Affiliation fees for private colleges held non-taxable service in education, writ petition allowed against service tax demand

HC held that affiliation granted by the petitioner university to private colleges is a service in furtherance of providing education and, therefore, cannot be subjected to service tax as an independent taxable service. Since the core issue involved the jurisdiction of the authorities to levy service tax on such educational activity, and the respondents had clearly taken a stand that affiliation fees were taxable, HC found it inappropriate to compel the petitioner to first respond to the show cause notice. The petition was entertained and disposed of, holding the departmental view erroneous and declining to relegate the petitioner to the adjudicating authority.

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Issues:
Challenge to show cause notice proposing to levy service tax on affiliation fee received by petitioner - Jurisdiction of authorities to demand service tax for educational services provided by petitioner

Analysis:
The petitioner, a university, received affiliation fees from institutions affiliated to it. Respondent issued a show cause notice proposing to levy service tax on the affiliation fee. Petitioner challenged various provisions of Finance Act, 1994, along with the show cause notice. Petitioner claimed exemption from service tax under Section 66D of the Act for providing education towards obtaining a recognized qualification. Respondent argued that affiliation fee is not part of educational services but a consideration for services to private institutions. Respondent contended that the challenge was limited to the show cause notice and petitioner should respond to it instead of approaching the court.

The court considered whether the affiliation fee collected by the university falls under the exemption for educational services. The university, established under the Karnataka State Universities Act, provides education through its constituent colleges and affiliated institutions. The court noted that the university's services in regulating education and conducting examinations qualify as services by way of education under Section 66D of the Act. The court emphasized that the respondent's decision to tax affiliation fees was erroneous as it pertains to providing educational services.

The court addressed the appropriateness of the petitioner approaching the court without responding to the show cause notice. While normally a person must reply to such notices before seeking court intervention, in this case, the dispute was not about quantifying service tax but about the jurisdiction of authorities to demand tax for educational activities. The court found it unnecessary to refer the petitioner back to the adjudicating authority due to the clear stance of the authorities that affiliation fees were taxable.

In conclusion, the court set aside the show cause notice and subsequent actions, ruling in favor of the petitioner. The writ petition was disposed of accordingly, affirming the exemption of affiliation fees from service tax under the educational services category.

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