Full Judgment Text
- 1 -
WA No. 856 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
®
TH
DATED THIS THE 30 DAY OF JULY, 2024
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE RAMACHANDRA D HUDDAR
WRIT APPEAL NO.856 OF 2022 (T-RES)
BETWEEN:
1. PRINCIPAL ADDITIONAL DIRECTOR GENERAL
DIRECTORATE GENERAL OF GST INTELLIGENCE
BENGALURU ZONE UNIT,
#112, K H ROAD, S P ENCLAVE,
ADJ. TO KARNATAKA BANK,
BENGALURU – 560 027.
2. PRINCIPAL COMMISSIONER OF CENTRAL GST
SOUTH COMMISSIONERATE,
C R BUILDINGS, QUEENS ROAD,
BENGALURU – 560 001.
3. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS, NORTH BLOCK,
NEW DELHI – 110 001.
4. UNION OF INDIA,
MINISTRY OF FINANCE,
REP BY SECREATARY
NORTH BLOCK, NEW DELHI – 110 001.
5. ASSISTANT COMMISSIONER OF CENTRAL TAX
ND
SOUTH DIVISION-6, 2 FLOOR,
TTMC/BMTC BUILDING,
KANAKAPURA ROAD,
BANASHANKARI,
BENGALURU – 560 070.
…APPELLANTS
(BY SRI.AMIT A DESHPANDE., ADVOCATE)
- 2 -
WA No. 856 of 2022
AND:
M/S RAJIV GANDHI UNIVERSITY OF HEALTH SCIENCES,
KARNATAKA,
TH
4 T BLOCK, JAYANAGAR,
BENGALURU – 560 041.
REPRESENTED BY REGISTRAR,
MR.SHIVANAND KAPASHI,
AGED ABOUT 55 YEARS,
S/O MR. BHIMAPPA KAPASHI.
…RESPONDENT
(BY SRI. RAGHURAMAN., SENIOR COUNSEL FOR
SRI. RAGHAVENDRA C R., ADVOCATE)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO I) SET ASIDE THE
IMPUNGED ORDER DATED 26/07/2022 PASSED IN WP
NO.57941/2018 BY THE LEARNED SINGLE JUDGE OF THIS
HON’BLE COURT AND PASS SUCH OTHER ORDER, DIRECTION.
THIS WRIT APPEAL HAVING BEEN RESERVED FOR
ORDER, COMING ON FOR PRONOUNCEMENT THIS DAY,
KRISHNA S. DIXIT.J., PRONOUNCED THE FOLLOWING:
CORAM: HON’BLE KRISHNA S DIXIT.J.,
and
HON’BLE RAMACHANDRA D. HUDDAR.J.,
CAV JUDGEMENT
(PER: HON’BLE KRISHNA S DIXIT.J.,)
This intra-court appeal seeks to call in question a
learned Single Judge’s judgment dated 26.07.2022
whereby, respondent-University’s W.P.No.57941/2018
(T-RES), having been favoured, the impugned Show Cause
Notice dated 20.04.2018 coupled with the Statement of
Demand dated 28.02.2019 respectively at Annexures-C &
- 3 -
WA No. 856 of 2022
U to the petition came to be quashed. The practical
implication of the judgement is that the respondent-
University being an ‘educational institution’ is not within
the Service Tax net and even otherwise, it enjoys
exemption from the liability under the Finance Act, 1994
and therefore, it need not seek Service Tax registration
too.
II. BRIEF FACTS OF THE CASE:
(a) Respondent-University is established under
Section 3 of Rajiv Gandhi University of Health Sciences
Act, 1994, a State legislation. A set of subordinate
legislations nomenclatured as ‘Statutes’ have been
promulgated under the provisions of this Act. It has
constituent colleges; several private colleges have been
affiliated to it, as well. Levies in respect of affiliation are
borne by the affiliated colleges, in certain sums of money,
in the form of fees, delayed fees, charges, fines, penalties,
etc. The University apart from imparting education inter
alia at the Post Graduate level, normatively regulates the
- 4 -
WA No. 856 of 2022
affiliated colleges. The University owns properties, some of
which are rented out.
(b) The appellant-Revenue issued a Show Cause
Notice dated 20.04.2018, complaining that: during the
period between July 2012 and September 2016, no
Service Tax has been paid on the amount received by way
of fees, charges & penalties, whilst granting
affiliation/renewal and the rental income from its
buildings; it also called for the explanation as to why the
University has not been registered under the Finance Act,
1994. A demand notice dated 28.02.2019 followed asking
the University to remit a total of Rs.7,40,28,684/- plus.
Aggrieved thereby, the University filed the writ petition
with a slew of prayers. The learned Single Judge partly
allowed the petition granting relief qua the Show Cause
Notice and Demand Notice. That is how, the present
appeal at our hands has arisen.
III. SUBMISSIONS MADE ON BEHALF OF APPELLANTS:
Learned CGC Mr.Amit A Deshpande sought to falter
the impugned judgment contending that:
- 5 -
WA No. 856 of 2022
(a) Writ petition was not maintainable against the
Show Cause Notice and the proposed demand, option to
reply to the same being available to the Noticee; learned
Single Judge has treated only one single contention i.e., as
to Service Tax payable on the rentals without touching
several other grounds specifically urged; the Rulings of
Madras & Gujarat High Courts being per incuriam do not
lay down the correct position of law .
(b) University regardless of imparting education,
has the predominant function of regulating the affiliated
colleges and therefore, it cannot be treated as an
educational institution within the terminology of ‘Service
Tax Law’ and therefore, is liable to pay Service Tax; even
otherwise, it is liable to pay Service Tax because of renting
of its properties whereby it has generated income, the said
activity not being in furtherance of education.
(c) The collection of rents, affiliation charges &
fines/penalty are not a statutory function in its true sense;
they are all commercial activities that generate revenue.
Therefore, they are not covered in the Negative List
enacted in section 66(1)D and section 65B(44) of Finance
Act, 1994.
Learned Panel Counsel pressed into service certain Rulings
in support of his submission.
- 6 -
WA No. 856 of 2022
IV. CONTENTIONS URGED ON BEHALF OF UNIVERSITY:
Learned Sr. Advocate Mr.Raghuraman appearing for
the University per contra made submissions in justification
of the impugned judgment contending that:
(a) There is no Thumb Rule that no person can
invoke writ jurisdiction against the Show Cause Notice
even when it is absolutely without jurisdiction; where
authorities act with demonstrable incompetence, a litigant
cannot be relegated to the sending of reply to such
notices.
(b) University like the respondent herein cannot be
anything but an educational institution; it does not lose its
character as an educational institution merely because it
has rented out certain spaces and generates income
therefrom; granting of affiliation, its denial or renewal do
not have commercial elements and therefore the amounts
such as fees, late fees, fines, penalties, etc., generated on
account of said acts do not admit the idea of
‘consideration’ as employed in section 65B(44) of the
Finance Act, 1994. The statutory bodies which grant
affiliation as a matter of statutory policy have the
trappings of ‘State Authorities’ and their activities are
pregnant with abundant public elements. Activities of
educational/professional regulatory bodies cannot be
- 7 -
WA No. 856 of 2022
termed as ‘commercial’ vide ACIE (Exemption vs.
1
Ahmedabad Urban Development Authority.
(c) Every educational institution during the
particular period in question was not within the ambit of
Finance Act, 1994; even otherwise, because of Exemption
Notifications issued & continued from time to time, they
are immune from service tax liability; the clarificatory
circulars issued by CBEC being statutory bind the
Revenue, especially when they have been acted upon;
(d) The decisions of Madras & Gujarat High Courts
relied upon by the learned Single Judge correctly lay down
the law and contra argument is unsustainable. The Rulings
pressed into service by the Revenue are not relevant to
the case at hand. Learned Sr. Advocate also banked upon
certain Rulings in support of his stand.
V. We have heard learned Panel Counsel appearing for
the Revenue and learned Sr. Advocate appearing for the
University. We have perused the Appeal Papers and the
Rulings cited at the Bar. Our discussion follows as under:
(A) A BRIEF HISTORY OF SERVICE TAX:
(a) The Finance Act, 1994 for the first time
introduced levy of Service Tax w.e.f. 1.7.1994. This
1
[2022] 143 taxmann.com 278
- 8 -
WA No. 856 of 2022
statute was structured on the recommendation of Raja
Challaiah Committee on Tax Reforms, 1991. “….The source
of concept of Service Tax lies in economics. It is an
economic concept. It has evolved on account of Service
Industry becoming a major contributor to the GDP of an
economy, particularly knowledge-based economy…. as an
economic concept, there is no distinction between the
consumption of goods and consumption of services as both
satisfy human needs. … it is important to note that service
tax is a value added tax which in turn is a general tax
which applies to all commercial activities involving
production of goods and provision of services. …” observed
the Apex Court in ALL INDIA FEDERATION OF TAX
2
PRACTIONERS vs. UNION OF INDIA.
(b) Service tax is a levy on the transaction of
certain services specified in the Act. It is an indirect tax
akin to Excise Duty or Sales Tax, in the sense that
normally the service provider pays it and thereafter
recovers the same from the recipient of taxable service. To
begin with, the taxation was on the Positive List basis,
that is to say, the levy was only on the activities enlisted
as ‘Service’. Thus, the journey of taxation of services
began by selective levy on just three services, namely,
General Insurance Service (Non-Life insurance), Telephone
Service & Stock Broker Service. Subsequently, this list
2
AIR 2007 SC 2990.
- 9 -
WA No. 856 of 2022
grew: for the Financial Year 2003-2004 as many as 62
services were enlisted; for the following year it was 75; for
the Financial Year 2011-12 this list consisted of 119
services.
