2025 (12) TMI 314 - HC - GST

University fees not 'supply'; GST demands under Section 73(9) read with Rule 142(5) quashed entirely

M/s. Rani Channamma University Versus Commercial Tax Officer, (Enforcement) North Zone Belagavi Belgaum, Union of India, State of Karnataka, Assistant Commissioner of Commercial Taxes, (Enforcement). Gokak., Deputy Commissioner of Commercial Taxes (Aduit-2) Belagavi, Central Board of Indirect Taxes And Customs, New Delhi, Goods And Services Tax Council, New Delhi.

HC, following a co-ordinate Bench decision on an identical issue, held that affiliation fees, PG registration fees, admission fees, convocation fees and ... Challenge to adjudication orders u/s 73(9) of the CGST/KGST Acts, 2017 read with the Rule 142(5) of the CGST/KGST Rule, 2017 - GST on affiliation fees - Whether activities of Universities are commercial in nature and can be termed as ‘supply’ in the course or furtherance of business? - HELD THAT:- The issue in the lis stands answered by the judgment rendered by the Co-ordinate Bench in the case of M/s. Bengaluru North University vs. Joint Commissioner of Central Tax and others [2025 (9) TMI 385 - KARNATAKA HIGH COURT], wherein it was held that '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.' On the same reasons rendered by the co-ordinate Bench, the subject petition deserves to succeed - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether activities of a State University in imparting and regulating higher education are commercial in nature so as to constitute 'supply' in the course or furtherance of 'business' under Section 7 read with Section 2(17) of the CGST/KGST Acts. (2) Whether activities and receipts incidental or ancillary to education (including various fees from students and affiliated colleges) can be brought to tax under GST as business activities. (3) Whether fees collected by a University (including affiliation, registration, admission, convocation and other similar fees) constitute 'consideration' under Section 2(31) read with Section 7 of the CGST/KGST Acts. (4) Whether the activities undertaken by a University under its parent statute are statutory/regulatory functions, and if so, whether such functions fall outside the charging provisions of Section 7 read with Section 9 of the CGST/KGST Acts. (5) Whether services provided by a University in relation to education, including affiliation-related activities, are exempt from GST under Entry 66 of Notification No. 12/2017-CT (Rate) dated 28.06.2017. (6) Whether CBIC Circulars dated 17.06.2021 and 11.10.2024, to the extent they treat affiliation and similar fees of Universities as taxable and restrict exemption under Entry 66, are legally valid. (7) Whether affiliation fees, PG registration fees, admission fees, convocation fees and other sums collected by the University from colleges/students are exigible to GST, and whether the impugned show cause notices and adjudication orders demanding GST are sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Nature of University activities - 'business' / 'supply' under GST Legal framework considered The Court set out and examined Section 7 (scope of 'supply'), Section 9 (levy and collection), and Section 2(17) ('business') of the CGST/KGST Acts, and adopted the interpretative approach and conclusions of a prior decision of a Co-ordinate Bench and of another High Court on the same question. Interpretation and reasoning (a) Section 7(1) covers supplies of goods or services made 'for a consideration... in the course or furtherance of business'. Section 2(17) defines 'business' to include 'trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity...', and incidental/ancillary activities to such main activities. (b) On the nature of 'commercial activity' and 'education', the Court adopted the reasoning that GST is intended to apply to 'commercial activities' and that 'education' has consistently been treated in constitutional and tax jurisprudence as a public/welfare function, not as trade or commerce, and not as business in the profit-oriented sense. (c) The Court noted that 'education per se cannot fit' into the expressions trade, commerce, manufacture, profession, vocation, adventure or wager; the phrase 'any other similar activity' in Section 2(17)(a) is read noscitur a sociis and is confined to activities akin to 'wager', not to education. (d) Relying on constitutional jurisprudence, the Court observed that education is not 'trade' or 'business', and 'vocation' in the company of trade/commerce is to be read as gainful occupation, which generally does not include education. (e) By analogy with a decision holding that regulatory functions of statutory commissions are not 'business' under Section 2(17)(i), the Court applied the same reasoning to Universities discharging statutory regulatory functions in the field of education. Conclusions The activities of the University in imparting and regulating education are not 'commercial' and do not constitute 'business'; consequently, such activities cannot be treated as 'supply' in the course or furtherance of business under Section 7, and fall outside the basic