2025 (9) TMI 385 - HC - GST

Universities' regulatory activities and fees not 'supply' under Section 7; fees exempt under Entry No.66 Notification No.12/2017-CT(R)

HC held that universities' activities are statutory/regulatory, not commercial or 'supply' under Section 7, and fees charged (affiliation, PG ... Levy of GST - affiliation fees and other fees collected from the constituent colleges/students - activities of Universities are commercial in nature and can be termed as ‘supply’ in the course or furtherance of business or not - activities incidental to education can be brought to tax under the GST regime on the ground that it amounts to a business - fee collected by the Universities is consideration or not - activities undertaken by the Universities are statutory and regulatory in nature - services provided by the Universities are exempt from GST in terms of Entry No. 66 of Notification No. 12/2017-CT (R) dated 28.06.2017 or not - validity of Circulars issued by CBIC to restrict the benefit of notification. Whether activities of Universities are commercial in nature and can be termed as ‘supply’ in the course or furtherance of business? - HELD THAT:- Section 7(1) of the CGST/KGST Act provides for the scope of supply; it includes all forms of supply of goods and services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business - Further, as per the dictum of the Apex Court in T.M.A Pai’s case [2002 (10) TMI 739 - SUPREME COURT], while interpreting Article 19 of the Constitution, their Lordships held that education is neither trade nor business but could be covered under the term “occupation”; vocation which keeps company with trade, commerce etc., will have to be interpreted noscitur a sociis as meaning gainful occupation which partakes the nature of words such as trade, commerce, etc., and generally does not cover education. Thus, the activities of Universities are not commercial in nature and cannot be termed as ‘supply’ in the course or furtherance of business - the issue answered in favour of the petitioners-Universities. Whether the activities incidental to education can be brought to tax under the GST regime on the ground that it amounts to a business? - HELD THAT:- The income derived from students and colleges and other income incidental to the main functions of the University cannot be brought to tax under GST on this principle - the issue is answered in favour of the petitioners-Universities. Whether the fee collected by the Universities is ‘consideration’ ? - HELD THAT:- The Bombay High Court in the case of Goa University [2025 (4) TMI 1056 - BOMBAY HIGH COURT] observed that the fee collected by the University cannot be termed as ‘consideration’ as contemplated under Section 7 of the CGST Act, 2017. Since Universities are not covered under Section 2(17)(i) as also the fact that they perform public functions and are entrusted with a statutory duty in public interest, the aforesaid decision of the Bombay High Court and our own Hon’ble Division Bench decision in RGUHS’s case supra would be applicable and it cannot be said that the activities fall within the contractual realm. Therefore, it cannot be said that the statutory functions carried out for a fee would constitute “consideration” under the GST legislations - the issue is accordingly answered in favour of the petitioners-Universities. Whether the activities undertaken by the Universities are statutory and regulatory in nature? - HELD THAT:- The Bombay High Court in the case of Goa University’s case, observed that the activities of the University are statutory/regulatory in nature. On perusal of the statutory provisions of VTU Act, it is clear that the objective of the Act is to establish and to incorporate a University for the purpose of ensuring proper and systematic instruction, teaching, training and research in development of engineering, technology and allied science in the State of Karnataka. The statutory provisions also provide for powers to develop, promote and organize continuing education system in co- ordination and with co-operation of the constituent units. To grant affiliation to constituent colleges - Similarly, the objective of RGHUS is to ensure proper and systematic instructions, teaching, training and research in modern medicine and Indian systems of medicine in the State of Karnataka. The statutory provisions also provide for affiliation of colleges to the privilege of University. Therefore, the activities carried out by the Universities are under the respective statutory provisions, which are in the nature of statutory/regulatory functions and the same cannot be termed as commercial in nature. In terms of the above, the activities not being commercial or business in nature and the fee so charged not qualifying as consideration, the charging provisions under Section 9 r/w Section 7 of CGST/ KGST Act, 2017 would not get attracted to the activities of the University - the issue is accordingly answered in favour of the petitioners-Universities. Whether the services provided by the Universities are exempt from GST in terms of Entry No. 66 of Notification No. 12/2017-CT (R) dated 28.06.2017? - HELD THAT:- In light of the clarification issued by CBIC vide C.B.E. & C. Flyer No. 41, dated 01.01.2018, the purpose of the exemption entry is to promote education. Consequently, the exemption cannot be restricted to classroom teaching as held by the Bombay High Court in Goa University’s case - It is noticed that the very purpose of the notification is to ensure that students need not have to pay GST on the fees that they are paying. If GST levy is fastened on the Universities, they would necessarily pass on the same to the colleges (being an indirect tax), and in turn colleges will pass on the same to the students. Therefore, the very object of exemption will stand defeated. For these additional reasons and the reasoning given by the Bombay High Court, the exemption is available to the Universities - the issue is accordingly answered in favour of the petitioners-Universities Whether the impugned Circulars dated 17.06.2021 and 11.10.2024 are legally valid? - HELD THAT:- The impugned Circulars are contrary to the legal provisions and the express wordings of the exemption notification - the issue is accordingly answered in favour of the petitioners-Universities. Whether the