Affiliation Fee Not Consideration for Taxable Service; GST Quashed: Rajasthan HC

Surendera Dental College And Research Institute Vs Rajasthan University of Health Science (Rajasthan High Court)

Summary: The Rajasthan High Court partly allowed the writ petition filed by Surendera Dental College And Research Institute challenging the demand raised by Rajasthan University of Health Science (RUHS) through letter dated 09.12.2024 for GST on affiliation fees. The petitioner-college was affiliated with RUHS for the academic sessions 2023-2024 to 2027-2028 and had already paid the affiliation fee for that period. The Court noted that the issue had already been adjudicated by a Co-ordinate Division Bench in Rajasthan Technical University Versus Union of India & Ors., where it was held that grant of affiliation by a university is a statutory and regulatory function and does not constitute a supply of service under the CGST Act. The earlier judgment further held that affiliation fees are not consideration for a taxable activity and that affiliation services are exempt under Entry 66 of Notification No. 12/2017-CT (Rate). Following that ratio, the High Court set aside the GST demand raised by RUHS and directed the GST authorities to refund any GST collected on affiliation fees within four months, subject to the stated verification regarding whether the GST burden had been passed on to students. If not refunded within the stipulated period, interest at 7% per annum would apply from the date of payment until refund. The Court declined to entertain the prayer concerning transfer of affiliation fee, holding that such relief was beyond its jurisdiction and granting liberty to the petitioner to seek appropriate relief through a separate writ petition.

Background of the Writ Petition

The present writ petition was filed by the petitioner-college challenging the demand raised by respondent No.1 – Rajasthan University of Health Science (RUHS) vide letter dated 09.12.2024 for payment of Goods & Service Tax (GST) on the affiliation fee collected by the University.

The petitioner also sought a direction that, since the affiliation was directed to be transferred from the present University to another University for the academic session of 2025-2026 to 2027-2028, the affiliation fee for such period be transferred to the other University.

The fact which was not in dispute was that the petitioner-college was affiliated with RUHS for the academic session of 2023-2024 to 2027-2028, and the affiliation fee for the said period had already been paid by the petitioner-college.

Earlier Rajasthan High Court Ruling on GST on Affiliation Fees

The Court noted that the issue relating to collection of GST on affiliation fee had already been adjudicated by a Co-ordinate Division Bench of the Court in Rajasthan Technical University Versus Union of India & Ors. The parties did not dispute the legal position laid down in that case.

The earlier judgment dealt with whether grant of affiliation constituted a supply of service, whether affiliation fees constituted consideration, whether Entry 66 of Notification No. 12/2017-CT (Rate) applied, and the validity of the GST levy.

Grant of Affiliation and Supply of Service

The earlier Division Bench considered Section 7 of the CGST Act. Section 7 concerns the scope of supply under GST. Section 7 of the CGST Act addresses the circumstances in which an activity constitutes a supply.

The Court held that grant of affiliation is a statutory function enabling the University to discharge its core mandate of imparting education through affiliated colleges. Applying the doctrine of ejusdem generis to Section 2(17), the Court held that affiliation cannot be equated with trade, commerce or any activity of commercial character. Accordingly, it held that grant of affiliation does not constitute a “supply of service”.

Affiliation Fees and Consideration

The earlier Court held that affiliation is compulsory for colleges and involves no element of choice, bargaining or reciprocity. It therefore held that the fee is a statutory levy and not payment for a negotiated service.

On that reasoning, the Court held that, in the absence of quid pro quo, the essential element of “consideration” is missing.

Applicability of Entry 66

The Court further considered the exemption under Entry 66 of Notification No. 12/2017-CT (Rate). It held that, even assuming affiliation to be a service, it is inseparably connected with curriculum approval, admission of students, conduct of examinations and conferment of degrees.

The Court observed that students admitted through affiliated colleges are, in law, students of the University and held that Entry 66 must be interpreted purposively to cover services forming the backbone of educational delivery, including affiliation.