(c) The Service Tax law took giant leaps in the next
seven years of its initiation both in terms of wider
coverage and increase in tax rate. The newer additions to
the Positive List of services often raised issues of overlap
with the previously existing services confounding both
sides as to whether some activities were taxed for the first
time or were already covered under an earlier, even if
under a little less specific head. With the accumulated
experience, Budget 2012 ushered a new system of
taxation of services, popularly known as Negative List .
The next changes are a paradigm shift from the existing
system where, only services of specified descriptions are
subjected to tax. In the new system, all services, except
those specified in the Negative List, are subject to
taxation.
(B) A THUMBNAIL DESCRIPTION OF RELEVANT
PROVISIONS OF THE FINANCE ACT, 1994:
(a) As already mentioned, 1994 Act enacts the law
relating to Service Tax. Sec.66 till 30.06.2012 and
Sec.66B w.e.f. 01.07.2012 are the charging provisions.
They provide for levy of tax at the rate of 12% on the
value of all services other than those enlisted in the
- 10 -
WA No. 856 of 2022
Negative List. Sec.68(1) imposes the obligation to pay the
tax on the provider of service, whereas Sec.68(2) r/w.
Rule 2(1)(d)(i) of the Rules speaks of special
circumstances to decide as to on whom this obligation
rests i.e., whether the service provider or the service
recipient. ‘Service’ is defined in Clause 44 of Section 65B,
to mean any activity for consideration carried out by a
person for another. To remove some ambiguities, certain
activities have been specifically defined by description as
‘Services’ and are referred to as ‘Declared Services’ as
defined under Section 65B(22) which in turn refers to
those enlisted in Section 66E. The definition of “service” is
both inclusive in certain aspects and exclusive in other.
(b) Section 66D creates “Negative list of services”
which are outside the levy of service tax. Clause (l) of this
Section as it existed upto 14.05.2016 enlisted certain
types/levels of education namely: education upto higher
secondary level; education which was a part of curriculum
for obtaining a qualification recognized by any law;
education as a part of an approved vocational education
course. The Negative List entry in this clause came to be
omitted by 2016 Amendment w.e.f. 14.05.2016. With this
omission, specified educational services became liable to
service tax. However, for the period between 14.05.2016
& 31.03.2017, the educational institutions were granted
exemption vide Entry 9 of Notification No. 25/2012–ST
and Exemption Notification No.9/2016-ST dated
- 11 -
WA No. 856 of 2022
01.03.2016 issued by the Central Government under
Section 93 of the Act. There is Exemption Notification
No.25/2012-ST. Section 68 is the charging section; it says
that Service Tax shall be levied on all services provided or
agreed to be provided in a taxable territory other than
those specified in the Negative List u/s 66D.
(c) The Central Government being the delegate,
has promulgated rules for the determination of place of
provision of service . These are called ‘Place of Provision of
Services Rules, 2012’. ‘Taxable Territory’ is defined under
Section 65B as the territory to which the Act applies.
C. EDUCATION IN ANCIENT INDIA AND IN POST
CONSTITUTION ERA :
(a) To be fair to the subject and to qualify the
discussion, a brief etymological advertence to the concept
of University with global dimension & diversified form is
not out of the place. ‘Nahi gnyaanena sadrusham
3
pavitramiha vidyate’ says Bhagavad Gita which nearly
means that in this world, there is nothing as sublime &
pure as knowledge. Greek historian Megasthenes during
302 to 298 BCE and Chinese Buddhist scholar Hiuen
Tsang, during 629-645 A.D traveled throughout India and
recorded their appreciation for our civilization. In ancient
India, there had been thousands of schools ( gurukuls )
spread all over and catering to the educational needs of
3
Indian Epic, (approx 400 BCE), Shloka Sankhya-38
- 12 -
WA No. 856 of 2022
people, free of cost. There were at least two dozen
Universities of great repute to which even foreign students
in huge numbers thronged. Takshashila, Nalanda, Mithila,
Telhara, Sharadapeet, Vallabhi, Pushpagiri, Odantapuri,
Vikramashila, Somapura, Vikrampura, Kanathalloor Sala,
Jagaddala, Nadia & Nagarjuna are only a few to name.
4
Rollin M Perkin writes which is largely true of other parts
of the globe but not India:
“… All advanced civilizations have needed higher
education to train their ruling, priestly, military,
and other service elites, but only in medieval
Europe did an institution recognizable as a
university arise: a school of higher learning
combining teaching and scholarship and
characterized by its corporate autonomy and
academic freedom. The Confucian schools for the
mandarin bureaucracy of imperial China, the
Hindu gurukulas and Buddhist vihares for the
priests and monks of medieval India, the
madrasa for the mullahs and Quranic judges of
Islam, the Aztec and Inca temple schools for the
priestly astronomers of pre-Columbian America,
the Tokugawa Han schools for Japanese samurai
– all taught the high culture, received doctrine,
literary and/or mathematical skills of their
political or religious masters, with little room for
questioning or analysis... ”
Since almost the Medieval history, unfortunately in India
as elsewhere, educational facilities were denied to the
downtrodden. This is despicable. Tagore penned: ‘ …Where
knowledge is free; where the world has not been broken
4
(2007), History of Universities, In J.F. (Eds), International Handbook of
Higher Education, Springer Publication, P.159-205.
- 13 -
WA No. 856 of 2022
up into fragments by narrow domestic walls… into that
5
heaven of freedom, my father, let my country awake… ’
6
WILL DURANT , a great historian of yester century, said:
‘ Education is the transmission of civilization. Without
education, a man is so circumstanced that he knows not
how to make the best of himself’. Thanks to the Reverse
Discrimination Polices devised by the Governments.
(b) Our glorious Constitution as progressively
interpreted by the Apex Court, echoes all the above. In
7
MOHINI JAIN vs. STATE OF KARNATAKA
, it is
declared ‘ The right to education flows directly from right to
life. The right to life under Article 21 and the dignity of
an individual cannot be assured unless it is accompanied
T.M.A.PAI FOUNDATION
by the right to education .’ In
8
vs. STATE OF KARNATAKA
, an Eleven Judge Bench
observed: ‘… Education plays a cardinal role in
transforming a society into a civilized nation. It accelerates
the progress of the country in every sphere of national
activity. No section of the citizens can be ignored or left
behind because it would hamper the progress of the
country as a whole. It is the duty of the State to do all it
could, to educate every section of citizens who need a
helping hand in marching ahead along with others… ’. It is
regrettable to note that since some time, the elements of
5
WHERE THE MIND IS WITHOUT FEAR, (1910)
6
Lessons of History (1968), p. 101
7
AIR 1992 SC 1858
8
(2002) 8 SCC 481, para 287
- 14 -
WA No. 856 of 2022
business or including the field of education. That is not a
th
good thing to happen. Article 21A introduced vide 86
Constitutional Amendment w.e.f. 12.12.2002, has added
greater impetus to this invaluable right to primary
education.
(c) This discussion assumes significance because of
statutory policy enacted in Finance Act, 1994 as amended
from time to time and the subordinate legislations
promulgated thereunder which intended to keep a class of
educational services / institutions away from their
embrace. It is relevant to mention that learned
Sr. Advocate Mr.Raghuraman appearing for the University
succinctly put forth a two-fold submission viz., Act is not
applicable to the University till particular period, and later
when the Act was made applicable, the University has
been immune from the tax liability by virtue of Exemption
Notification. In other words, the educational institutions,
according to him, stand as a class apart for a favourable
treatment even in the GST Law.
D. NATURE & FUNCTIONS OF RESPONDENT
UNIVERISTY:
(a) Earlier, all colleges/institutions in the State
were affiliated to conventional universities in the region;
these universities ordinarily had one constituent college of
their own. However, that had created some functional
difficulties and therefore, as a matter of policy, separate
- 15 -
WA No. 856 of 2022
universities for the branches of knowledge concerned,
came to be established, such as Visvesvaraya
Technological University (Belgaum) for Engineering,
Agricultural Universities (Bangalore & Dharwad) for the
field of farming, Veterinary University (Bidar) for animal
sciences, Rajiv Gandhi Health University (Bangalore) for
medical sciences, Karnataka Law University (Hubli) for
legal studies, etc. Specialization appears to have become
order of the day, whichever be the realm.
(b) The Central Council of Health has recommended
establishing Health Universities in all the States in the
Country. The Rajiv Gandhi University of Health Sciences
Act, 1994 (hereafter RGUHS Act) came to be passed vide
Karnataka Act No.44 of 1994. The respondent-university
has been established u/s.3 of this Act. The objective of the
University is to upgrade standards of teaching, research,
publication and dissemination of knowledge in all branches
of health sciences and bring all the health science
institution under one umbrella and thereby, to upgrade the
standard of health science education. The University
initially set up an affiliating body and in a phased program,
it envisaged to develop a campus of its own for advanced
teaching, training & research in specialized fields of Health
Sciences. It has established Curriculum Development Cell,
Research Center and Library & Information Center for the
development of knowledge in the field of Health Sciences
for promoting qualitative Education Standards. There are
- 16 -
WA No. 856 of 2022
548 Colleges conducting undergraduate courses, 129
institutions conducting Post Graduation Courses and 6
institutions offering super Speciality Courses in the field of
Health Sciences such as Medical, Dental, Nursing,
Pharmacy, Physiotherapy, Ayurveda, Homoeopathy, Unani
& Para-Medical under the suzerainty of RGUHS in the
State.
(c) The University has a constituent college called
‘University College’ as defined u/s.2(q). Sec.4 of the Act
speaks of powers & functions of the university. The
following clauses being relevant are reproduced below:
“(i) to provide for instruction and training in
such branches of medicine and allied sciences, as
may be considered suitable and to make
provision for research and for the advancement
and dissemination of knowledge in health
sciences, striving to maintain at all times highest
possible standards of academic excellence.
