Service tax not applicable on university affiliation fees under current rules, but applies to rent and convention services

The CESTAT New Delhi held that service tax cannot be levied on affiliation fees received by universities from colleges, affirming the Karnataka HC ruling in M/s Rajiv Gandhi University of Health Science. The tribunal found no distinguishing facts in the present case and set aside the service tax demand on affiliation fees. However, the demand of service tax on rent received and amounts for convention services was upheld. The appeal was allowed in part.

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ISSUES:

Whether affiliation fees received by a university from colleges for imparting education are liable to Service Tax/GST'Whether service tax is payable on rental income received by the university from renting out buildings to banks, post offices, canteens, and coffee houses'Whether service tax is payable on amounts received for providing Convention Services by the university?

RULINGS / HOLDINGS:

Affiliation fees received by the university from affiliated colleges are not chargeable to service tax as they fall under the exemption provided by Clause (I) of Section 66D of the Finance Act, which excludes educational services provided by educational institutions from service tax liability.Rental income received by the university from renting out buildings to banks, post offices, canteens, and coffee houses is liable to service tax as it constitutes a taxable service of Renting of Immovable Property Service.Service tax liability on amounts received for Convention Services is acknowledged and upheld.

RATIONALE:

The Court relied on the statutory framework under the Finance Act, specifically Section 66D and Clause (I) thereof, which places educational services provided by educational institutions in the negative list, exempting them from service tax.Precedent decisions by various High Courts and Tribunals, including the Hon'ble High Court Karnataka and Bombay, have consistently held that affiliation fees are an integral part of educational services and thus exempt from service tax.The Court referred to the legal definition and nature of affiliation, emphasizing that affiliation creates an inseparable connection between the university and the affiliated colleges, making the fees part of educational services.The Tribunal acknowledged that rental income and Convention Services fall outside the educational services exemption and therefore attract service tax liability.The Court noted that the adjudicating authority failed to follow judicial protocol by confirming service tax demand on affiliation fees contrary to binding precedent.

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