University affiliation fees held exempt from service tax; show cause quashed except for rental income issues left open

HC held that affiliation granted by the petitioner University to private colleges is an activity in furtherance of providing education, covered by statutory exemption, and therefore not exigible to service tax. Consequently, the show cause notice was held without jurisdiction insofar as it sought to levy service tax on affiliation fees and related penalties/fines, and was quashed to that extent. As regards rental income from buildings let out by the University, HC declined to enter into factual or quantitative issues and left it open to the respondent Authorities to proceed in accordance with law, subject to the petitioner's right to respond to the show cause notice on that limited aspect.

---

---

Issues:
1. Jurisdiction of authorities to levy service tax on affiliation fees and rents received by a university.
2. Exemption of affiliation fees from service tax under Section 66D of the Finance Act, 1994.
3. Classification of affiliation fees as consideration for educational services.
4. Taxability of rent received from buildings let out by the university.
5. Application of Section 66F(3) of the Act to bundled services provided by the university.
6. Dispute regarding jurisdiction and necessity of approaching the court without replying to the show cause notice.

Analysis:
1. The petitioner, a university receiving affiliation fees, penalty for delayed payments, and rents, challenged a show cause notice proposing service tax on these amounts. The petitioner argued that as per Section 66D and relevant notifications, affiliation fees for providing education services are exempt from service tax. The respondents contended that affiliation fees are not part of educational services but for services provided to private institutions. The court noted that the university, established under the Karnataka State Universities Act, imparts education directly and through affiliated colleges, making affiliation fees a consideration for educational services.

2. The court referred to Section 66D(l) of the Act, which exempts services by way of education as part of a curriculum for obtaining a recognized qualification from service tax. The court held that the university's act of granting affiliation to colleges is a service in furtherance of education, thus falling under the exemption.

3. Regarding the rent received from buildings let out for university activities like canteen and bank facilities, the court applied Section 66F(3) of the Act on bundled services. It concluded that these activities are essential for running the university and naturally bundled with educational services, thus exempting the rent from service tax.

4. The court emphasized that the dispute was not about quantifying service tax but the authority's jurisdiction to demand tax on educational activities. Since the authorities claimed the affiliation fees were taxable, the court found it inappropriate to relegate the petitioner to the adjudicating authority.

5. Consequently, the court set aside the show cause notice and the demand statement, ruling in favor of the petitioner and disposing of the writ petition accordingly.

---