….
(iv) to hold examinations and to confer honorary
degrees or other distinctions under conditions as
may be prescribed;
….
(vii) to affiliate or recognize colleges and
institutions and to withdraw such affiliation or
recognition;
(viii) to institute, suspend or abolish University
Professorships, Associate Professorships,
Readerships, Assistant Professorships,
Lecturerships and other teaching posts in the
University and to make suitable appointments
thereto;
- 17 -
WA No. 856 of 2022
(ix) to institute and award fellowships,
scholarships, studentships, stipends, medals and
prizes;
…
(xvi) to undertake publication of works of merit
and research pertaining to health sciences;
…
(xx) to establish and maintain University
Libraries, Research Station, Museums and Press
and Publication Bureau;
(xxi) to establish research posts and to appoint
suitable persons to such posts; …”
(d) Section 5 r/w sections 45 & 46 inter alia provides
for privileges, recognition and affiliation of all colleges and
autonomous institutions of health sciences that were
affiliated to conventional universities. Sec.48 provides for
their withdrawal. Section 7 empowers the Government
to transfer its colleges to the university and on transfer
they become university colleges. Their assets & liabilities
shall vest in the university. Further all their employees
become the employees of the university. Section 8
provides for Government’s inspection & control over the
university. Chapter III comprising of sections 9 to 19
specifies officers of the university which would inter alia
include the Governor of State as the Chancellor, the
Minister in-charge of medical education as the Pro-
Chancellor, and the Vice-Chancellor. Section 12 prescribes
the procedure for selection & appointment of the Vice-
Chancellor and section 13 specifies his powers. Section
- 18 -
WA No. 856 of 2022
14 provides for the appointment of Deans of Faculties.
Section 15 & 16 provide for the appointment of Registrar &
Registrar (Evaluation) respectively. Chapter IV comprising
of sections 20 to 32 inter alia provides for the
establishment of Authorities such as, Senate, Syndicate,
Academic Council, etc. Chapter V comprising of sections
33 to 36 provides for promulgation of Statutes, Ordinances
& Rules. Chapter VIII comprising of sections 49 to 54
provides for selection & appointment of teachers and other
employees of the university. Section 53 & 54 provides for
conditions of service, pension, gratuity, etc. All other
provisions are not much significant to the case at hand.
VI. AS TO MAINATAINABILITY OF WRIT PETITION,
WITHOUT EXPLORING ALTERNATIVES:
(a) The first contention of the Revenue that
whenever a Show Cause Notice has been issued by the
statutory authority, the same cannot be challenged in a
writ petition, the right remedy being to send reply to the
same, does not much impress us. This contention cannot
be urged as a Thumb Rule. Ordinarily, it is open to the
noticee to show cause by sending a reply. However, at
least there are three conventional exceptions to this
general rule: firstly, when the authority lacks competence
to issue such a notice; secondly, when jurisdictional facts
for issuing notice are lacking and thirdly, when it can be
reasonably gathered that the authority issuing notice is
- 19 -
WA No. 856 of 2022
determined to proceed with the proposed action and any
solicited reply would make no difference.
(b) The case of the respondent-University has been
structured on the first two exceptions and therefore, the
Panel Counsel’s submission that the writ petition should
have been thrown out at the threshold, is misconceived,
more particularly, when a slew of prayers were made
therein. It is a specific case of the assessee that it is
miles away from the precincts of the Finance Act, 1994
more particularly because of Sec.66D(l) which enacts
Negative List and the educational services rendered by the
University therefore are not taxable. It is a further case
that in any event, the University enjoys exemption
granted to educational institutions vide Notifications dated
25.06.2012, 01.03.2013, 11.07.2014, 01.03.2016 &
08.03.2017, all issued by the Central Government u/s.93.
Thus there is an eminent case for examination on merits.
Therefore, the preliminary objection to the very
entertainment of writ petition cannot be sustained.
VII. AS TO RESPONDENT-UNVERSITY NOT BEING AN
EDUCATIONAL INSTITUITON:
(a) The second contention of learned Panel Counsel
that University as such is not an educational institution
and therefore, it is very much within the precincts of
Finance Act, 1994, has many reflections & repercussions.
Essentially, this contention is structured on a premise that
- 20 -
WA No. 856 of 2022
the University in question is a statutory body which only
affiliates institutions of health sciences, and nothing
beyond that. This is only a partial truth. As already
mentioned above, section 4 of RGUHS Act, 1994
prescribes powers & functions of the University. Clause (i)
of this section obligates the University to provide for
instruction & training in the branches of medicine & allied
sciences; it also requires making a provision for research &
advancement and dissemination of knowledge in health
sciences; clause (iii) requires the University to start &
upgrade departments in medical specialities and to provide
instruction for courses of study. Clause (iv) provides for
holding examinations and conferring honorary
degrees/distinctions; clause (vi) requires the University to
establish institutes of research and other institutions;
clause (xxi) provides for establishing research posts and to
appoint researchers; clause (xi) enables the University to
exercise control over ‘the students of the University’ as
also ‘the students of affiliated colleges’. There are several
PG courses in the field of medicine which the University
itself conducts. This apart, it has constituent colleges as
distinguished from affiliated ones. The former are an
integral part of the University whereas the latter happen to
be independent bodies.
(b) All the above wealth of material both intrinsic to
the RGUHS Act and extrinsic, would leave no manner of
doubt that the Respondent-University is an ‘educational
- 21 -
WA No. 856 of 2022
institution’. This view gains support from the decisions of
MADURAI
Madras High Court & Gujarat High Court. In
KAMARAJ UNIVERSITY vs. JOINT COMMISSIONER
9
OF GST & CEX
, it is rightly observed: ‘ The word
“educational institution”, cannot denote only the college
affiliated to the university, but, it includes the
university…without the university, college cannot impart
SAHITYA
education on its own.’ Similarly, in
MUDRANALAYA PRIVATE LIMITED vs. ADDITIONAL
10
DIRECTOR GENERAL
read as under:
“ the word ‘education’ cannot be given a narrow
meaning by restricting it to the actual imparting of
education to the students but has to be given a
wider meaning which would take within its sweep,
all matters relating to imparting and controlling
education. Examination is an essential component
of education as it is one of the major means to
assess and evaluate the candidate's skills and
knowledge, be it a school test, university
examination, professional entrance examination or
any other examination…Thus, education would
mean the entire process of learning, including
examination and grant of certificate or degree or
diploma, as the case may be and would not be
limited to the actual imparting of education in
schools, colleges or institutions only… without a
degree or diploma being conferred by the
University, college education would not be
complete. Therefore, examinations are an
indispensable component of education... Therefore,
to say that Boards/Universities are not "educational
institutions" would amount to divorcing
examinations from education… ”
9
(2021) 54 GSTL 385 (Madras), at para 22.
10
(2021) 46 GSTL 245 (Gujarat), paras 13.21 & 13.22.
- 22 -
WA No. 856 of 2022
(c) Section 66 of 1994 Act provides for charging
service tax at 12% of the value of taxable services that
were enumerated in the specified clauses of section 65,
whereas section 66B inter alia excludes the services
specified in the Negative List provided u/s 66D. Clause (l)
of section 66D enlists services by way of pre-school
education and education up to higher secondary school or
equivalent; education as part of curriculum for obtaining a
qualification recognized by law; and education as a part of
approved vocational education course. Obviously, the
services catered by the respondent-University are by way
of education as a part of curriculum for obtaining a
qualification recognized by any law as stated in sub-clause
(ii) of clause (l). It is so because the University confers
degrees/diplomas in the branches of allopathy, ayurveda,
dental science, etc., and they are recognized under the
Indian Medical Council Act, 1956 or such other kindred
statutes. The services rendered by the University would
also fall within the precincts of sub-clause (iii) of clause (l)
inasmuch as the students undergo approved vocational
education courses, such as MBBS, MD, MS, BAMS, BUMS,
BHMS, BNYS, BDS, MDS, B.PHARM, M.PHARM,
M.Sc.Nursing, etc. Added, there are 14 Ph.D. programmes
and Fellowships. These services being specified in the
Negative List, are not within the tax net. What is
significant to note is that the exclusion occurring in the
Negative List is service-specific, and not service provider-
- 23 -
WA No. 856 of 2022
specific. This was the position up to 14.05.2016, and
thereafter, the Finance Act, 2016 omitted the same. As a
consequence, education no longer continues as an item in
the Negative List.
The fall out of above discussion is that the income
earned by the University on account of specified
educational services is not within the tax net because of
Negative List. However, the income earned by the
University by any other activity like renting out buildings,
etc. is within the taxability, unless the same falls in the
Exemption Notifications issued by the Central Government
u/s.93 of the Act.
VIII. AS TO TAXABILITY OF INCOME FROM AFFILIATION
AND ALLIED FUNCTIONS:
(a) The University being a statutory body, accords
affiliation to the health science colleges on the
recommendation of the State Government. This is done
under Section 45 of the RGUHS Act. Affiliation results into
certain benefits/privileges; at the same time, it also makes
the affiliated colleges to undergo certain supervision at the
hands of the Syndicate. Section 48 provides for withdrawal
of affiliation. Similarly, Section 46 provides for grant of
recognition by the Syndicate to any institution of health
sciences, even if it is situated outside the University Area.
Such recognition can be withdrawn also under sub-Section
(2). Grant or renewal of affiliation/recognition is subject to
payment of specified fees, late fees & penalties. Learned
counsel for the Appellant–Revenue argued that granting
affiliation/recognition is a service as defined under clause
- 24 -
WA No. 856 of 2022
(44) of Section 66B of the 1994 Act and therefore, the
income accruing therefrom is liable to service tax.