charge to GST. Issue (2): Taxability of activities incidental/ancillary to education Legal framework considered The Court examined the structure of Section 2(17)(a) and (b), and adopted the reasoning that incidental or ancillary activities are 'business' only if the main activity itself qualifies as business. Interpretation and reasoning (a) Section 2(17)(b) brings within 'business' any activity 'in connection with or incidental or ancillary to' the main activities listed in clause (a). If the primary activity does not fall within clause (a), clause (b) cannot be invoked. (b) Since the dominant/main activity of the University is education, which is not 'business', incidental or ancillary receipts and activities (e.g. various fees, sale of prospectus, interest income, residential rents to staff) cannot be treated as business unless an independent intention to carry on business in those incidental activities is established by the Department. (c) The Court endorsed the view that mere reflection of income in financial statements does not convert such income into taxable 'supply'; there must be a qualifying taxable activity under GST. Conclusions Where the University's main activity (education) is not 'business', its incidental or ancillary activities/receipts from students and colleges cannot be brought to tax under GST as business activities. Issue (3): Whether University fees constitute 'consideration' under GST Legal framework considered The Court set out Section 2(31) defining 'consideration' and read it with Section 7 (requirement of consideration for supply), and considered precedents holding that statutory/regulatory fees collected in discharge of statutory functions are not 'commercial consideration'. Interpretation and reasoning (a) 'Consideration' contemplates payment or monetary value of an act/forbearance in respect of or in response to a supply, implying a contractual quid pro quo in a commercial setting. (b) The Court adopted the view that fees such as affiliation, PG registration, convocation and similar charges collected by a University are in the nature of statutory or regulatory fees prescribed under the University's parent statute, not contractual commercial payments. (c) The activity of affiliation and related regulatory functions is carried out in discharge of public/statutory duty; there is no contractual bargain with colleges/students in the commercial sense, nor an element of 'inducement' to supply. (d) Since the University is a statutory body performing public functions and is not engaged in 'business' under Section 2(17), fees for such statutory functions cannot be characterised as 'consideration' in the GST sense. Conclusions Fees collected by the University in discharge of statutory/regulatory functions, including affiliation, registration, admission, examination-related and convocation fees, do not constitute 'consideration' for a taxable 'supply' under the CGST/KGST Acts. Issue (4): Character of University functions - statutory/regulatory vs. commercial Legal framework considered The Court examined the constituent University enactments (state University Acts) which create the University and prescribe its powers, functions and fee-levying authority, and relied on precedents treating similar statutory bodies' functions as public/statutory and non-commercial. Interpretation and reasoning (a) The relevant University statutes show that the purpose is to ensure proper and systematic instruction, teaching, training and research in specified disciplines, and to regulate and control affiliated colleges through affiliation, recognition, supervision and withdrawal of affiliation. (b) The power to grant/renew/withdraw affiliation or recognition, and to levy fees, late fees, fines and penalties, is conferred by statute and exercised in discharge of public duties aimed at regulating standards of education. (c) Drawing analogies from decisions on statutory development and regulatory corporations, the Court accepted that amounts charged in performance of such statutory mandates are not commercial receipts, but compulsory/statutory levies in aid of public functions. (d) The Court noted that where the functions are statutory/regulatory and non-commercial, the charging provisions under Section 9 read with Section 7 do not apply, as the preconditions of 'supply' for consideration in the course or furtherance of business are absent. Conclusions The University's activities, including affiliation and regulation of colleges, are statutory/regulatory functions performed under the University Act; such functions are non-commercial and fall outside the ambit of 'business' and 'supply' under the CGST/KGST Acts, rendering the charging provisions inapplicable. Issue (5): Applicability of GST exemption under Entry 66 of Notification No. 12/2017-CT (Rate) Legal framework considered The Court set out Entry 66 of Notification No. 12/2017-CT (Rate), dated 28.06.2017, and paragraph 2(y) defining 'educational institution'. The Court considered prior judicial interpretation of a similar exemption under the erstwhile service tax regime and of the same Entry 66, and examined the purpose