2022 (6) TMI 584 - HC - Service Tax

University affiliation, exams, degrees and campus facilities held allied educational services, service tax demands quashed as exempt

HC held that the petitioner universities' activities, including affiliation of colleges, conduct of examinations, awarding of degrees/diplomas, and ... Exemption for educational services - allied services of education - renting of immovable property as part of educational activity - precedential effect of a High Court order pending intra court appeal without interim stayExemption for educational services - allied services of education - Whether fees charged by State universities for affiliation, conduct of examinations and award of degrees/diplomas are exempt from service tax as educational services. - HELD THAT: - The Court accepted the view taken in Madurai Kamaraj University that the activities of affiliating universities - including fixation and collection of fees for affiliation, conduct of examinations, and award of degrees/diplomas - fall within the ambit of educational services and allied services of education. After considering the submissions and the earlier exhaustive order, the Court held that the assessment and demand of service tax on such affiliating and allied academic activities cannot be sustained. The determinative reasoning adopts the prior decision which construed the exemption expansively to include services provided to students, faculty and staff as part of the institution's educational functions. [Paras 14, 17]Fees for affiliation and allied academic activities are exempt from service tax as educational services.Renting of immovable property as part of educational activity - allied services of education - Whether rental income derived by the universities from letting out immovable property on campus (to banks, post office, canteens, etc.) is taxable or constitutes allied educational services exempt from service tax. - HELD THAT: - Relying on the earlier decision in Madurai Kamaraj University, the Court concluded that rental services for premises on university campuses used to house facilities such as banks, post offices, staff and student canteens are allied to the educational activity and fall within the expanded meaning of educational services. The Court observed that such services contribute to the benefit of students, faculty and staff and were therefore properly regarded as part of educational services exempt from service tax; accordingly, the impugned show cause notice and order demanding service tax on such rental income were held unsustainable. [Paras 16]Rental income from letting campus immovable property to entities providing services for students/staff is exempt as allied educational services.Precedential effect of a High Court order pending intra court appeal without interim stay - Whether the earlier High Court decision (Madurai Kamaraj University) can be applied despite an intra court appeal having been entertained by a Division Bench where no interim stay was granted. - HELD THAT: - The Court noted that the earlier judgment was an exhaustive consideration of the controversy and that an intra court appeal having been entertained without grant of interim stay did not render the earlier view inconclusive for present purposes. The Court therefore applied the reasoning and result of the earlier order to the present petitions and declined the respondents' contention that the benefit of that decision could not be extended merely because an appeal was pending. [Paras 14]The prior High Court order governs the present petitions despite an intra court appeal being pending without interim stay; its reasoning and result are applied.Final Conclusion: The writ petitions are allowed: the impugned show cause notice and Order in Original are set aside because affiliating activities, allied academic services (including examinations and award of degrees) and rental income from campus premises used for student/staff facilities are held to be covered by the exemption for educational services; no order as to costs. Issues:1. Whether the petitioner Universities are exempt from service tax for certain activities and rental income.2. Whether the decision in the Madurai Kamaraj University case applies to the present case.Analysis:1. The petitioners, State Universities, argued that the fees collected for affiliation and related activities, as well as rental income from immovable properties on campus, should be exempt from service tax as they benefit students and staff. They relied on a previous decision involving Madurai Kamaraj University to support their claim. The respondents, however, contended that the revenue from renting properties to third parties like banks and canteens should not be exempt from service tax. They argued that such income does not fall under educational services. The court considered both arguments and examined the nature of the activities and income in question.2. The court referred to the Madurai Kamaraj University case where it extensively analyzed similar issues. It noted that the previous judgment had considered the exemption of rental income from immovable properties as part of educational services. The court reiterated that services provided by the Universities, including affiliation activities, conducting examinations, and rental income from third parties, were considered allied services connected to educational activities. Therefore, the court held that the activities and income in question were exempt from service tax based on the precedent set in the Madurai Kamaraj University case. Consequently, the court set aside the show cause notice and the Order-in-Original issued against the petitioners, ruling in favor of the petitioners and closing the case without costs.By thoroughly analyzing the issues raised by both parties and applying the precedent set in the Madurai Kamaraj University case, the court concluded that the petitioner Universities were indeed exempt from service tax for the activities and income in question. The judgment provided a detailed explanation of why the exemption applied and how it aligned with the legal principles established in the previous case.