Learned Sr. Advocate representing the University repels
this submission contending that the statutory activities of
an entity that lack commercial elements do not answer
this definition. Substantive part of Clause 44 reads as
under:
“Service” means any activity carried out by
a person for another for consideration, and
includes a declared service…”
It is apparently a “means, includes & excludes” definition.
It is not the case of either party that the exclusion part of
the definition is invokable, and therefore a long list of
exclusion is not reproduced.
(b) The substantive definition of ‘service’ has four
building blocks namely: “ activity ”; “ carried out ”; “ by one
person for another for consideration
” and, “ ”. The word
‘activity’ has not been defined in the Act. In common
parlance, it would mean an act, a deed, a work, an
operation or the like. An ‘activity carried on’ means an act
executed, a deed done, a work accomplished or an
operation carried out. This expression has a wider
connotation and includes both active and passive act. The
second component of the definition is consideration, which
again is not well defined. However, as per Explanation (a)
to section 67 of the Act, ‘consideration’ includes any
amount that is payable for the taxable services provided or
- 25 -
WA No. 856 of 2022
to be provided. This Explanation does not make the idea
clear.
(c) Let us see the definition of consideration u/s
2(d) of the Indian Contract Act, 1872, which reads:
“When at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or abstains from
doing, or promises to do or abstain from doing
something, such act or abstinence or promise is
called consideration for the promise" .
The purpose of consideration is to put some legal limits on
enforceability of agreements, in the sense that only those
promises which are supported by consideration are
enforceable, and others not binding, despite intent of the
promisor to be bound by. Consideration is an index of the
seriousness of the parties to be bound by the bargain. It
also serves evidentiary and formal function. Lord Denning
11
The doctrine of consideration
in COMBE vs. COMBE said: ‘
is too firmly fixed to be thrown by a side wind… it still
remains a cardinal necessity of the formation of a
contract…’ Consideration in the sense of law means
CHIDAMBARA IYER vs. RENGA
something valuable vide
12
IYER.
In simple terms, consideration means everything
received or recoverable in return for a provision of service
which may be monetary or non-monetary. To be taxable,
an activity should be carried out by a person for
consideration. Thus, an activity carried out without any
11
[1951] 1 ALL.ER.767
12
AIR 1966 SC 193
- 26 -
WA No. 856 of 2022
consideration like donations, gifts or free charity ordinarily
is outside the ambit of service. The concept ‘activity for a
consideration’ involves an element of contractual
relationship wherein the person doing the activity does so
at the desire of another in exchange for a consideration.
There should be something like quid pro quo. An activity
done without such a relationship i.e., without the express
or implied contractual reciprocity of a consideration would
not be an ‘activity for consideration’ even though such an
activity may lead to accrual of gains to the person carrying
out the activity. Thus, an award received in consideration
for contribution over a life time like Nobel Prize, Jnana
Peeta, etc., will not be a consideration. There can be many
activities without consideration. An artist performing on a
street does an activity without consideration even though
passersby may drop a coin in his bowl. They are, however,
under no obligation to pay any amount for his
performance since they have not engaged him for that. On
the other hand if the same person is called to perform on
payment of an amount of money, then the performance
becomes an activity for a consideration.
(d) In the above backdrop, let us examine
‘affiliation’ which has yielded income to the respondent-
University. This word is not defined either in the RGUHS
Act or in the Finance Act. The word ‘affiliation’ is derived
affiliare
from Latin word which means ‘to adopt as a son.’
- 27 -
WA No. 856 of 2022
13
In Ramanath Iyer’s ‘The Law Lexicon’, it is described as
under:
“ Affiliation’ of college. To university means such
a connection between an existing university and
a college as shall be entered into by their
mutual consent, under the conditions approved
by the University Commissioners or other proper
authorities. ”
BHARATIYA EDUCATION SOCIETY
The Apex Court in
14
vs. STATE OF HIMACHAL PRADESH
observed:
WA No. 856 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
®
TH
DATED THIS THE 30 DAY OF JULY, 2024
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE RAMACHANDRA D HUDDAR
WRIT APPEAL NO.856 OF 2022 (T-RES)
BETWEEN:
1. PRINCIPAL ADDITIONAL DIRECTOR GENERAL
DIRECTORATE GENERAL OF GST INTELLIGENCE
BENGALURU ZONE UNIT,
#112, K H ROAD, S P ENCLAVE,
ADJ. TO KARNATAKA BANK,
BENGALURU – 560 027.
2. PRINCIPAL COMMISSIONER OF CENTRAL GST
SOUTH COMMISSIONERATE,
C R BUILDINGS, QUEENS ROAD,
BENGALURU – 560 001.
3. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS, NORTH BLOCK,
NEW DELHI – 110 001.
4. UNION OF INDIA,
MINISTRY OF FINANCE,
REP BY SECREATARY
NORTH BLOCK, NEW DELHI – 110 001.
5. ASSISTANT COMMISSIONER OF CENTRAL TAX
ND
SOUTH DIVISION-6, 2 FLOOR,
TTMC/BMTC BUILDING,
KANAKAPURA ROAD,
BANASHANKARI,
BENGALURU – 560 070.
…APPELLANTS
(BY SRI.AMIT A DESHPANDE., ADVOCATE)
- 2 -
WA No. 856 of 2022
AND:
M/S RAJIV GANDHI UNIVERSITY OF HEALTH SCIENCES,
KARNATAKA,
TH
4 T BLOCK, JAYANAGAR,
BENGALURU – 560 041.
REPRESENTED BY REGISTRAR,
MR.SHIVANAND KAPASHI,
AGED ABOUT 55 YEARS,
S/O MR. BHIMAPPA KAPASHI.
…RESPONDENT
(BY SRI. RAGHURAMAN., SENIOR COUNSEL FOR
SRI. RAGHAVENDRA C R., ADVOCATE)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO I) SET ASIDE THE
IMPUNGED ORDER DATED 26/07/2022 PASSED IN WP
NO.57941/2018 BY THE LEARNED SINGLE JUDGE OF THIS
HON’BLE COURT AND PASS SUCH OTHER ORDER, DIRECTION.
THIS WRIT APPEAL HAVING BEEN RESERVED FOR
ORDER, COMING ON FOR PRONOUNCEMENT THIS DAY,
KRISHNA S. DIXIT.J., PRONOUNCED THE FOLLOWING:
CORAM: HON’BLE KRISHNA S DIXIT.J.,
and
HON’BLE RAMACHANDRA D. HUDDAR.J.,
CAV JUDGEMENT
(PER: HON’BLE KRISHNA S DIXIT.J.,)
This intra-court appeal seeks to call in question a
learned Single Judge’s judgment dated 26.07.2022
whereby, respondent-University’s W.P.No.57941/2018
(T-RES), having been favoured, the impugned Show Cause
Notice dated 20.04.2018 coupled with the Statement of
Demand dated 28.02.2019 respectively at Annexures-C &
- 3 -
WA No. 856 of 2022
U to the petition came to be quashed. The practical
implication of the judgement is that the respondent-
University being an ‘educational institution’ is not within
the Service Tax net and even otherwise, it enjoys
exemption from the liability under the Finance Act, 1994
and therefore, it need not seek Service Tax registration
too.
II. BRIEF FACTS OF THE CASE:
(a) Respondent-University is established under
Section 3 of Rajiv Gandhi University of Health Sciences
Act, 1994, a State legislation. A set of subordinate
legislations nomenclatured as ‘Statutes’ have been
promulgated under the provisions of this Act. It has
constituent colleges; several private colleges have been
affiliated to it, as well. Levies in respect of affiliation are
borne by the affiliated colleges, in certain sums of money,
in the form of fees, delayed fees, charges, fines, penalties,
etc. The University apart from imparting education inter
alia at the Post Graduate level, normatively regulates the
- 4 -
WA No. 856 of 2022
affiliated colleges. The University owns properties, some of
which are rented out.
(b) The appellant-Revenue issued a Show Cause
Notice dated 20.04.2018, complaining that: during the
period between July 2012 and September 2016, no
Service Tax has been paid on the amount received by way
of fees, charges & penalties, whilst granting
affiliation/renewal and the rental income from its
buildings; it also called for the explanation as to why the
University has not been registered under the Finance Act,
1994. A demand notice dated 28.02.2019 followed asking
the University to remit a total of Rs.7,40,28,684/- plus.
Aggrieved thereby, the University filed the writ petition
with a slew of prayers. The learned Single Judge partly
allowed the petition granting relief qua the Show Cause
Notice and Demand Notice. That is how, the present
appeal at our hands has arisen.
III. SUBMISSIONS MADE ON BEHALF OF APPELLANTS:
Learned CGC Mr.Amit A Deshpande sought to falter
the impugned judgment contending that:
- 5 -
WA No. 856 of 2022
(a) Writ petition was not maintainable against the
Show Cause Notice and the proposed demand, option to
reply to the same being available to the Noticee; learned
Single Judge has treated only one single contention i.e., as
to Service Tax payable on the rentals without touching
several other grounds specifically urged; the Rulings of
Madras & Gujarat High Courts being per incuriam do not
lay down the correct position of law .
(b) University regardless of imparting education,
has the predominant function of regulating the affiliated
colleges and therefore, it cannot be treated as an
educational institution within the terminology of ‘Service
Tax Law’ and therefore, is liable to pay Service Tax; even
otherwise, it is liable to pay Service Tax because of renting
of its properties whereby it has generated income, the said
activity not being in furtherance of education.
(c) The collection of rents, affiliation charges &
fines/penalty are not a statutory function in its true sense;
they are all commercial activities that generate revenue.
Therefore, they are not covered in the Negative List
enacted in section 66(1)D and section 65B(44) of Finance
Act, 1994.
