2024 (8) TMI 209 - HC - Service Tax

University's educational services exempt from service tax; affiliation fees lack quid pro quo element for taxation

Principal Additional Director General Directorate General of GST Intelligence Bengaluru Zone Unit, Principal Commissioner of Central GST Bengaluru, Central Board of Indirect Taxes And Customs, Union of India, Assistant Commissioner of Central Tax Bengaluru Versus M/s. Rajiv Gandhi University of Health Sciences, Karnataka,

Principal Additional Director General Directorate General of GST Intelligence Bengaluru Zone Unit, Principal Commissioner of Central GST Bengaluru, ... Issues Involved:1. Maintainability of the writ petition against the Show Cause Notice.2. Whether the respondent-University qualifies as an educational institution under the Service Tax Law.3. Taxability of income from affiliation and allied functions.4. Taxability of income from non-educational activities of educational institutions.5. Applicability of Exemption Notifications to the respondent-University.Detailed Analysis:I. Maintainability of Writ Petition:The Revenue contended that the writ petition was not maintainable against the Show Cause Notice, arguing that the University should have responded to the notice instead. However, the court noted that there are exceptions to this general rule, such as when the authority lacks competence, when jurisdictional facts are missing, or when it is clear that the authority is determined to proceed regardless of any reply. The court found that the University's case fell within these exceptions, as it argued that it was outside the scope of the Finance Act, 1994 due to the Negative List and exemption notifications. Therefore, the preliminary objection to the writ petition's maintainability was dismissed.II. Status of Respondent-University as an Educational Institution:The Revenue argued that the University, primarily engaged in regulating affiliated colleges, did not qualify as an educational institution under the Service Tax Law. However, the court found that the University performs various educational functions, such as providing instruction and training, conducting examinations, and conferring degrees. The court cited decisions from the Madras and Gujarat High Courts, which held that universities are educational institutions. The court concluded that the respondent-University qualifies as an educational institution, and its services fall within the Negative List under Section 66D(l) of the Finance Act, 1994, thus exempting it from service tax for specified educational services.III. Taxability of Income from Affiliation and Allied Functions:The Revenue contended that the income from granting affiliation, renewal, and related fees constituted a taxable service. The court examined the definition of 'service' under Section 65B(44) of the Finance Act, 1994, which requires an activity carried out for consideration. The court found that the University's activities related to affiliation and recognition are statutory functions lacking commercial elements and do not fit the definition of 'activities carried on for consideration.' Therefore, the income from these activities is not subject to service tax.IV. Taxability of Income from Non-Educational Activities:The Revenue argued that income from renting out properties for canteens, banks, and other facilities is taxable. The court agreed that the levy of tax is activity-centric and not dependent on the nature of the service provider. However, it distinguished between different types of non-educational activities. The court held that income from renting properties for banking facilities is taxable, as it is not incidental to education. Conversely, income from renting properties for canteen facilities is exempt from service tax, as it falls under the exemption for catering services provided to students, faculty, and staff.V. Applicability of Exemption Notifications:The court examined various Exemption Notifications issued between 2012 and 2017. It found that the respondent-University qualifies as an educational institution under these notifications, which exempt certain services from service tax. The court noted that while the earlier notifications included 'renting of immovable property' as an exempted service, the later notifications did not. Therefore, the income from renting properties for banking facilities is not exempt, whereas income from renting properties for canteen facilities is exempt.Conclusion:The court allowed the appeal in part, modifying the impugned judgment. It held that the Show Cause Notice is quashed to the extent it seeks to levy service tax on income from affiliation and related functions. However, the University is not immune from service tax on income from renting properties for banking facilities. The Revenue was directed to restructure and reissue the Show Cause Notice, and the University was given the opportunity to respond. The matter was remanded for fresh consideration, with all other contentions kept open for retrial. Costs were made easy.