Care College of Nursing and others Vs Kaloji Narayana Rao University of Health Sciences (Telangana High Court)
The Telangana High Court recently delivered a significant judgment in the case of “Care College of Nursing and others Vs Kaloji Narayana Rao University of Health Sciences (Telangana High Court),” ruling that private medical colleges are liable to pay Goods and Services Tax (GST) on affiliation and inspection fees. This article delves into the details of the case, the court’s analysis, and the potential consequences of this decision.
Detailed Analysis
In a batch of writ petitions, several educational institutions, primarily nursing colleges affiliated with Kaloji Narayana Rao University of Health Sciences (K.N.R.U.H.S.), challenged the demand notice issued by the university. The notice demanded the payment of 18% GST (9% SGST and 9% CGST) on affiliation and inspection fees from July 2017 onwards. The educational institutions contended that they should be exempt from GST based on certain provisions.
The core argument put forth by the petitioners was centered on Notification No.12 of 2017 dated 28.06.2017, which grants exemptions to specific services provided by educational institutions. This notification covers services provided by educational institutions to their students, faculty, and staff. It also includes services such as transportation, catering, security, cleaning, and services related to admissions and examinations.
However, the notification did not explicitly mention inspection and affiliation fees. The educational institutions contended that these fees should be exempted because they believed that the term “educational institution” included the university itself and that entrance examination fees, which were similar to affiliation and inspection fees, were also exempt.
The petitioners cited a judgment by the Karnataka High Court in support of their claims. The Karnataka High Court had previously ruled in favor of educational institutions regarding the GST liability on certain fees.
In response, the government argued that the GST law made educational services taxable. It emphasized that the exemption under Notification No.12 of 2017 dated 28.06.2017 applied specifically to services rendered to students, faculty, and staff. Any services provided by educational institutions, such as inspection and affiliation services, were taxable unless explicitly exempted.
The government referred to a meeting of the GST Council in which it was decided that only specific services, including those related to admission and examination, would be exempted under Notification No.12 of 2017 dated 28.06.2017. Inspection and affiliation fees were not explicitly covered by this exemption.
The High Court ultimately concurred with the government’s position. It noted that while Notification No.12 of 2017 dated 28.06.2017 exempted certain services provided by educational institutions, it did not encompass inspection and affiliation fees. The court emphasized that exemption notifications should be interpreted strictly and against the taxpayer if there is any ambiguity.
Conclusion
The Telangana High Court’s judgment has clarified that private medical colleges are not exempt from paying GST on affiliation and inspection fees. The court’s decision emphasized that GST exemption notifications should be interpreted strictly, and unless a specific exemption is granted, services provided by educational institutions are taxable.
This judgment has significant implications for private educational institutions, especially those offering medical and nursing courses. It underscores the importance of clear and specific exemptions in GST laws and serves as a reminder to educational institutions to carefully assess their GST liabilities.
In light of this decision, educational institutions, particularly those in the private sector, may need to review their financial and tax obligations and ensure compliance with GST regulations to avoid potential liabilities.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Since the grounds of challenge and the petitioners and respondents, all being the same, we proceed to decide the batch of writ petitions by this common order.
2. This batch of writ petitions are filed by the educational institutions assailing the demand notice raised by the 1st respondent-University so far as payment of G.S.T. on the affiliation fee and inspection fee together with arrears from July, 2017 onwards.
3. For proper appreciation of facts, it would be more relevant
to take note of the contents of the demand notice issued by the 1st respondent to each of the petitioners in all the writ petitions, which is extracted as under :
“With reference to the subject cited and vide references cited, the University has been directed by GST authorities to collect and deposit the GST dues from July, 2017 onwards on affiliation and inspection fees paid by private institutions affiliated to K.N.R.U.H.S.
In this regard, you are hereby directed to submit 9% S.G.S.T. and 9% C.G.S.T. (a total of 18% as G.S.T.) on the affiliation and inspection fee paid to the University from July, 2017 onwards in the form of Demand Draft in favour of the Registrar, K.N.R.U.H.S. payable at Warangal within 10 days. Kindly note that the D.D.s are to be submitted separately for each financial year and also please provide the details of affiliation fee and inspection fee paid in a table form year-wise for each Financial Year.
Any further orders from the G.S.T. authorities shall be communicated to you for further course of action.”
4. For convenience, we are referring to the facts in Writ Petition No.34617 of 2022 as facts for the rest of the batch of writ petitions as well. However, the other connected batch of matters, which are also heard and decided together, are matters where the impugned demand notice have been raised in the present year, i.e., 2023.