Learned Panel Counsel pressed into service certain Rulings
in support of his submission.
- 6 -
WA No. 856 of 2022
IV. CONTENTIONS URGED ON BEHALF OF UNIVERSITY:
Learned Sr. Advocate Mr.Raghuraman appearing for
the University per contra made submissions in justification
of the impugned judgment contending that:
(a) There is no Thumb Rule that no person can
invoke writ jurisdiction against the Show Cause Notice
even when it is absolutely without jurisdiction; where
authorities act with demonstrable incompetence, a litigant
cannot be relegated to the sending of reply to such
notices.
(b) University like the respondent herein cannot be
anything but an educational institution; it does not lose its
character as an educational institution merely because it
has rented out certain spaces and generates income
therefrom; granting of affiliation, its denial or renewal do
not have commercial elements and therefore the amounts
such as fees, late fees, fines, penalties, etc., generated on
account of said acts do not admit the idea of
‘consideration’ as employed in section 65B(44) of the
Finance Act, 1994. The statutory bodies which grant
affiliation as a matter of statutory policy have the
trappings of ‘State Authorities’ and their activities are
pregnant with abundant public elements. Activities of
educational/professional regulatory bodies cannot be
- 7 -
WA No. 856 of 2022
termed as ‘commercial’ vide ACIE (Exemption vs.
1
Ahmedabad Urban Development Authority.
(c) Every educational institution during the
particular period in question was not within the ambit of
Finance Act, 1994; even otherwise, because of Exemption
Notifications issued & continued from time to time, they
are immune from service tax liability; the clarificatory
circulars issued by CBEC being statutory bind the
Revenue, especially when they have been acted upon;
(d) The decisions of Madras & Gujarat High Courts
relied upon by the learned Single Judge correctly lay down
the law and contra argument is unsustainable. The Rulings
pressed into service by the Revenue are not relevant to
the case at hand. Learned Sr. Advocate also banked upon
certain Rulings in support of his stand.
V. We have heard learned Panel Counsel appearing for
the Revenue and learned Sr. Advocate appearing for the
University. We have perused the Appeal Papers and the
Rulings cited at the Bar. Our discussion follows as under:
(A) A BRIEF HISTORY OF SERVICE TAX:
(a) The Finance Act, 1994 for the first time
introduced levy of Service Tax w.e.f. 1.7.1994. This
1
[2022] 143 taxmann.com 278
- 8 -
WA No. 856 of 2022
statute was structured on the recommendation of Raja
Challaiah Committee on Tax Reforms, 1991. “….The source
of concept of Service Tax lies in economics. It is an
economic concept. It has evolved on account of Service
Industry becoming a major contributor to the GDP of an
economy, particularly knowledge-based economy…. as an
economic concept, there is no distinction between the
consumption of goods and consumption of services as both
satisfy human needs. … it is important to note that service
tax is a value added tax which in turn is a general tax
which applies to all commercial activities involving
production of goods and provision of services. …” observed
the Apex Court in ALL INDIA FEDERATION OF TAX
2
PRACTIONERS vs. UNION OF INDIA.
(b) Service tax is a levy on the transaction of
certain services specified in the Act. It is an indirect tax
akin to Excise Duty or Sales Tax, in the sense that
normally the service provider pays it and thereafter
recovers the same from the recipient of taxable service. To
begin with, the taxation was on the Positive List basis,
that is to say, the levy was only on the activities enlisted
as ‘Service’. Thus, the journey of taxation of services
began by selective levy on just three services, namely,
General Insurance Service (Non-Life insurance), Telephone
Service & Stock Broker Service. Subsequently, this list
2
AIR 2007 SC 2990.
- 9 -
WA No. 856 of 2022
grew: for the Financial Year 2003-2004 as many as 62
services were enlisted; for the following year it was 75; for
the Financial Year 2011-12 this list consisted of 119
services.
(c) The Service Tax law took giant leaps in the next
seven years of its initiation both in terms of wider
coverage and increase in tax rate. The newer additions to
the Positive List of services often raised issues of overlap
with the previously existing services confounding both
sides as to whether some activities were taxed for the first
time or were already covered under an earlier, even if
under a little less specific head. With the accumulated
experience, Budget 2012 ushered a new system of
taxation of services, popularly known as Negative List .
The next changes are a paradigm shift from the existing
system where, only services of specified descriptions are
subjected to tax. In the new system, all services, except
those specified in the Negative List, are subject to
taxation.
(B) A THUMBNAIL DESCRIPTION OF RELEVANT
PROVISIONS OF THE FINANCE ACT, 1994:
(a) As already mentioned, 1994 Act enacts the law
relating to Service Tax. Sec.66 till 30.06.2012 and
Sec.66B w.e.f. 01.07.2012 are the charging provisions.
They provide for levy of tax at the rate of 12% on the
value of all services other than those enlisted in the
- 10 -
WA No. 856 of 2022
Negative List. Sec.68(1) imposes the obligation to pay the
tax on the provider of service, whereas Sec.68(2) r/w.
Rule 2(1)(d)(i) of the Rules speaks of special
circumstances to decide as to on whom this obligation
rests i.e., whether the service provider or the service
recipient. ‘Service’ is defined in Clause 44 of Section 65B,
to mean any activity for consideration carried out by a
person for another. To remove some ambiguities, certain
activities have been specifically defined by description as
‘Services’ and are referred to as ‘Declared Services’ as
defined under Section 65B(22) which in turn refers to
those enlisted in Section 66E. The definition of “service” is
both inclusive in certain aspects and exclusive in other.
(b) Section 66D creates “Negative list of services”
which are outside the levy of service tax. Clause (l) of this
Section as it existed upto 14.05.2016 enlisted certain
types/levels of education namely: education upto higher
secondary level; education which was a part of curriculum
for obtaining a qualification recognized by any law;
education as a part of an approved vocational education
course. The Negative List entry in this clause came to be
omitted by 2016 Amendment w.e.f. 14.05.2016. With this
omission, specified educational services became liable to
service tax. However, for the period between 14.05.2016
& 31.03.2017, the educational institutions were granted
exemption vide Entry 9 of Notification No. 25/2012–ST
and Exemption Notification No.9/2016-ST dated
- 11 -
WA No. 856 of 2022
01.03.2016 issued by the Central Government under
Section 93 of the Act. There is Exemption Notification
No.25/2012-ST. Section 68 is the charging section; it says
that Service Tax shall be levied on all services provided or
agreed to be provided in a taxable territory other than
those specified in the Negative List u/s 66D.
(c) The Central Government being the delegate,
has promulgated rules for the determination of place of
provision of service . These are called ‘Place of Provision of
Services Rules, 2012’. ‘Taxable Territory’ is defined under
Section 65B as the territory to which the Act applies.
C. EDUCATION IN ANCIENT INDIA AND IN POST
CONSTITUTION ERA :
(a) To be fair to the subject and to qualify the
discussion, a brief etymological advertence to the concept
of University with global dimension & diversified form is
not out of the place. ‘Nahi gnyaanena sadrusham
3
pavitramiha vidyate’ says Bhagavad Gita which nearly
means that in this world, there is nothing as sublime &
pure as knowledge. Greek historian Megasthenes during
302 to 298 BCE and Chinese Buddhist scholar Hiuen
Tsang, during 629-645 A.D traveled throughout India and
recorded their appreciation for our civilization. In ancient
India, there had been thousands of schools ( gurukuls )
spread all over and catering to the educational needs of
3
Indian Epic, (approx 400 BCE), Shloka Sankhya-38
- 12 -
WA No. 856 of 2022
people, free of cost. There were at least two dozen
Universities of great repute to which even foreign students
in huge numbers thronged. Takshashila, Nalanda, Mithila,
Telhara, Sharadapeet, Vallabhi, Pushpagiri, Odantapuri,
Vikramashila, Somapura, Vikrampura, Kanathalloor Sala,
Jagaddala, Nadia & Nagarjuna are only a few to name.
4
Rollin M Perkin writes which is largely true of other parts
of the globe but not India:
“… All advanced civilizations have needed higher
education to train their ruling, priestly, military,
and other service elites, but only in medieval
Europe did an institution recognizable as a
university arise: a school of higher learning
combining teaching and scholarship and
characterized by its corporate autonomy and
academic freedom. The Confucian schools for the
mandarin bureaucracy of imperial China, the
Hindu gurukulas and Buddhist vihares for the
priests and monks of medieval India, the
madrasa for the mullahs and Quranic judges of
Islam, the Aztec and Inca temple schools for the
priestly astronomers of pre-Columbian America,
the Tokugawa Han schools for Japanese samurai
– all taught the high culture, received doctrine,
literary and/or mathematical skills of their
political or religious masters, with little room for
questioning or analysis... ”
Since almost the Medieval history, unfortunately in India
as elsewhere, educational facilities were denied to the
downtrodden. This is despicable. Tagore penned: ‘ …Where
knowledge is free; where the world has not been broken
4
(2007), History of Universities, In J.F. (Eds), International Handbook of
Higher Education, Springer Publication, P.159-205.
- 13 -
WA No. 856 of 2022
up into fragments by narrow domestic walls… into that
5
heaven of freedom, my father, let my country awake… ’
6
WILL DURANT , a great historian of yester century, said:
‘ Education is the transmission of civilization. Without
education, a man is so circumstanced that he knows not
how to make the best of himself’. Thanks to the Reverse
Discrimination Polices devised by the Governments.