Validity of the GST Levy

The earlier Division Bench held that circulars or executive clarifications cannot override statutory provisions or exemption notifications. It concluded that levy of GST on affiliation fees results in indirect taxation of education and held that the impugned levy was without authority of law.

Findings in the Earlier Judgment

The earlier Court concluded that grant of affiliation by a University is a statutory and regulatory function and does not constitute a supply of service under the CGST Act. It further held that affiliation fees are not consideration for any taxable activity and that, even otherwise, affiliation services are exempt under Entry 66 of Notification No. 12/2017-CT (Rate).

Accordingly, the levy and collection of GST on affiliation fees were held to be illegal and unsustainable.

Central and State Educational Boards

The earlier judgment also referred to the Affiliation Bye-laws of the Central Board of Secondary Education. The Court observed that “affiliation” is understood as an institutional arrangement enabling a school to prepare its students for admission to Board examinations.

The Court found that the conditions governing affiliation of schools with the Board were, in substance and effect, pari materia with those governing affiliation of colleges with a university. These conditions included adherence to the prescribed curriculum, maintenance of academic and infrastructural standards, and presentation of students for evaluation by the examining body.

The Court further noted that, by Revenue Notification No. 14/2018 dated 26.07.2018, a clarification was introduced in Notification No. 12/2017 whereby Central and State Educational Boards were deemed to be “educational institutions” for the limited purpose of providing services by way of conduct of examinations to students.

Against this backdrop, the Court held that denying universities similar treatment at par with Central and State Educational Boards would be manifestly arbitrary and ex facie discriminatory, particularly when universities equally discharge the function of conducting examinations for students of affiliated colleges as an integral step towards conferment of degrees.

The Court consequently held that the so-called service of affiliation rendered by a university to its affiliated colleges squarely falls within the ambit of exempt services under Entry 66(a) as well as Entry 66(b)(iv).

Relief Granted in the Earlier Judgment

In the earlier judgment, D.B. CWP No.9556/2024 and the other writ petitions listed in Appendix ‘A’ were allowed. The proposed levy and demand of GST on affiliation fee were held to be unsustainable in law.

The show cause notice dated 26.12.2023 issued by the Office of Commissioner, Central Excise & CGST Commissionerate was quashed.

The Court also directed that, subject to verification that the burden of GST on affiliation fee had not been fastened or recovered from students by factoring it into tuition fees, any amount of GST on affiliation fee already paid by the petitioner should be refunded within four months. Failing such refund, interest at 7% per annum would apply from the date of payment until refund.

Application of the Earlier Ruling to Surendera Dental College

In the present matter, the Court held that the demand of GST by respondent No.1 – RUHS was required to be set aside in light of the above ratio.

The respondents’ GST authorities were directed to refund the collected GST, if any, collected on the affiliation fee, within a period of four months from the date of the present order.

The Court further directed that, failing refund within that period, the authorities would be liable to pay interest at 7% per annum from the date of payment of GST, if any, until the date of refund.

Prayer for Transfer of Affiliation Fee

So far as the prayer regarding transfer of affiliation fee by respondent No.1 to the petitioner was concerned, the Court held that the issue was beyond its jurisdiction.

The petitioner was accordingly granted liberty to seek relief by filing an appropriate writ petition.

Final Decision

In view of the above, the present petition was partly allowed.

The demand raised by respondent No.1 – RUHS against the petitioner-college was set aside. The petitioner was given liberty to file an appropriate writ petition to avail relief with respect to transfer of affiliation fee.

Pending application(s), if any, were also disposed of.

Cases Discussed

Rajasthan Technical University Versus Union of India & Ors. (Rajasthan High Court)

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT

1. The present writ petition has been filed by the petitioner-college challenging the demand raised by respondent No.1 – Rajasthan University of Health Science (RUHS) vide letter dated 09.12.2024 for payment of Goods & Service Tax (GST) on the affiliation fee collected by the University.

