CESTAT Quashes ₹1.18 Crore Service Tax Demand on University of Kota, Rules Affiliation Fees Not Taxable Service
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has quashed a service tax demand of ₹1,18,35,056 along with interest and penalties imposed on the University of Kota, holding that the collection of affiliation fees by the university is a statutory function devoid of commercial elements and thus does not amount to a “service” under the Finance Act, 1994.
The appeal before the Tribunal arose from the Commissioner (Appeals) order affirming the original adjudicating authority’s decision, which had confirmed the tax demand, ordered recovery of interest under Section 75 of the Finance Act, and imposed penalties—₹1,18,35,056 under Section 78 for alleged suppression and concealment, and ₹10,000 under Section 77 for failure to obtain registration and file returns. The demand pertained to affiliation and recognition fees collected by the University from self-financed and non-government colleges between 2012 and 2017, prior to the introduction of GST.
The Revenue’s case was that the University had failed to discharge service tax liability on these fees, which, according to the department, constituted consideration for services rendered. The department alleged suppression of facts with the intent to evade tax, invoking the extended limitation period and issuing a show cause notice dated 23 April 2019. The original authority confirmed the demand, which was upheld in appeal, leading to the present proceedings before the CESTAT.
The University of Kota, represented by Chartered Accountant Dr. Sanjiv Agarwal, argued that it is a statutory body established under a State legislative enactment, performing public functions in accordance with State education policy, and that affiliation activities are part of its statutory mandate. It contended that there was no element of commercial service in granting affiliation, and therefore, the fees collected cannot be treated as taxable consideration.
The Tribunal, comprising Judicial Member Binu Tamta and Technical Member Sanjiv Srivastava, noted that the issue was no longer res integra, having been settled in a series of decisions, including Goa University v. Joint Commissioner of CGST, M/s Jiwaji Vishwavidyalaya v. Commissioner of CGST, Devi Ahilya Vishwavidyalaya v. Commissioner of CGST, and notably, Rajiv Gandhi University of Health Sciences v. DG of GST Intelligence, decided by the Karnataka High Court.
Quoting extensively from the Karnataka High Court’s ruling in Rajiv Gandhi University, the bench reiterated that for an activity to be taxable as a “service” under Section 65B(44) of the Finance Act, there must be a contractual element involving “quid pro quo,” i.e., an activity carried out by one person for another for consideration. Statutory functions like granting affiliation, performed under law and in discharge of public duties, do not fall within the ambit of taxable services, particularly when they lack commercial elements. The High Court had further clarified that such fees, fines, and penalties are integrally connected with statutory functions and cannot be treated as consideration for a commercial service.
The Tribunal also recorded that the Special Leave Petition filed by the Revenue against the Karnataka High Court’s judgment was dismissed by the Supreme Court, lending further weight to the settled position that affiliation fees collected by public universities are not subject to service tax. Finding no merit in the orders of the lower authorities, the CESTAT allowed the appeal and set aside the entire demand of service tax, interest, and penalties against the University of Kota.
Appearance
Counsel For Appellant: CA Sanjiv Agarwal
Counsel For Respondent: AR Shashank Yadav
Cause Title: Registrar M/s University of Kota V. Commissioner, Central Goods Service Tax & Central Excise, Jodhpur
Case No: Service Tax Appeal No.50874 Of 2020
Coram: Binu Tamta [Judicial Member], Sanjiv Srivastava [Technical Member]
