• Devi Ahilya Vishwavidhyalaya (University) Versus Commissioner, Central Goods & Service Tax & Central Excise, Indore - 2025 (5) TMI 2175 - CESTAT NEW DELHI
• Principal Commissioner of CGST & Central Excise, Jabalpur Versus M/s. Rani Durgawati Vishwavidyalaya - 2025 (5) TMI 1227 - CESTAT NEW DELHI
• M/s. Rajiv Gandhi University of Health Sciences, Versus Principal Additional Director General Directorate General Of GST Intelligence Bengaluru - 2022 (8) TMI 707 - KARNATAKA HIGH COURT

The Tribunal concluded that the collection of affiliation fees is a statutory function devoid of commercial elements. Such activities lack the necessary “quid pro quo” to be treated as a taxable service. The concept of “consideration” under service tax law necessitates a contractual arrangement involving service which was absent in this case.

Thus, it was held that the Revenue was not justified in levying Service Tax on the income accruing to the University on account of affiliation during the academic year between 2012-13 and 2016-17. The periodicity of collection of affiliation related fees pales into insignificance. The CESTAT thus set aside the earlier orders of both the Commissioner (Appeals) and the original adjudicating authority, effectively quashing the entire service tax demand, interest, and penalties.