2. The other prayer is that since the affiliation is directed to be transferred from present University to another University for the academic session of 2025-2026 to 2027-2028, the University be directed to transfer the affiliation fee for such period to the other University.

3. The fact which is not in dispute is that the petitioner-college is affiliated with the respondent No.1 – RUHS for the academic session of 2023-2024 to 2027-2028, and the affiliation fee for the said period has already been paid by the petitioner-college.

4. The issue relating to collection of GST on the affiliation fee has already been adjudicated by a Co-ordinate Division Bench of this Court in B. Civil Writ Petition No.9556/2024 titled as Rajasthan Technical University Versus Union of India & Ors., wherein it has been held that GST cannot be imposed upon the affiliation fee. This legal position has not been disputed by the parties in the present writ petition.

5. The operative portion of the order reads as under:

“43. As an upshot of the what is reasoned and discussed in the preceding part, it is held that grant of affiliation by a University is a statutory and regulatory function and does not constitute a supply of service under the CGST Act. Affiliation fees are not consideration for any taxable activity. Even otherwise, affiliation services are exempt under Entry 66 of Notification No. 12/2017-CT (Rate). Levy and collection of GST on affiliation fees is illegal and unsustainable.

44. Before we part, though we have already opined as above, but it bears reiteration, notwithstanding the views already recorded, that under the Affiliation Bye-laws of the Central Board of Secondary Education, “affiliation” is expressly understood as an institutional arrangement enabling a school to prepare its students for admission to the Board examinations. A careful reading of the Bye-laws makes it abundantly clear that the conditions governing affiliation of schools with the Board are, in substance and effect, pari materia with those governing affiliation of colleges with a university. These conditions include adherence to the prescribed curriculum, maintenance of academic and infrastructural standards, and presentation of students for evaluation by the examining body.

44.1. Pertinently, by Revenue Notification No. 14/2018 dated26.07.2018, a clarification was introduced in the parent Notification No. 12/2017 whereby Central and State Educational Boards were deemed to be “educational institutions” for the limited purpose of providing services by way of conduct of examinations to students.

45. Thus, in this backdrop, any attempt to deny universities similar treatment at par with Central and State Educational Boards is manifestly arbitrary and ex facie discriminatory, particularly when universities equally discharge the function of conducting examinations for students of affiliated colleges as an integral step towards conferment of degrees.

46. Consequently, aside all above, for this reason too, the so-called service of affiliation rendered by a university to its affiliated colleges squarely falls within the ambit of exempt services under Entry 66(a) as well as Entry 66(b)(iv).

RELIEF

47. D.B. CWP No.9556/2024 and all other writ petitions as per Appendix ‘A’ are allowed. Proposed levy and demand of GST on affiliation fee is held to be unsustainable in law. Impugned show cause notice dated 26.12.2023 issued by Office of Commissioner, Central Excise & CGST Commissionerate is quashed. It is also directed that subject to the verification that the burden of the GST on affiliation fee has not been fastened / recovered from the students by factoring it in the tuition fee, any amount of GST on affiliation fee already paid by the petitioner shall be refunded within four months, failing which the same shall also attract interest @ 7% per annum from the date of payment till refund.”

6. The demand of GST by the respondent No.1 – RUHS, is required to be set aside in the light of the above ratio and the respondents GST authorities are directed to refund the collected GST, if any, collected on the affiliation fee, within a period of four months from the date of this order, failing which, they are also liable to pay interest @ 7% per annum from the date of payment of GST, if any, till the date of refund.

7. So far as the prayer regarding the transfer of affiliation fee by the respondent No.1 to the petitioner is concerned, the same is beyond the jurisdiction of this Court, therefore, liberty is given to the petitioner to seek relief by way of filing an appropriate writ petition.

8. In view of the above, the present petition is partly allowed setting aside demand raised by the respondent No.1 – RUHS against the petitioner – college and given liberty to the petitioner to file appropriate writ petition to avail the relief with respect to transfer of affiliation fee.

9. Pending application(s), if any, stand disposed of.