University's Education Services, Including Affiliation Or Other Allied Services To Students, Exempt From Service Tax : Madras High Court

The Madras High Court has ruled that the services provided by a University, including affiliation of colleges and other allied services given to students, are exempted from levy of Service Tax under the Finance Act 1994.

A single bench of Justice R Suresh Kumar gave this ruling in a writ petition filed by Madurai Kamaraj University challenging an order passed by the tax authorities demanding service tax for the period from  01.04.2013 to 30.06.2017.

The Court rejected the argument of the tax department that the exemption is available only to colleges and not universities.

"The word "educational institution", cannot denote only the college affiliated to the university, but, it includes the university", Justice Suresh Kumar wrote in the judgment.

Claiming exemption from service tax, the University referred to the following provisions.

Section 66D(l)(ii) of the Finance Act 1994 included "education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force" in the negative list of services which are exempted from service tax.

This provision was there in the statute book from 01.07.2012 to 13.05.2016. However, from 14.05.2016, the Clause 'l' was omitted or taken away. However, in the meanwhile, a notification called "Mega Exemption Notification" dated 20.06.2012 was issued by the Central Government, by exercising the powers conferred under sub-section (1) of Section 93 of the Finance Act, 1994, whereby, certain services had been mentioned for giving exemptions from the purview of service tax.

Clause 9 of the Mega Exemption Notification stated :

9) Services provided, -

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution;

The mega notification regime continued even from 11.07.2014, and that has continued up to 30.06.2017, when GST was brought into force.

Based on these provisions, the University's counsel Mr.Joseph Prabhakar argued that the services related to affiliation of colleges are exempted from service tax.

Opposing this, the revenue's counsel Mr. K Prabhu argued that the exemption was available only to institutions directly imparting education to students and not to universities. The revenue also referred to an order passed by the Advance Ruling Authority denying the claim of exemption made by another university.

The issue framed by the Court

The Court framed the issue before it as follows :

"...whether the services rendered by the petitioner university by granting affiliation and its allied activities and also by providing shelter in their campus to the service providers like Bank, Post Office, or catering etc., directly beneficial to the students, staff and faculty of the university, are exempted services within the meaning of Section 66-D of the Finance Act and also under the Mega Exemption Notification of the year 2012 as amended from time to time"

Court rejects the narrow interpretation given by the Revenue

The narrow interpretation given by the revenue to the exemption clauses to mean that they will apply only to institutions which directly impart education to students was rejected by the Court.

The Court noted that services such as admissions to educational institutions is closely dependent on the affiliation of those institutions to the universities.

"..admission of the students strictly relates to the affiliation granted by the university. Therefore, the affiliation activity is an integral part of imparting education for any student for getting qualified to get a qualification like degree or diploma.

Accordingly, the services provided by the educational institution like the petitioner institution ie., the university to give affiliation can be an integral part of the educational services, being provided jointly, both by the University and the college. The college cannot independently function without the affiliation of the university. Therefore, for the purpose of providing the services of education, both the university as well as the college concerned, who get affiliated to the university, cannot be separated", the Court observed.

Also, holding or conducting an examination is primarily a job of the university and the colleges affiliated to the university are only facilitators.

Therefore, the Court held that the activities of the Universities come within the phrase "services relating to admission to, or conduct of examination by, such institution" in clause 9(iv) of the Mega Exemption Notification.

The Court disagreed with the view taken by the Authority for Advance Ruling and rejected the revenue's interpretation as "narrow and pedantic".

Further, the Court said that services such as renting of immovable property for the purpose of bank, post office, canteen etc., are all allied services of education which are also included in the purview of educational services, in view of clause 9, which has given an expanded meaning of educational services which includes the services to be provided not only to the students, but also faculty and staff.  The faculty and staff of the university are getting whatsoever services by way of transportation, boarding and lodging etc., are also to be included in the meaning educational services being provided by the educational institutions ie., the petitioner herein which can also be exempted from the purview of service tax.

Setting aside the assessment order, the High Court stated :

"...the petitioner educational institution, i.e the university cannot be assessed for demanding any service tax for the services of education provided by them, which includes affiliation or other services provided for the students, faculty as well as the staff of the university".

Case Title : Madurai Kamaraj University v. Joint Commissioner

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