affiliation fees, PG registration fees, admissions fees, convocation fees, and other sums collected by the petitioners-Universities from the College/students would be exigible to payment of GST? - Whether the impugned Show Cause Notices and Orders warrant interference by this Court in the present petitions? - HELD THAT:- The activities of the Universities in collecting the various fees/income listed in the petitions do not satisfy the twin conditions of being “consideration” or “in the course or furtherance of business” appearing in Section 7 of the CGST Act, 2017/ KGST Act, 2017. The functions of the Universities are statutory in nature and do not fall within the ambit of the GST provisions on first principles. Even otherwise, the exemption Notification No. 12/2017-CT(R) dated 28.06.2017 exempting educational institutions is wide enough to cover the activities of the Universities. Therefore, the issuance of impugned Circulars herein are contrary to the terms of the exemption notifications and the statutory scheme. The main functions of the University being not taxable, the ancillary, incidental or activities in connection with education cannot also be brought to tax. The activities of Universities are not commercial in nature and cannot be termed as “supply” in the course or furtherance of business and consequently, activities incidental to education cannot be brought to tax under the GST regime on the ground that it amounts to a business; so also, the fee collected by the Universities is not consideration and the activities undertaken by the Universities are statutory and regulatory in nature; the services provided by the Universities are exempt from GST in terms of Entry No. 66 of Notification No. 12/2017-CT (R) dated 28.06.2017 and the impugned Circulars dated 17.06.2021 and 11.10.2024 are illegal and invalid in law. The issues are answered accordingly in favour of the petitioners by holding that affiliation fees, PG registration fees, admissions fees, convocation fees and other sums collected by the petitioners-Universities from the College/students would not be exigible/amenable to payment of GST and consequently, the impugned Show Cause Notices and Orders deserve to be quashed. The impugned Show Cause Notice at Annexure – A dated 10.10.2023 issued by the respondents is hereby quashed - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether activities of universities (including granting affiliation, conducting examinations and related functions) are commercial in nature and constitute a 'supply' in the course or furtherance of 'business' under Sections 7 and 9 of the CGST/KGST Act. 2. Whether activities incidental or ancillary to education (e.g., prospectus, convocation, registration, affiliation-related charges) can be taxed as business transactions under GST. 3. Whether fees charged by universities (affiliation fees, PG registration fees, admission fees, convocation fees, other statutory/administrative fees) constitute 'consideration' as defined in Section 2(31) of the CGST/KGST Act. 4. Whether activities undertaken by universities are statutory/regulatory in nature and thus outside the ambit of taxable commercial activity. 5. Whether services provided by universities fall within the exemption in Entry No. 66 of Notification No. 12/2017-CT(R) (services by an 'educational institution' to its students; services relating to admission/conduct of examination; services to educational institutions listed therein). 6. Whether circulars/clarifications issued by tax authorities (specifically those treating affiliation/accreditation services as taxable at 18%) are legally valid insofar as they constrict the scope of the statutory exemption or treat statutory university functions as taxable supply. 7. Whether impugned show-cause notices and assessment orders seeking GST on the said fees warrant judicial interference (quashing/setting aside) in view of the above. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Commercial nature and 'supply' under Sections 7 & 9 Legal framework: Section 7 defines 'supply' as any supply of goods/services for a consideration in the course or furtherance of business; Section 9 levies GST on intra-State supplies. Section 2(17) defines 'business'. Precedent treatment: The Court relied on authorities holding education and regulatory/state functions are not commercial in nature and on a recent high-court decision applying these principles to a university (discussed in reasoning). Decisions interpreting 'commercial activity' and construction of 'education' were examined. Interpretation and reasoning: The Court analysed Section 2(17) (business) and observed education does not fit within trade/commerce/manufacture/profession or similar activities; the ejusdem generis reading of 'any other similar activity' constrains extension. Applying noscitur a sociis and Supreme Court precedent (education as occupation/vocation distinct from commerce), the Court concluded the dominant activity of a university - imparting education, regulation and examination - is non-commercial. The burden to show an independent intention to carry on business for incidental activities lies on revenue; mere receipt of income does not establish a 'supply' in the course of business. Ratio vs. Obiter: Ratio - activities of universities, including affiliation and examination, are not commercial and therefore do not constitute 'supply' under Section 7. Observations on interpretation of 'business' and burden on revenue are ratio; supporting authority citations are applied as ratio. Conclusion: Issue answered in favour of petitioners - university activities are not commercial and do not amount to 'supply' for GST purposes. Issue 2 - Taxability of incidental or ancillary activities Legal framework: Section 2(17)(b) covers activities incidental or ancillary to business only if the principal activity is business (clause (a)). Precedent treatment: The Court relied on jurisprudence that incidental transactions acquire character of business only if the main activity is commercial and on decisions requiring proof of independent commercial intent. Interpretation and reasoning: Since the principal activity (education) is non-commercial, ancillary activities cannot be converted into business transactions merely by labelling or by the fact of monetary receipts. The Court