The Madras High Court has delivered a decisive ruling on the taxability of affiliation fees under the Goods and Services Tax (GST) regime, holding that such fees do not qualify for exemption under Notification No.12/2017-CTR. This judgment resolves a long-standing conflict between divergent single-judge decisions and provides much-needed clarity for universities and tax authorities on the scope of educational service exemptions.
Background & Facts
The Dispute
Bharathidasan University, represented by its Registrar, challenged notices issued by the GST authorities under Section 74(5) of the Tamil Nadu Goods and Services Tax Act, 2017. The notices demanded payment of GST, along with 18% interest and penalty, on affiliation fees collected from colleges for the financial years 2019-2020 to 2022-2023. The University contended that these fees were exempt under Notification No.12/2017-CTR, which exempts services provided by educational institutions to students, faculty, and staff, as well as services relating to admission or conduct of examinations.
Procedural History
The case reached the Division Bench of the Madras High Court after a reference was made by a learned Single Judge due to conflicting opinions on the issue:
- Madurai Kamaraj University v. Joint Commissioner (2021) held that affiliation fees were exempt as they related to educational services.
- Manonmaniam Sundaranar University v. Union of India (2021) and Pondicherry University v. Joint Commissioner of GST (2023) held that affiliation fees were taxable.
The Division Bench was tasked with resolving the question: "Whether affiliation charges collected by a University from the affiliating Institution is amenable to levy of GST?"
Relief Sought
The University sought a writ of certiorarified mandamus to quash the impugned notices and declare that affiliation fees were exempt under Notification No.12/2017-CTR, read with Articles 243G and 243W of the Constitution and CBIC Circular No.234/28/2024/GST.
The Legal Issue
The central question before the Court was whether affiliation fees collected by universities from affiliated colleges qualify as "services relating to admission to, or conduct of examination by, such institution" under Entry 66(b)(iv) of Notification No.12/2017-CTR, thereby exempting them from GST.
Arguments Presented
For the Petitioner (University)
The University argued that:
- Affiliation is a prerequisite for colleges to admit students and conduct examinations, making it an integral part of educational services.
- A purposive interpretation of the GST Act should be adopted to include affiliation services within the exemption, as a narrow interpretation would defeat the purpose of exempting educational institutions.
- The judgment in Madurai Kamaraj University (supra) correctly held that affiliation services are connected to the admission and examination processes.
For the Respondent (GST Department)
The Department contended that:
- Affiliation fees are not directly related to the admission of students or conduct of examinations, as these activities commence only after affiliation is granted.
- The plain language of Notification No.12/2017-CTR restricts the exemption to services directly connected to admission or examination, and affiliation does not fall within this scope.
- The CBIC Circular No.234/28/2024/GST clarifies that affiliation services are taxable, and this circular should be given effect.
The Court's Analysis
The Division Bench conducted a detailed examination of the statutory framework, precedents, and the CBIC Circular to resolve the dispute.
Interpretation of Notification No.12/2017-CTR
The Court analyzed Entry 66(b)(iv) of the notification, which exempts "services relating to admission to, or conduct of examination by, such institution." The University argued that affiliation is a prerequisite for admission and examination, but the Court rejected this contention, holding:
"The exemption notification indicates that services relating to admission or conduct of examination by the Educational Institutions alone are exempted from service tax. Therefore, any services prior to admission of candidates or conduct of examination cannot be brought within the scope of expression 'services relating to admission to, or conduct of examination by, such Institution.'"
The Court emphasized that affiliation is a standalone service that precedes admission and examination, and thus cannot be subsumed under the exemption.
Analysis of Precedents
The Court examined the conflicting judgments of the Madras High Court:
- In Madurai Kamaraj University, the learned Single Judge adopted a purposive interpretation, holding that affiliation services are connected to educational activities.
- In Manonmaniam Sundaranar University and Pondicherry University, the learned Single Judge adopted a strict interpretation of the notification, holding that affiliation fees are taxable.
The Division Bench favored the latter view, noting that the plain language of the notification does not support an extended interpretation. The Court also distinguished the judgment in Madurai Kamaraj University on the ground that it did not consider the CBIC Circular No.234/28/2024/GST, which clarified the taxability of affiliation services.
Role of CBIC Circular No.234/28/2024/GST
The Court placed significant reliance on the CBIC Circular, which clarified that:
- Affiliation services are not related to the admission of students or conduct of examinations.
- Such services are taxable, except when provided to government schools.
The Court held that the circular cannot be ignored, as it reflects the intent of the GST Council and the Government. The circular was issued pursuant to Section 168(1) of the Central Goods and Services Tax Act, 2017, which empowers the Government to issue clarifications.
Definition of 'Service' Under GST Act
The Court referred to Section 2(102) of the Central Goods and Services Tax Act, 2017, which defines "services" as anything other than goods, money, or securities. The Court held that affiliation fees fall squarely within this definition and are thus taxable unless specifically exempted.
Constitutional Provisions and Exemption Powers
The Court noted that the power to grant exemptions from GST is vested in the Government under Section 11 of the CGST Act. The Government can exempt goods or services either absolutely or conditionally. However, the exemption under Notification No.12/2017-CTR is restricted to specific services, and affiliation fees do not fall within its ambit.
The Verdict
The Madras High Court held that affiliation fees collected by universities are not exempt from GST under Notification No.12/2017-CTR. The Court answered the reference in favor of the GST Department, declaring that such fees are taxable. The matter was remitted to the learned Single Judge for further consideration of other grounds, if any.
What This Means For Similar Cases
Affiliation Fees Are Taxable Under GST
The judgment settles the long-standing ambiguity on the taxability of affiliation fees. Universities and educational institutions must now:
- Include affiliation fees in their GST liability calculations for past and future periods.
- Review their tax compliance to ensure that GST is paid on affiliation fees collected from affiliated colleges.
- Distinguish between exempt and taxable services to avoid disputes with tax authorities.
Strict Interpretation of Exemption Notifications
The Court's reliance on the plain language of Notification No.12/2017-CTR underscores the importance of strict interpretation of tax exemption provisions. Practitioners should:
- Avoid extended interpretations of exemption notifications unless explicitly supported by statutory language.
- Rely on CBIC circulars for guidance on the scope of exemptions, as these reflect the intent of the GST Council.
CBIC Circulars Carry Significant Weight
The judgment highlights the binding nature of CBIC circulars issued under Section 168(1) of the CGST Act. Tax practitioners must:
- Monitor CBIC circulars for clarifications on contentious issues.
- Argue for the applicability of circulars in disputes where the statutory language is ambiguous.
- Challenge circulars only if they contradict statutory provisions, as the Court held that circulars cannot override notifications issued under the Act.
Implications for Universities and Educational Institutions
Universities and educational institutions must:
- Segregate taxable and exempt services in their financial records to ensure compliance.
- Engage with tax authorities to regularize past non-compliance, if any, in light of the GST Council's recommendation to regularize GST liability for the period from 01.07.2017 to 17.06.2021.
- Review their fee structures to account for the GST liability on affiliation fees, which may impact the cost of education for students.