(b) Our glorious Constitution as progressively
interpreted by the Apex Court, echoes all the above. In
7
MOHINI JAIN vs. STATE OF KARNATAKA
, it is
declared ‘ The right to education flows directly from right to
life. The right to life under Article 21 and the dignity of
an individual cannot be assured unless it is accompanied
T.M.A.PAI FOUNDATION
by the right to education .’ In
8
vs. STATE OF KARNATAKA
, an Eleven Judge Bench
observed: ‘… Education plays a cardinal role in
transforming a society into a civilized nation. It accelerates
the progress of the country in every sphere of national
activity. No section of the citizens can be ignored or left
behind because it would hamper the progress of the
country as a whole. It is the duty of the State to do all it
could, to educate every section of citizens who need a
helping hand in marching ahead along with others… ’. It is
regrettable to note that since some time, the elements of
5
WHERE THE MIND IS WITHOUT FEAR, (1910)
6
Lessons of History (1968), p. 101
7
AIR 1992 SC 1858
8
(2002) 8 SCC 481, para 287
- 14 -
WA No. 856 of 2022
business or including the field of education. That is not a
th
good thing to happen. Article 21A introduced vide 86
Constitutional Amendment w.e.f. 12.12.2002, has added
greater impetus to this invaluable right to primary
education.
(c) This discussion assumes significance because of
statutory policy enacted in Finance Act, 1994 as amended
from time to time and the subordinate legislations
promulgated thereunder which intended to keep a class of
educational services / institutions away from their
embrace. It is relevant to mention that learned
Sr. Advocate Mr.Raghuraman appearing for the University
succinctly put forth a two-fold submission viz., Act is not
applicable to the University till particular period, and later
when the Act was made applicable, the University has
been immune from the tax liability by virtue of Exemption
Notification. In other words, the educational institutions,
according to him, stand as a class apart for a favourable
treatment even in the GST Law.
D. NATURE & FUNCTIONS OF RESPONDENT
UNIVERISTY:
(a) Earlier, all colleges/institutions in the State
were affiliated to conventional universities in the region;
these universities ordinarily had one constituent college of
their own. However, that had created some functional
difficulties and therefore, as a matter of policy, separate
- 15 -
WA No. 856 of 2022
universities for the branches of knowledge concerned,
came to be established, such as Visvesvaraya
Technological University (Belgaum) for Engineering,
Agricultural Universities (Bangalore & Dharwad) for the
field of farming, Veterinary University (Bidar) for animal
sciences, Rajiv Gandhi Health University (Bangalore) for
medical sciences, Karnataka Law University (Hubli) for
legal studies, etc. Specialization appears to have become
order of the day, whichever be the realm.
(b) The Central Council of Health has recommended
establishing Health Universities in all the States in the
Country. The Rajiv Gandhi University of Health Sciences
Act, 1994 (hereafter RGUHS Act) came to be passed vide
Karnataka Act No.44 of 1994. The respondent-university
has been established u/s.3 of this Act. The objective of the
University is to upgrade standards of teaching, research,
publication and dissemination of knowledge in all branches
of health sciences and bring all the health science
institution under one umbrella and thereby, to upgrade the
standard of health science education. The University
initially set up an affiliating body and in a phased program,
it envisaged to develop a campus of its own for advanced
teaching, training & research in specialized fields of Health
Sciences. It has established Curriculum Development Cell,
Research Center and Library & Information Center for the
development of knowledge in the field of Health Sciences
for promoting qualitative Education Standards. There are
- 16 -
WA No. 856 of 2022
548 Colleges conducting undergraduate courses, 129
institutions conducting Post Graduation Courses and 6
institutions offering super Speciality Courses in the field of
Health Sciences such as Medical, Dental, Nursing,
Pharmacy, Physiotherapy, Ayurveda, Homoeopathy, Unani
& Para-Medical under the suzerainty of RGUHS in the
State.
(c) The University has a constituent college called
‘University College’ as defined u/s.2(q). Sec.4 of the Act
speaks of powers & functions of the university. The
following clauses being relevant are reproduced below:
“(i) to provide for instruction and training in
such branches of medicine and allied sciences, as
may be considered suitable and to make
provision for research and for the advancement
and dissemination of knowledge in health
sciences, striving to maintain at all times highest
possible standards of academic excellence.
….
(iv) to hold examinations and to confer honorary
degrees or other distinctions under conditions as
may be prescribed;
….
(vii) to affiliate or recognize colleges and
institutions and to withdraw such affiliation or
recognition;
(viii) to institute, suspend or abolish University
Professorships, Associate Professorships,
Readerships, Assistant Professorships,
Lecturerships and other teaching posts in the
University and to make suitable appointments
thereto;
- 17 -
WA No. 856 of 2022
(ix) to institute and award fellowships,
scholarships, studentships, stipends, medals and
prizes;
…
(xvi) to undertake publication of works of merit
and research pertaining to health sciences;
…
(xx) to establish and maintain University
Libraries, Research Station, Museums and Press
and Publication Bureau;
(xxi) to establish research posts and to appoint
suitable persons to such posts; …”
(d) Section 5 r/w sections 45 & 46 inter alia provides
for privileges, recognition and affiliation of all colleges and
autonomous institutions of health sciences that were
affiliated to conventional universities. Sec.48 provides for
their withdrawal. Section 7 empowers the Government
to transfer its colleges to the university and on transfer
they become university colleges. Their assets & liabilities
shall vest in the university. Further all their employees
become the employees of the university. Section 8
provides for Government’s inspection & control over the
university. Chapter III comprising of sections 9 to 19
specifies officers of the university which would inter alia
include the Governor of State as the Chancellor, the
Minister in-charge of medical education as the Pro-
Chancellor, and the Vice-Chancellor. Section 12 prescribes
the procedure for selection & appointment of the Vice-
Chancellor and section 13 specifies his powers. Section
- 18 -
WA No. 856 of 2022
14 provides for the appointment of Deans of Faculties.
Section 15 & 16 provide for the appointment of Registrar &
Registrar (Evaluation) respectively. Chapter IV comprising
of sections 20 to 32 inter alia provides for the
establishment of Authorities such as, Senate, Syndicate,
Academic Council, etc. Chapter V comprising of sections
33 to 36 provides for promulgation of Statutes, Ordinances
& Rules. Chapter VIII comprising of sections 49 to 54
provides for selection & appointment of teachers and other
employees of the university. Section 53 & 54 provides for
conditions of service, pension, gratuity, etc. All other
provisions are not much significant to the case at hand.
VI. AS TO MAINATAINABILITY OF WRIT PETITION,
WITHOUT EXPLORING ALTERNATIVES:
(a) The first contention of the Revenue that
whenever a Show Cause Notice has been issued by the
statutory authority, the same cannot be challenged in a
writ petition, the right remedy being to send reply to the
same, does not much impress us. This contention cannot
be urged as a Thumb Rule. Ordinarily, it is open to the
noticee to show cause by sending a reply. However, at
least there are three conventional exceptions to this
general rule: firstly, when the authority lacks competence
to issue such a notice; secondly, when jurisdictional facts
for issuing notice are lacking and thirdly, when it can be
reasonably gathered that the authority issuing notice is
- 19 -
WA No. 856 of 2022
determined to proceed with the proposed action and any
solicited reply would make no difference.
(b) The case of the respondent-University has been
structured on the first two exceptions and therefore, the
Panel Counsel’s submission that the writ petition should
have been thrown out at the threshold, is misconceived,
more particularly, when a slew of prayers were made
therein. It is a specific case of the assessee that it is
miles away from the precincts of the Finance Act, 1994
more particularly because of Sec.66D(l) which enacts
Negative List and the educational services rendered by the
University therefore are not taxable. It is a further case
that in any event, the University enjoys exemption
granted to educational institutions vide Notifications dated
25.06.2012, 01.03.2013, 11.07.2014, 01.03.2016 &
08.03.2017, all issued by the Central Government u/s.93.
Thus there is an eminent case for examination on merits.
Therefore, the preliminary objection to the very
entertainment of writ petition cannot be sustained.
VII. AS TO RESPONDENT-UNVERSITY NOT BEING AN
EDUCATIONAL INSTITUITON:
(a) The second contention of learned Panel Counsel
that University as such is not an educational institution
and therefore, it is very much within the precincts of
Finance Act, 1994, has many reflections & repercussions.
Essentially, this contention is structured on a premise that
- 20 -
WA No. 856 of 2022
the University in question is a statutory body which only
affiliates institutions of health sciences, and nothing
beyond that. This is only a partial truth. As already
mentioned above, section 4 of RGUHS Act, 1994
prescribes powers & functions of the University. Clause (i)
of this section obligates the University to provide for
instruction & training in the branches of medicine & allied
sciences; it also requires making a provision for research &
advancement and dissemination of knowledge in health
sciences; clause (iii) requires the University to start &
upgrade departments in medical specialities and to provide
instruction for courses of study. Clause (iv) provides for
holding examinations and conferring honorary
degrees/distinctions; clause (vi) requires the University to
establish institutes of research and other institutions;
clause (xxi) provides for establishing research posts and to
appoint researchers; clause (xi) enables the University to
exercise control over ‘the students of the University’ as
also ‘the students of affiliated colleges’. There are several
PG courses in the field of medicine which the University
itself conducts. This apart, it has constituent colleges as
distinguished from affiliated ones. The former are an
integral part of the University whereas the latter happen to
be independent bodies.