5. Heard Mr. Gaddam Srinivas, learned counsel for the petitioners; Mr. Dominic Fernandes, learned Senior Standing Counsel, appearing on behalf of respondent Nos.2 and 3; and Mr. V. Rajeshwar Rao, learned Government Pleader for Commercial Tax Department, for respondent Nos.4 and 5 in Writ Petition No.24617 of 2022. None appeared for the 1st respondent – Kaloji Narayana Rao University of Health Sciences (K.N.R.U.H.S.)
6. All the petitioners in the present writ petition as also in the other connected writ petitions are educational institutions / colleges primarily imparting nursing course. All the colleges before this Court in the various writ petitions are all affiliated with the 1st respondent-Kaloji Narayana Rao University of Health Sciences (K.N.R.U.H.S.), (for short, ‘the 1st respondent-University’).
7. The 1st respondent is a University which has been established under the provisions of Act 6 of 1986. The colleges which intend to get affiliation the 1st respondent-University are required to undergo certain procedure. For the purpose of granting affiliation, the 1st respondent-University is required to first conduct an inspection and for this purpose, the University charges inspection fees as also affiliation fees from the respective colleges. All the colleges in this batch of writ petitions have paid the inspection fees for the inspection conducted as also the affiliation fees for the affiliation granted.
8. The G.S.T. law came into force w.e.f. 01.07.2017.
9. Recently, the respondent Nos.2 and 3 have raised demand of G.S.T. on the affiliation fees and inspection fees from the 1st respondent-University. Based upon the said demand, so raised by the respondent Nos.2 and 3, the 1st respondent-University in turn demanded payment of G.S.T. on the affiliation fees and inspection fees paid by each of these petitioners before this Court in the present batch of writ petitions. It is this demand raised by the 1st respondent-University from the petitioner-educational institutions which has led to filing of the present writ petition.
10. At the time when the G.S.T. law was enacted, “Education Service” was one of the subjects which was taxable under the ‘Heading No.9992’ as per notification dated 28.06.2017. Subsequently, there were certain categories of services provided by the educational institutions which stood exempted from levy of G.S.T. It is this exemption of levy of G.S.T. upon certain category of services rendered by the educational institutions as per Notification No.12 of 2017 dated 28.06.2017, which has been heavily relied upon by the petitioners praying for allowing of the writ petitions and quashment of the impugned demand notice raised by the 1st respondent-University for payment of G.S.T.
11. Learned counsel for the petitioners contended that perusal of Serial No.66 of Notification No.12 of 2017 dated 28.06.2017, would show that the services provided by an educational institution stands exempted from payment of G.S.T. He further contended that the term “educational institution” has been further defined in the same notification in Clause (y) of Section 2 of the G.S.T. Act. According to learned counsel for the petitioners, in terms of the said definition, an institution providing education services as a part of curriculum for obtaining a qualification, would by itself bring within it the University. In the process, the collection of fees towards inspection and affiliation also would get exempted from levy of G.S.T. In addition, he contended that the amendment brought to Serial No.66 of the Notification No.12 of 2017 dated 28.06.2017, by incorporating Clause (aa) also would make it emphatically clear that conduction of entrance examination and collection of entrance fees also has been brought within the exempted category and, thus, it would include affiliation and inspection fees as well.
12. In support of his contention, learned counsel for the petitioners firstly relied upon a recent decision of a learned Single Judge of the Karnataka High Court in M/s. Rajiv Gandhi University of Health Sciences vs. Principal Additional Director General, Directorate General of GST Intelligence and others1 and also in M/s. Bangalore University vs. Principal Additional Director General, Directorate General of GST Intelligence and others2, wherein the learned Single Judge allowed the said writ petitions by setting aside the show-cause notice and also the consequent further actions as well, raised by the University from the respective colleges.
13. Additionally, learned counsel for the petitioners also placed reliance on the following decisions of the Hon’ble Apex Court in The Principal and others vs. The Presiding Officer and others3, Chairman, Bhartia Education Society vs. State of Himachal Pradesh4 and Maharishi Markandeshwar Medical College and Hospital vs. State of Himachal Pradesh5.
14. Learned counsel for the petitioners relied on the above decisions to show that affiliation is intrinsically connected with the educational institutions having affiliation from a particular University. That since the object of the University also is to ensure uniform curriculum and standards among the different affiliated colleges imparting education on the same course. In the instant case, it is the nursing course which is being imparted by the petitioners herein, therefore, the 1st respondent-University would also fall within the purview of ‘educational institution’ and as such the petitioners would also be exempted from levy of G.S.T. on the inspection fees and affiliation fees.
15. Learned counsel for the petitioners further contended that in the event, the said fees becomes amenable to G.S.T. and if the petitioners are made to pay G.S.T. on the inspection fees and affiliation fees, the petitioner-Colleges would be compelled to pass on the burden on the students who get admitted to the respective colleges of the petitioners. Thus, in terms of Serial No.66 of the Notification No.12 of 2017 dated 28.06.2017, since it exempts so far as the services rendered by the educational institutions to the students, the petitioners should not be compelled to pay G.S.T. on the inspection fees and the affiliation fees. It would also be detrimental to the interest of the students who have meanwhile taken admission to the petitioner-Colleges.
