Affiliation Charges by Universities: Taxability under Service Tax Law - Analysis of Pondicherry University Case
Introduction
The Madras High Court recently addressed a significant dispute concerning the levy of service tax on amounts collected by universities from affiliated colleges. The case of Pondicherry University Vs Joint Commissioner of GST & Central Excise examined whether affiliation services and property rental income attracted service tax liability during October 2013 to June 2017.
The judgment provides crucial insights into the interpretation of negative list provisions under Section 66D(l)(ii) of the Finance Act, 1994 and the scope of Mega Exemption Notification No.25/2012-ST dated 20.06.2012.
Background of the Dispute
Factual Matrix
The Pondicherry University faced a service tax demand of Rs.1,19,85,616/- confirmed through Order-in-Original No.27 of 2019 (ST) dated 29.10.2019. The demand covered two distinct revenue streams:
- Affiliation and recognition charges collected from educational institutions seeking to affiliate with the university
- Rental income from immovable properties within the campus leased to various service providers
The demand period spanned from October 2013 to June 2017, covering both the pre-GST service tax regime.
Demand Components
Along with the principal service tax amount, the original authority imposed:
- Interest under
Section 75of the Finance Act, 1994 - Penalty of Rs.10,000/- under
Section 77(2)for non-registration and failure to file returns - Penalty of Rs.1,02,88,307/- under
Section 78of the Finance Act, 1994
The assessee was given an option to pay reduced penalty of Rs.29,96,404/- (being 25% of determined tax) if payment was made within thirty days along with service tax and interest.
Subsequently, a recovery notice dated 06.10.2020 was issued threatening action under Section 87(b)(ii) of the Finance Act, 1994.
University's Contentions
Reliance on Negative List Provisions
The university's primary submission centered on Section 66D(l)(ii) of the Finance Act, 1994 which existed from 01.07.2012 until its deletion in 2016. The provision included in the negative list:
"education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force"
The university argued that affiliation services constituted an integral component of providing education as part of a curriculum leading to recognized qualifications. Without university affiliation, colleges could not legally admit students or award degrees.
Exemption under Mega Notification
Post-deletion of Section 66D(l)(ii) in 2016, the university claimed exemption under Entry 9 of Mega Exemption Notification No.25/2012-ST dated 20.06.2012 as amended from time to time.
The university contended that:
- Entry 9 covered auxiliary educational services provided to educational institutions
- The definition of "educational institution" in clause 2(oa) inserted vide Notification No.6/2014-ST dated 11.07.2014 encompassed universities
- Subsequent amendment through Notification No.9/2016-ST dated 01.03.2016 explicitly incorporated the ingredients of
Section 66D(l)into the definition
Precedent Support
The assessee relied heavily on three Single Judge decisions of the Madras High Court:
- Madurai Kamaraj University vs Joint Commissioner, Office of the Commissioner of GST & Central Excise, Madurai, 2021 (54) G.S.T.L. 385 (Mad.)
- The Tamil Nadu Dr.MGR Medical University, Chennai vs The Principal Additional Director General Directorate General of GST Intelligence, Chennai, 2022 (64) G.S.T.L. 475 (Mad.)
- Manonmaniam Sundaranar University vs The Joint Director (GST Intelligence), Coimbatore, 2022 (58) G.S.T.L. 27 (Mad.)
All three decisions had granted relief to universities on similar facts, holding that affiliation services were exempt from service tax.
Revenue's Stand
Limitation Bar
The department's foremost objection was procedural. The writ petition was filed on 21.10.2020, almost one year and eight days after the Order-in-Original dated 29.10.2019.
The revenue relied on Assistant Commissioner (CT) LTU, Kakinada & Ors. Vs M/s. Glaxo Smith Kline Consumer Health Care Limited, 2020 (36) GSTL (305) SC, where the Supreme Court held that High Courts cannot entertain writ petitions filed beyond the statutory limitation period prescribed for appeals.
Under Section 85(3)(A) of the Finance Act, 1994, an appeal must be filed within two months from the date of communication of the order, extendable by a further thirty days upon condonation application. The university had neither filed a statutory appeal nor approached the High Court within this period.
Merits - Narrow Interpretation of Section 66D
On substantive aspects, the revenue argued for strict interpretation of Section 66D(l)(ii) of the Finance Act, 1994. According to the department:
- The negative list entry applied only to services by way of education delivered as part of curriculum
- It covered actual teaching and training activities leading to grant of recognized qualifications
- Affiliation, inspection, and recognition services were administrative functions, not educational delivery
- These services were rendered to colleges (educational institutions), not to students
Exclusion from Mega Exemption Notification
The revenue contended that Entry 9 of Mega Exemption Notification No.25/2012-ST did not cover affiliation services because:
- The term "auxiliary educational services" had a specific meaning and did not extend to affiliation or recognition activities
- Services provided to educational institutions were different from services provided by educational institutions for imparting education
- The exemption for renting of immovable property was available only between 01.07.2012 and 31.03.2013, having been withdrawn through Notification No.6/2014-ST dated 11.07.2014
Educational Guidelines
The department referred to the Educational Guidelines issued by the Central Board of Excise and Customs on 20.06.2012. Paragraph 4.12.1 specifically clarified:
"Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered. Training given by private coaching institutes would not be covered as such training does not lead to grant of a recognized qualification"
Paragraph 4.12.5 further clarified that services provided to educational institutions were not covered under the negative list entry, though certain services were separately exempted under the mega notification.