Service Tax Not Payable on Affiliation and Allied Campus Services by State University: Madras High Court

Background of the Dispute

Bharathidasan University, a State University constituted under “The Bharathidasan University Act, 1981”, approached the Madras High Court challenging an order dated 20.02.2019 issued by the Joint Commissioner of GST and Central Excise. Through that order, the authority confirmed a demand of service tax, along with interest and penalties, on various activities of the University.

The University functions as an affiliating body for institutions located within its notified territorial jurisdiction, which covers several districts including Tiruchirappalli, Thanjavur and Pudukkottai (subsequently reorganised into multiple districts). It holds a valid service tax registration (No. AABAB0471ASD002) and had been discharging service tax on taxable services.

The controversy arose when the revenue authorities sought detailed information from the University on:

  • Fees collected from affiliated colleges (including affiliation fees and inspection-related charges), and
  • Rentals collected for immovable properties within the campus.

This information request pertained to the period from 01.07.2012 to 31.03.2017. After receiving the University’s response, the department issued a show cause notice dated 23.10.2018 proposing a substantial service tax liability.

Nature of Services Assessed to Service Tax

The show cause notice projected a service tax demand of Rs.54,24,258/- under two principal categories:

  1. Renting of immovable property

    • Letting out space on campus to entities such as banks and the post office.
    • Rent received from commercial establishments operating within the University premises.

  2. Other services connected with the University’s statutory functions

    • Affiliation fees collected from colleges.
    • Application fees for grant of affiliation for new courses.
    • Inspection and general supervision charges collected from affiliated institutions.

Despite disputing the taxability, the University remitted the service tax amount on 04.01.2019, clearly stating that such payment was made without prejudice to its legal rights. Thereafter, by an order in original dated 20.02.2019, the department:

  • Confirmed the demand of service tax,
  • Levied interest under Section 75 of the Finance Act, 1994, and
  • Imposed:
    • Penalty of Rs.35,01,093/- under Section 78 of the Finance Act, 1994, and
    • Penalty of Rs.10,000/- under Section 77 of the Finance Act, 1994.

This order was challenged through a writ petition seeking issuance of a Writ of Certiorari to quash the proceedings in C.No.V/ST/15/19/2018-S-T.Adjn, dated 20.02.2019.

The central question was whether:

Services rendered by an affiliating State University — particularly affiliation and inspection related activities, admission and examination-linked services, and campus rentals to banks, post office and similar amenities — qualify as exempt “educational services” under Section 66-D of the Finance Act, 1994 and the Mega Exemption Notification of 2012 (as amended).

In other words, the Court had to decide if these services are part of the broader exempt category of services provided by an “educational institution”, or whether they are taxable as general commercial services.

Reliance on Earlier Precedent: Madurai Kamaraj University Case

Counsel for Bharathidasan University relied heavily on the decision of the Madras High Court in Madurai Kamaraj University v. Joint Commissioner, Office of the Commissioner GST & Central Excise in W.P(MD)No.20502 of 2019 dated 16.08.2021. In that matter, the Court had already examined in depth the scope of exemption for services provided by an affiliating university, including affiliation and allied services, and had ruled in favour of the university.

The revenue, represented by the Standing Counsel, attempted to distinguish this earlier judgment, arguing:

  • Renting space to banks, post offices and other service providers inside the University campus is a purely commercial activity.
  • Such activities, according to the department, do not fall within the expression “educational services” or the exempt category of services provided by an educational institution.

The Court, therefore, revisited the statutory provisions and the reasoning adopted in the Madurai Kamaraj University decision, and extracted at length the relevant portions of that earlier ruling.