emphasised that GST demands premised on accounting heads (income/expenditure statements) without establishing supply are bad for want of jurisdictional fact. Ratio vs. Obiter: Ratio - incidental activities to non-commercial university functions are not taxable as business; revenue must prove independent business intention. Conclusion: Incidental and ancillary incomes linked to the non-business core function are not exigible to GST. Issue 3 - Whether fees charged are 'consideration' (Section 2(31)) Legal framework: Section 2(31) defines 'consideration' as payment made in respect of, in response to, or for inducement of supply. Precedent treatment: The Court applied reasoning from recent authoritative decisions holding statutory/regulatory fees levied by state bodies are not contractual consideration and are collected in discharge of public duties. Interpretation and reasoning: Affiliation and related fees are statutory/regulatory levies mandated by university statutes; they are not quid pro quo contractual payments inducing a supply of services in the commercial sense. The Court accepted the view that statutory/regulatory charges collected in fulfilment of public functions do not qualify as 'consideration' for GST. Ratio vs. Obiter: Ratio - statutory/regulatory fees levied by universities do not constitute 'consideration' under the GST definition. Conclusion: Fees charged (affiliation, registration, convocation, admissions, etc.) do not qualify as consideration for taxable supply. Issue 4 - Statutory/regulatory nature of university activities Legal framework: Relevant university statutes vest powers to affiliate, regulate curricula, conduct examinations and confer degrees; such functions are public/statutory in nature. Precedent treatment: The Court cited authority recognizing statutory corporations/boards performing sovereign/regulatory functions are not engaged in commercial activity and decisions treating affiliation/inspection fees as statutory levies not amenable to service tax/GST. Interpretation and reasoning: The Court examined statutory provisions establishing universities' regulatory mandates (grant/withdrawal of affiliation, examination authority). The pith and substance of such acts is public regulation of education; therefore the fees are components of statutory function rather than commercial services. Ratio vs. Obiter: Ratio - university functions of affiliation and regulation are statutory/regulatory and not commercial supply. Conclusion: Activities are statutory/regulatory; GST charging provisions do not apply on that basis. Issue 5 - Applicability of Entry No. 66 (Notification No. 12/2017-CT(R)) Legal framework: Entry No. 66 exempts services provided by an 'educational institution' to its students, and services relating to admission/conduct of examinations, and services to an educational institution as enumerated. Precedent treatment: The Court followed high-court precedents holding universities fall within the definition of 'educational institution' for the exemption and that affiliation/examination functions are integral to education and covered by the exemption. Interpretation and reasoning: The Court read the exemption purposively to prevent defeating its object (avoiding GST burden on students), and held university activities (including affiliation and examination related functions) fall within clause (a) and clause (b)(iv) of Entry 66. The Court rejected narrow readings that confine 'educational institution' to classroom teaching only; it observed that students of affiliated colleges are, for purpose of exemption, students of the university which awards the degree. Ratio vs. Obiter: Ratio - services by universities in relation to education, admission and examination are exempt under Entry No. 66; remarks on purposive construction and policy are ratio to the extent they support the exemption's application. Conclusion: Services provided by universities (including affiliation and related fees) are covered by the exemption and are not subject to GST. Issue 6 - Validity of impugned circulars/clarifications treating affiliation as taxable Legal framework: Administrative circulars cannot add conditions to or curtail the scope of statutory exemptions; clarifications contrary to statute/notifications have no legal effect to create tax liability. Precedent treatment: The Court relied on authority holding clarifications inconsistent with statute/notifications are impermissible and on decisions invalidating circulars that introduce new conditions to exemptions. Interpretation and reasoning: The Court concluded the circulars characterise affiliation/accreditation services as taxable supply and exclude them from the exemption, thereby restricting the statutory notification's scope. Such clarifications contradict Sections 7/9 and the exemption notification and cannot override or narrow the statutory exemption. The administrative body (Tax Research Unit/TRU) cannot, by circular, impose new conditions or alter the legal character of statutory functions. Ratio vs. Obiter: Ratio - the impugned circulars are invalid insofar as they treat university affiliation/related fees as taxable and restrict the exemption; such circulars cannot sustain GST demands. Conclusion: Circulars/clarifications are held invalid in respect of affiliation and related fees. Issues 7 & 8 - Exigibility of GST on listed fees and quashing of notices/orders Legal framework & reasoning: Synthesising the above conclusions: (i) university activities are not 'supply' in course/furtherance of business; (ii) fees are not 'consideration' as statutory/regulatory levies; (iii) activities fall within Entry 66 exemption; (iv) circulars seeking to reclassify such functions are invalid. Ratio vs. Obiter: Ratio - given the absence of taxable supply and applicability of exemption, the impugned show-cause notices and orders demanding GST on affiliation, registration, convocation and related fees lack jurisdictional foundation and are liable to be quashed. Conclusion: The GST demands, show-cause notices and orders insofar as they seek to tax affiliation fees, PG registration fees, admission/conduct/examination related fees, convocation and other incidental sums are not exigible to GST; the impugned circulars are invalid as applied; consequential impugned notices/orders are quashed/set aside.