In re Directorate of Medical Education (GST AAR Kerala)
Goods and Services Tax (GST) Authority for Advance Ruling (AAR) in Kerala has provided clarity on the applicability of GST to fees collected by the Directorate of Medical Education (DME), Government of Kerala. The ruling distinguishes between fees levied on medical staff for leave without allowance (LWA) and inspection fees collected from self-financing educational institutions, declaring the former exempt from GST and the latter taxable at 18%.
The DME sought an advance ruling on two specific issues. First, the taxability of fees collected from medical officers, nursing, and paramedical staff wishing to avail leave without allowance for private employment. The Kerala Government had introduced these fees (e.g., Rs. 50,000 for Assistant Professors and above, Rs. 15,000 for Lecturers & Non-teaching staff) to restrict LWA due to acute staff shortages. The AAR, referencing CBIC Circular No. 178/10/2022-GST dated 03.08.2022, ruled that such fees are not subject to GST. The circular clarifies that amounts recovered as penalties, such as forfeiture of salary or bond amounts for premature exit, are not consideration for tolerating an act. The AAR reasoned that the LWA fee is a deterrent, a policy penalty aimed at discouraging indiscriminate leave and safeguarding public interest, not a charge for a service rendered to the employee. It does not confer any new right or benefit. Furthermore, the DME, as a government department, is not engaged in a business activity while levying this fee, and the employee is acting in a personal employment context. The AAR also noted the decision in M/s Manappuram Finance Ltd. v. Assistant Commissioner, Central Tax and Excise, Thrissur (2022), which upheld that notice pay recoveries are not a supply under GST. Thus, the AAR concluded that these LWA fees do not constitute a “supply” under Section 7 of the CGST Act, 2017, and no GST is leviable.