16. Per contra, Mr. Dominic Fernandes, for Commercial Tax, for respondent Nos.2 to 4, contended that the impugned demand notice is one which is in fact raised by the 1st respondent-University and the 1st respondent-University as such has not disputed or denied payment of G.S.T. on the inspection fees or affiliation fees.
17. Learned Special Standing Counsel for respondent-Department further submitted that in terms of Notification No.11 of 2017, dated 28.06.2017, the Government had made it expressly clear that under the ‘Heading – 9992’, the educational institution is one which is taxable under the G.S.T. law. The term ‘Education Service’ includes various components viz., affiliation fees, inspection fees and various other fees which is collected both by the 1st respondent-University as also by the respective colleges affiliated to the 1st respondent-University. It was further contended that after making education service taxable, the Government relaxed the same to some extent vide Notification No.12 of 2017 dated 28.06.2017, and it is that which is reflected upon in Serial No.66 of the said notification. Clause (a) of Serial No.66 under the same ‘Heading – 9992’ prescribing services provided by an educational institution to its students, faculty and staff to be one under the exempted category so far as the levy of tax is concerned.
18. According to learned counsel for the respondent-Department, a plain reading of Serial No.66 (which was further amended vide Notification No.2 of 2018, dated 25.01.2018) would go to show that the collection of affiliation fees and inspection fees does not stand exempted. It was the further contention of learned counsel for the respondent-Department that, in the 47th G.S.T. Council Meeting held on 28/ 29.06.2022, one of the topic of discussion in their agenda was in respect of the confusion that prevailed regarding the taxability of G.S.T. on sale of application forms to the prospective students, issue of migration, eligibility forms to graduate students, affiliation works and other educational activities. In this context, the G.S.T. Council had in its aforesaid meeting categorically resolved that the services provided by the educational institutions to its students, faculty and staff stands exempted vide Notification No.12 of 2017 dated 28.06.2017.
19. It was further resolved in the same meeting that so far as collection of application fees for entrance examination and also collection of fee for issuance of eligibility certificates and for entrance examination and admission fees, etc., all would stand exempted in terms of Notification No.12 of 2017 dated 28.06.2017. However, as regards issue of affiliation of educational institutions with the Universities and Boards, etc., it was resolved that the Circular issued by the Government of India, Ministry of Finance, Department of Revenue, dated 17.06.2021, would be governing the field. As per Clause (4)(iii) of the said Circular, G.S.T. @ 18% applies to such services provided by the Board or University so far as accreditation to education institutions is concerned
20. Learned counsel for the respondent-Department further contended that the decisions rendered by learned Single Judge of the Karnataka High Court in The Presiding Officer and others (1 supra) and Chairman, Bhartia Education Society (2 supra) (as was strongly harped upon by the learned counsel for the petitioners) would not be applicable or come to the rescue of the petitioners as proper material papers were not brought before the said High Court at the time of disposal of the said writ petitions. That that the learned Single Judge had primarily relied upon Clause 66D of the Finance Act, 1994 which had the negative list of services upon which there would be no levy of tax.
21. The learned counsel for the respondent-Department further brought to the notice of this Court that Sub-Clause (l) of the Clause 66D of the Finance Act, 1994 already stood omitted by way of Finance Act, 2016 w.e.f. 14.05.2016. The levy of G.S.T. is under the provisions of the G.S.T. law which does not have any such clause as was relied upon by the learned Single Judge of the Karnataka High Court from the Finance Act, i.e., Clause 66D. Therefore, the said decisions are distinguishable both on facts and also on law.
22. Having heard the contentions of learned counsel on either side and on perusal of the records, what needs to be taken into consideration for deciding the issue raised by the learned counsel for the petitioners is the first notification that was issued by the Government, i.e., Notification No.11 of 2017, dated 28.06.2017 which first reflected the description of the services which would be taxable and also reflected the headings and the rate of charges of G.S.T. upon each of the services notified therein.
23. Serial No.30 of Notification No.11 of 2017, dated 28.06.2017 is the head subject which is relevant for the decision of this Court, which for ready reference is extracted hereunder :
Notification No.11/2017-Central Tax (Rate)
New Delhi, the 28th June, 2017
G.S.R…. (E) – In exercise of the powers conferred by subsection (1) of Section 9, sub-section (1) of Section 11, sub-section (5) of section 15 and sub-section (1) of Section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services of description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in Column (4), subject to the conditions as specified in the corresponding entry in Column (5) of the said Table :-