(b) All the above wealth of material both intrinsic to
the RGUHS Act and extrinsic, would leave no manner of
doubt that the Respondent-University is an ‘educational
- 21 -
WA No. 856 of 2022
institution’. This view gains support from the decisions of
MADURAI
Madras High Court & Gujarat High Court. In
KAMARAJ UNIVERSITY vs. JOINT COMMISSIONER
9
OF GST & CEX
, it is rightly observed: ‘ The word
“educational institution”, cannot denote only the college
affiliated to the university, but, it includes the
university…without the university, college cannot impart
SAHITYA
education on its own.’ Similarly, in
MUDRANALAYA PRIVATE LIMITED vs. ADDITIONAL
10
DIRECTOR GENERAL
read as under:
“ the word ‘education’ cannot be given a narrow
meaning by restricting it to the actual imparting of
education to the students but has to be given a
wider meaning which would take within its sweep,
all matters relating to imparting and controlling
education. Examination is an essential component
of education as it is one of the major means to
assess and evaluate the candidate's skills and
knowledge, be it a school test, university
examination, professional entrance examination or
any other examination…Thus, education would
mean the entire process of learning, including
examination and grant of certificate or degree or
diploma, as the case may be and would not be
limited to the actual imparting of education in
schools, colleges or institutions only… without a
degree or diploma being conferred by the
University, college education would not be
complete. Therefore, examinations are an
indispensable component of education... Therefore,
to say that Boards/Universities are not "educational
institutions" would amount to divorcing
examinations from education… ”
9
(2021) 54 GSTL 385 (Madras), at para 22.
10
(2021) 46 GSTL 245 (Gujarat), paras 13.21 & 13.22.
- 22 -
WA No. 856 of 2022
(c) Section 66 of 1994 Act provides for charging
service tax at 12% of the value of taxable services that
were enumerated in the specified clauses of section 65,
whereas section 66B inter alia excludes the services
specified in the Negative List provided u/s 66D. Clause (l)
of section 66D enlists services by way of pre-school
education and education up to higher secondary school or
equivalent; education as part of curriculum for obtaining a
qualification recognized by law; and education as a part of
approved vocational education course. Obviously, the
services catered by the respondent-University are by way
of education as a part of curriculum for obtaining a
qualification recognized by any law as stated in sub-clause
(ii) of clause (l). It is so because the University confers
degrees/diplomas in the branches of allopathy, ayurveda,
dental science, etc., and they are recognized under the
Indian Medical Council Act, 1956 or such other kindred
statutes. The services rendered by the University would
also fall within the precincts of sub-clause (iii) of clause (l)
inasmuch as the students undergo approved vocational
education courses, such as MBBS, MD, MS, BAMS, BUMS,
BHMS, BNYS, BDS, MDS, B.PHARM, M.PHARM,
M.Sc.Nursing, etc. Added, there are 14 Ph.D. programmes
and Fellowships. These services being specified in the
Negative List, are not within the tax net. What is
significant to note is that the exclusion occurring in the
Negative List is service-specific, and not service provider-
- 23 -
WA No. 856 of 2022
specific. This was the position up to 14.05.2016, and
thereafter, the Finance Act, 2016 omitted the same. As a
consequence, education no longer continues as an item in
the Negative List.
The fall out of above discussion is that the income
earned by the University on account of specified
educational services is not within the tax net because of
Negative List. However, the income earned by the
University by any other activity like renting out buildings,
etc. is within the taxability, unless the same falls in the
Exemption Notifications issued by the Central Government
u/s.93 of the Act.
VIII. AS TO TAXABILITY OF INCOME FROM AFFILIATION
AND ALLIED FUNCTIONS:
(a) The University being a statutory body, accords
affiliation to the health science colleges on the
recommendation of the State Government. This is done
under Section 45 of the RGUHS Act. Affiliation results into
certain benefits/privileges; at the same time, it also makes
the affiliated colleges to undergo certain supervision at the
hands of the Syndicate. Section 48 provides for withdrawal
of affiliation. Similarly, Section 46 provides for grant of
recognition by the Syndicate to any institution of health
sciences, even if it is situated outside the University Area.
Such recognition can be withdrawn also under sub-Section
(2). Grant or renewal of affiliation/recognition is subject to
payment of specified fees, late fees & penalties. Learned
counsel for the Appellant–Revenue argued that granting
affiliation/recognition is a service as defined under clause
- 24 -
WA No. 856 of 2022
(44) of Section 66B of the 1994 Act and therefore, the
income accruing therefrom is liable to service tax.
Learned Sr. Advocate representing the University repels
this submission contending that the statutory activities of
an entity that lack commercial elements do not answer
this definition. Substantive part of Clause 44 reads as
under:
“Service” means any activity carried out by
a person for another for consideration, and
includes a declared service…”
It is apparently a “means, includes & excludes” definition.
It is not the case of either party that the exclusion part of
the definition is invokable, and therefore a long list of
exclusion is not reproduced.
(b) The substantive definition of ‘service’ has four
building blocks namely: “ activity ”; “ carried out ”; “ by one
person for another for consideration
” and, “ ”. The word
‘activity’ has not been defined in the Act. In common
parlance, it would mean an act, a deed, a work, an
operation or the like. An ‘activity carried on’ means an act
executed, a deed done, a work accomplished or an
operation carried out. This expression has a wider
connotation and includes both active and passive act. The
second component of the definition is consideration, which
again is not well defined. However, as per Explanation (a)
to section 67 of the Act, ‘consideration’ includes any
amount that is payable for the taxable services provided or
- 25 -
WA No. 856 of 2022
to be provided. This Explanation does not make the idea
clear.
(c) Let us see the definition of consideration u/s
2(d) of the Indian Contract Act, 1872, which reads:
“When at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or abstains from
doing, or promises to do or abstain from doing
something, such act or abstinence or promise is
called consideration for the promise" .
The purpose of consideration is to put some legal limits on
enforceability of agreements, in the sense that only those
promises which are supported by consideration are
enforceable, and others not binding, despite intent of the
promisor to be bound by. Consideration is an index of the
seriousness of the parties to be bound by the bargain. It
also serves evidentiary and formal function. Lord Denning
11
The doctrine of consideration
in COMBE vs. COMBE said: ‘
is too firmly fixed to be thrown by a side wind… it still
remains a cardinal necessity of the formation of a
contract…’ Consideration in the sense of law means
CHIDAMBARA IYER vs. RENGA
something valuable vide
12
IYER.
In simple terms, consideration means everything
received or recoverable in return for a provision of service
which may be monetary or non-monetary. To be taxable,
an activity should be carried out by a person for
consideration. Thus, an activity carried out without any
11
[1951] 1 ALL.ER.767
12
AIR 1966 SC 193
- 26 -
WA No. 856 of 2022
consideration like donations, gifts or free charity ordinarily
is outside the ambit of service. The concept ‘activity for a
consideration’ involves an element of contractual
relationship wherein the person doing the activity does so
at the desire of another in exchange for a consideration.
There should be something like quid pro quo. An activity
done without such a relationship i.e., without the express
or implied contractual reciprocity of a consideration would
not be an ‘activity for consideration’ even though such an
activity may lead to accrual of gains to the person carrying
out the activity. Thus, an award received in consideration
for contribution over a life time like Nobel Prize, Jnana
Peeta, etc., will not be a consideration. There can be many
activities without consideration. An artist performing on a
street does an activity without consideration even though
passersby may drop a coin in his bowl. They are, however,
under no obligation to pay any amount for his
performance since they have not engaged him for that. On
the other hand if the same person is called to perform on
payment of an amount of money, then the performance
becomes an activity for a consideration.
(d) In the above backdrop, let us examine
‘affiliation’ which has yielded income to the respondent-
University. This word is not defined either in the RGUHS
Act or in the Finance Act. The word ‘affiliation’ is derived
affiliare
from Latin word which means ‘to adopt as a son.’
- 27 -
WA No. 856 of 2022
13
In Ramanath Iyer’s ‘The Law Lexicon’, it is described as
under:
“ Affiliation’ of college. To university means such
a connection between an existing university and
a college as shall be entered into by their
mutual consent, under the conditions approved
by the University Commissioners or other proper
authorities. ”
BHARATIYA EDUCATION SOCIETY
The Apex Court in
14
vs. STATE OF HIMACHAL PRADESH
observed:
| “ | In the context of NCTE Act, `affiliation' enables | |
| and permits an institution to send its students | ||
| to participate in the public examinations | ||
| conducted by the Examining Body and secure | ||
| the qualification in the nature of degrees, | ||
| diplomas, certificates... | ” |
Affiliation creates a kind of umbilical chord between
affiliating body and the affiliated entity. Section 2(a) of
RGUHS Act, defines ‘Affiliated College’ to mean a college
or institution… affiliated to the University in accordance
with the Statutes . It also includes the institutions that are
deemed to be affiliated to the University. Deeming part is
not relevant for our discussion. Section 4 of this Act which
enlists the powers & functions of the University, at clause
(vii) reads ‘ to affiliate or recognise colleges and institutions
and to withdraw such affiliation or recognition’. Section 45
provides for affiliation and the procedure therefor. For
grant of admission, affiliation is a pre-condition under sub-
section (10). Section 48 provides for withdrawal of
13 nd
2 Edition Reprint 2010, LexisNexis, page 73,
14
(2011) 4 SCC 527, para 19
- 28 -
WA No. 856 of 2022
affiliation on fault grounds. For the grant or renewal of
affiliation, the University levies fees, late fees, fines &
penalties in terms of extant statutes of the University.
However, the act of granting, renewing or withdrawing is
done in discharge of public duties enjoined by law.
Therefore, such acts do not fit into the expression
‘ activities carried on for consideration ’, more particularly,
when they do not have commercial elements, as rightly
contended by Mr.Raghuraman. Added, the idea of
‘ activities carried on for consideration ’ as employed in the
definition of service u/s 65B(44) of the Finance Act
ordinarily obtains in the realm of freedom of contract and
not in the field of public law. Of course, the concept of
sovereign function being impertinent, does not factor in
the discussion. The function related to affiliation cannot be
treated as a ‘bundled service’ under clause (3) of section
66F of the Finance Act, 1994, either. The
interests/fines/penalties leviable on account of default also
have a thick connect with the fees regularly leviable and
therefore, they would partake the character of fees only.
