In what looks like a pretty important ruling for universities and educational bodies, the Bombay High Court said, in a clear way, that the affiliation fees which a statutory university collects can’t be put under GST. The judges basically held that allowing colleges to affiliate, that process is a statutory duty, done in the name of educational objectives, and it isn’t really a commercial kind of business activity. Because of that, those charges can’t be treated as a “supply” for GST purposes, and so the GST demand that was raised against the University of Mumbai was set aside, quashed.
Key Takeaways
- In what looks like a pretty important ruling for universities and educational bodies, the Bombay High Court said, in a clear way, that the affiliation fees which a statutory university collects can’t be put under GST.
- After that, the University went to the Bombay High Court and challenged the whole demand.
- Whether Affiliation Constitutes a Taxable Supply The High Court went through Sections 7 and 9 of the CGST Act and, in the end, held that the affiliation fees gathered by a statutory university, do not really amount to consideration for some taxable supply.
- Court’s Findings on the Concept of Business Under GST A core point that sat before the Court was basically this—whether the University’s kind of work could really be called a “business” for purposes of Section 2(17) of the CGST Act.
- Conclusion The Bombay High Court’s decision gives a lot of relief to universities across India, because it kinda clarifies that affiliation fees collected while doing statutory educational functions, won’t really amount to a taxable supply under GST law.
Bombay High Court Holds University Affiliation Fees Not Liable to GST
The Update
The Bombay High Court sort of set aside a GST demand more than ₹16.90 crore that was raised against the University of Mumbai, tied to affiliation fees collected from colleges for the years 2017-18 up to 2022-23
The Impact
This verdict, in effect, reinforces that the statutory educational functions carried out by universities are not commercial activity, and so it essentially comes outside GST scope.
The Action
For universities and other educational institutions dealing with GST disputes over affiliation fees, this decision can be used as a reference point while they assess their tax stance, and also while handling the pending litigation
Background of the Dispute
The University of Mumbai, a statutory university which was set up via state legislation, got a show cause notice under Section 74 of the CGST Act, basically proposing GST, interest and also penalty on affiliation fees that were collected from affiliated colleges for the financial years 2017-18 to 2022-23. Later on the tax department more or less confirmed a GST demand around ₹16.90 crore together with an equivalent penalty. After that, the University went to the Bombay High Court and challenged the whole demand.
In its case the University said that affiliation activities are carried out under the Maharashtra Public Universities Act, 2016 and they are tied to its statutory duties not something like commercial services.
Why GST Was Demanded on Affiliation Fees?
The tax authorities argued that the affiliation services were given by the University in exchange for some consideration, so it would fall in the definition of “supply” under Section 7 of the CGST Act. As per the Department, this activity meant a sort of regular, systematic collection of fees and it was linked with services that were actually rendered to colleges, so GST would get attracted as per Section 9 of the Act.
They also said that the idea of “business” under GST is very wide, and it can still apply even when there is no profit motive. So, on that understanding the affiliation fees were seen as taxable consideration for the services provided by the University.
University’s Arguments Before the Court
The University contended that giving affiliation is kind of a statutory regulatory duty which is needed to keep educational standards steady. Before affiliation is granted, the University has to do inspections, check the infrastructure, look into academic facilities, consult domain experts, and make sure everything matches the statutory requirements which are prescribed under the law. In its view these activities are carried out under its educational mandate, not as some commercial or market oriented services.
It also argued that educational activities cannot really be treated as trade or commerce so they do not fall within the definition of “business” that the GST Registration talks about. Further, it submitted that even if affiliation were seen as a service, the same would still get covered by the exemption under Entry 66 of Notification No. 12/2017-Central Tax (Rate).
Whether Affiliation Constitutes a Taxable Supply
The High Court went through Sections 7 and 9 of the CGST Act and, in the end, held that the affiliation fees gathered by a statutory university, do not really amount to consideration for some taxable supply. The Court also remarked that Section 7 talks about commercial kinds of supply, like sale, transfer, licence, rental, lease, barter or exchange, which are done in the course of or for the furtherance of business. But an affiliation that is granted inside a statutory set up, just does not slot into those boxes.
The Court further noticed that the affiliation route is basically woven into a bigger statutory scheme meant to control and regulate higher education. So things like checking infrastructure, academic scrutiny, on site inspections, and compliance reviews, are performed to meet educational aims, not to chase commercial gain. Because of that, the affiliation fees taken while discharging those statutory obligations, can not be treated as consideration for business style activities.
Court’s Findings on the Concept of Business Under GST
A core point that sat before the Court was basically this—whether the University’s kind of work could really be called a “business” for purposes of Section 2(17) of the CGST Act. The Court, in rejecting what the Department was saying, said the definition has to be read along with the whole set up: things like commercial dealings that involve trade, commerce, production, profession, or something akin to other profit centered undertakings. Here the affiliation activities done by a statutory university, just don’t carry those traits.
The Court also made it clear universities are there to spread knowledge and to set, i mean maintain educational norms. If you label such institutions as business entities only because they collect statutory fees, then that would be at odds with the purpose and aims of university legislation. And because the activity in itself wasn’t a supply made in the course of business, the charging mechanism under Section 9 couldn’t be brought in. So the GST authorities were not really having jurisdiction to raise that demand.
Alternative Exemption Under GST Law
The Court noted, that even if affiliation services are assumed to be taxable supplies, the levy would still not stand, because educational institutions have exemptions under Entry 66 of Notification No. 12/2017-Central Tax (Rate). The Court basically restated that a university counts as an educational institution, and that those services which are naturally connected with education, the examination process, admissions, and academic supervision all come under the umbrella of that exemption, in practice.
So, in this way, affiliation-related services would remain exempt from GST even if we take the other view that such activity actually amounts to a supply.
Conclusion
The Bombay High Court’s decision gives a lot of relief to universities across India, because it kinda clarifies that affiliation fees collected while doing statutory educational functions, won’t really amount to a taxable supply under GST law. The Court’s ruling not only wipes out the demand against the University of Mumbai, but it also reinforces the bigger idea that education related statutory work cannot be treated like a commercial business activity for tax purposes.
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Bombay High Court Quashes GST Demand on University Affiliation Fees+
In what looks like a pretty important ruling for universities and educational bodies, the Bombay High Court said, in a clear way, that the affiliation fees which a statutory university collects can’t be put under GST. Whether Affiliation Constitutes a Taxable Supply The High Court went through Sections 7 and 9 of the CGST Act and, in the end, held that the affiliation fees gathered by a statutory university, do not really amount to consideration for some taxable supply.