of the exemption as clarified by CBIC. Interpretation and reasoning (a) Entry 66 exempts: (i) services provided by an 'educational institution' to its students, faculty and staff; and (ii) specified services provided to an educational institution, including 'services relating to admission to, or conduct of examination by, such institution'. (b) 'Educational institution' in the Notification includes an institution providing education as part of a curriculum for a qualification recognised by law. The Court accepted that a University granting affiliation, conducting examinations and awarding degrees falls within this definition; students in affiliated colleges are effectively students of the University. (c) The Court agreed that exemption cannot be confined to classroom teaching; it extends to the broader educational process, including curriculum design, affiliation of colleges to ensure standards, admission processes and examinations leading to recognised qualifications. (d) Affiliation and related activities are intrinsically linked to admission and examination, and thus are covered both under clause (a) (services by an educational institution to its students) and clause (b)(iv) (services relating to admission or conduct of examination) of Entry 66. (e) While exemption notifications must be interpreted strictly, such interpretation cannot defeat the object of promoting education and shielding students from GST burden. Imposing GST on Universities would lead to the tax being passed on to colleges and students, undermining the exemption's purpose. Conclusions Even assuming any element of 'service', the University qualifies as an 'educational institution', and its affiliation, admission, examination and related educational activities and fees fall within Entry 66 of Notification No. 12/2017-CT (Rate) and are exempt from GST. Issue (6): Validity of CBIC Circulars dated 17.06.2021 and 11.10.2024 Legal framework considered The Court considered Sections 7 and 9 of the CGST/KGST Acts, Entry 66 of Notification No. 12/2017-CT (Rate), and the legal principles governing the binding nature and limits of circulars when contrary to statutory provisions or notifications. Interpretation and reasoning (a) The impugned circulars proceed on the assumption that affiliation and similar fees collected by Universities constitute taxable 'supply' and further purport to restrict the scope of the exemption under Entry 66, by treating affiliation services as not related to admission or conduct of examination. (b) The Court, following earlier reasoning, held that University activities in question do not constitute 'supply' under Sections 7 and 9; therefore, clarifications premised on the contrary assumption are inconsistent with the statute. (c) The Court reiterated that circulars cannot override or amend statutory provisions or valid exemption notifications, nor can they insert new conditions or restrict the scope of exemptions beyond what the notification provides. (d) The specific clarification that affiliation services are not related to admission or conduct of examination was found to be contrary to judicially settled understanding of 'affiliation' as an activity essentially connected with admission to courses and public examinations leading to degrees. Conclusions The CBIC Circulars dated 17.06.2021 and 11.10.2024, insofar as they treat Universities' affiliation and similar fees as taxable supplies and restrict the exemption under Entry 66, are contrary to the CGST/KGST statutory scheme and the exemption notification, and are invalid in law. Issue (7): GST liability on University fees and sustainability of impugned show cause notices and orders Legal framework considered The Court applied its findings on Sections 7, 9, 2(17), 2(31), Entry 66 of Notification No. 12/2017-CT (Rate), and the invalidity of the relevant CBIC circulars, to the concrete demands raised through the impugned orders and show cause notices. Interpretation and reasoning (a) The Court held that the University's core activities are not 'business', its statutory fees are not 'consideration', and thus the basic conditions of 'supply' under Section 7 are not met; consequently, GST cannot be levied on such activities on first principles. (b) Even if any part of the activities were treated as 'services', they are covered by the exemption in Entry 66 as services of and to an 'educational institution', particularly those relating to admission and conduct of examinations, of which affiliation is an integral part. (c) As the circulars underpinning the demands are invalid and the activities are either outside the charging provision or exempt, the show cause notices and adjudication orders founded on those premises suffer from lack of jurisdiction and legal error. Conclusions (i) Affiliation fees, PG registration fees, admission fees, convocation fees and other similar sums collected by the University from colleges/students are not exigible to GST. (ii) The impugned adjudication orders and related demand/summation orders, as well as the underlying show cause notices seeking to levy GST on such fees, are unsustainable and stand quashed.