In view of all this, the Revenue is not justified in levying
Service Tax on the income accruing to the University on
account of affiliation during the academic year between
2012-13 and 2016-17. The periodicity of collection of
affiliation related fees pales into insignificance.
- 29 -
WA No. 856 of 2022
IX. INCOME FROM NON-EDUCATIONAL ACTIVITIES OF
EDUCATIONAL INSTITUTIONS AND SERVICE TAX
LIABILITY:
(a) Learned Panel Counsel appearing for the
Appellant-Revenue vehemently argued that the University
derives income by way of rents from the buildings leased
out for canteen, bank & such other facilities and that the
very activity amounts to service, as defined under Section
65B(44) and therefore, regardless of nature of the service
provider such as educational institutions, the same is liable
to service tax. He hastened to add that the focal point of
levy is not the nature of institution but the nature of
activities carried on by them for consideration. Mr.
Raghuraman, per contra contended, that the said activities
are incidental to catering of educational services, such
services being in the Negative List; in any event, the
University enjoys immunity from the levy in terms of
Exemption Notifications issued from time to time, since
they have binding effect at least as between the Revenue
and the Assessee, of course subject to all just exceptions.
(b) The contention of the CGC that the levy of tax
is ‘activity-centric’ and it does not depend on the nature of
service provider, in our view is broadly true. The text of
Clause (l) of Section 66D of the Finance Act, being
supportive of this view, is reproduced:
“(I) Services by way of-
(i) pre-school education and education up to
higher secondary school or equivalent;
- 30 -
WA No. 856 of 2022
(ii) education as a part of a curriculum for
obtaining a qualification recognized by any law
for the time being in force;
(iii) education as a part of an approved
vocational education course; …”
[This provision is deleted by the Parliament w.e.f. 14.05.2016].
Although one can assume that the educational services are
ordinarily provided by the educational institutions such as
universities, colleges & schools, one cannot rule out such
services being catered by entities that do not conventionally
answer the notion of educational institution. This view is
adumbrated by the text of Exemption Notifications. For
instance, Notification No.25/2012-ST specifically states at para
9: ‘ Services provided to or by an educational institution in
respect of education... by way of auxiliary educational
services.. .’ In other words, the Negative List is activity-centric
whereas, Exemption Notifications contemplate both the nature
of service provider and the nature of activity. In the light of
this, it can be stated w ith no risk of contradiction that the
educational services rendered by the University do fall
within the ambit of Sub-Clause (ii) of Clause (l) of Section
66D which mentions “education as a part of curriculum for
obtaining a qualification recognized by any law for the time
being in force”, inasmuch as obviously, the degrees,
diplomas & certificates awarded by the University are
recognized by the statutes like Indian Medical Council Act,
1956, Dentists Act, 1948, etc and therefore, they are not
liable to service tax.
- 31 -
WA No. 856 of 2022
(c) The primary object of education is to become
knowledgeable and thereby, to acquire capacity to make
the life meaningful/beautiful. Education gives nobility to
the mind and refines sensibilities of human beings. It
enables individuals to make appropriate choices, in the
given circumstances. ‘Ignorance is bliss…’ said by Oscar
Wilde (1854-1900) emphasizes its negative rhetoric. A
constitutionally ordained Welfare State like ours has to
create opportunity for education to one & all, of course
subject to availability of resources. Ideally speaking,
education i.e., the acquisition of knowledge should be free
which Tagore had poetically advised, at times is enacted,
albeit in a limited way. That is the reason why education &
educational institutions are ordinarily given concession
from tax, subject to the pragmatics of community living.
Negative List enacted in section 66D(l) is one such
measure. Immunity from taxation in terms of Exemption
Notifications is such another. When an activity figures in
the Negative List, the same is not liable to service tax at
all. This is one scenario. The other is a case of exemption
from tax by virtue of statutory notifications. Former is a
case of non-applicability of charging section whereas, the
latter is a case of its applicability. There lies a subtle
difference between these two, and mistaking one to be
other will have implications to Caesar & Citizen. Not
recognising this difference, is consequential. Initial
taxability of services is one thing and its exemption from
tax is another. To put it succinctly, the question of
- 32 -
WA No. 856 of 2022
exemption from tax liability arises when exempted
activity/entity does not figure in the Negative List. This
logic accords with the opinion of the great jurist of yester
decades Mr.Nani A. Palkhivala that Mother Teresa was not
taxable because the Nobel Prize was not ‘income‘ and
therefore, the question of giving her any special exemption
15
did not arise .
(d) Mr.Raghuraman is right in telling us that the
successive Exemption Notifications that obtained during the
period between 1.7.2012 and 1.4.2017 exempted the University
from service tax otherwise payable on the income inter alia
derived from ‘renting of immovable property’. The Exemption
Notification No.25/2012-ST w.e.f. 20.06.2012 has the
following text:
“(f) auxiliary educational services means any
services relating to imparting any skill,
knowledge, education or development of course
content or any other knowledge - enhancement
activity, whether for the students or the faculty,
or any other services which educational
institutions ordinarily carry out themselves but
may obtain as outsourced services from any
other person, including services relating to
admission to such institution, conduct of
examination, catering for the students under any
mid-day meals scheme sponsored by
Government, or transportation of students,
faculty or staff of such institution.
15
‘Nani A.Palkhivala - A Life’ by M.V.Kamath Pages 74-75
- 33 -
WA No. 856 of 2022
(oa) "educational institution" means an
institution providing services specified in clause
(1) of section 66D of the Finance Act, 1994 (32
of 1994);]”
As already discussed above, the respondent-University
answers the definition of educational institution since it
provides services that fall into sub-clause (ii) of clause (l)
of section 66D of the Finance Act, 1994. In fact, the
education catered by the University broadly fits into the
definition of auxiliary educational services . He is also right
in pointing out that an otherwise interpretation of this
Exemption Notification would defeat the very purpose for
which it has been issued. The said exemption is continued
vide Notification No.3/2013-ST dated 1.3.2013, as well. He
justified in submitting that the said Notifications having
been issued u/s 93 of the Finance Act, 1994 are
instruments of law and therefore, the Assessee can take
CCE vs. RATAN MELTING AND
benefit of the same vide
16
WIRE INDUSTRIES
. No contention is taken up by the
Revenue as to why these Notifications should not be taken
cognizance of for according benefit claimed by the
Assessee thereunder. They are not shown to be contrary to
the intent & policy content of the parent statute, either.
16
(2008) 13 SCC 1
- 34 -
WA No. 856 of 2022
X. EXEMPTION NOTIFICATIONS OF THE YEARS 2014-
2017:
(a) The aforesaid 2012 & 2013 Exemption
Notifications defined the ‘auxiliary educational services’
and ‘educational institution’ for the purpose of granting
exemption from service tax liability. In text & context, they
are almost identical. However, the subsequent
Notifications have the text much in variance with these
two. Notification No.6/2014-ST dated 11.7.2014,
Notification No.9/2016-ST dated 1.3.2016 and Notification
No.10/2017-ST dated 8.3.2017, retain the definition of
‘educational institution’ as it is. However, the adjective
‘auxiliary’ is dropped from the definition of ‘services’. This
definition in all these Notifications remains substantially
same and it is as under:
“9. Services provided,-
(a) by an educational institution to its students,
faculty and staff;
(b) to an educational institution, by way of-
(i) transportation of students, faculty
and staff;
(ii) catering, including any mid-day meals
scheme sponsored by the Government;
(iii) security or cleaning or house-keeping
services performed in such educational
institution;
(iv) services relating to admission to, or
conduct of examination by, such
institution;]"
- 35 -
WA No. 856 of 2022
What is conspicuous from the aforesaid subsequent
Notifications is the absence of the term ‘ renting of
immovable property ’. The intent of this is as clear as
gangetic waters that the activity whereby income is
derived by way of renting immovable property is no longer
exempted from taxable service.
(b) The vehement submission of Mr.Raghuraman is
that the students, faculty & staff need the facilities of
banking, canteen & the like; added, service by way of
‘catering’ is specifically exempted under clause (ix)(b)(ii).
The submission is partly acceptable and partly not: if
intention of the Board/Government was to continue
exemption in respect of income by way of renting, the
terminology of earlier Notifications would have been
continued; however, that is not the case. The other
terminology does not imply or indicate the intent which
Mr.Raghuraman wants us to assume. We are not
construing a provision of statute of West Minister Abbey;
what we are interpreting is only a piece of delegated
legislation namely the Exemption Notifications which
essentially address the educational institutions; their
terminology has to be construed in the common parlance.
It is true that banking service has become essential to
daily life, whichever be the field. However, that does not
mean that the said facility should be provided in the very
campus of the University.
- 36 -
WA No. 856 of 2022
(c) The above apart, the argument that the
banking facilities should be treated as being incidental to
education, is bit difficult to countenance. Education is
imparted through schools, colleges and other such
institutions. There could be activities incidental to
providing education, cannot be denied. One example is of
ASSAM STATE TEXTBOOK PRODUCTION
textbooks. In
17
AND PUBLICATION CORPORATION vs. CIT
, it is
observed that dealing in textbooks is part of a larger
educational activity and that if an institution facilitated
learning of its pupils by sourcing and providing textbooks,
such activity would be incidental to education. Providing
hostel facilities to pupil is also an activity incidental to
imparting education. The predominant object test must be
applied; the purpose of education should not be
submerged by a profit making motive. more often than
not, such renting or licensing is done through public tender
and ordinarily, highest bid is accepted. Thus, when the
University rents out its property for running a bank, the
profit motive is abundant. It is not the case of University
that the banking services are agreed to be provided on ‘ no
profit no loss basis ’ by prescribing license fee as
contradistinguished from rentals. However, providing
banking facilities by no stretch of imagination can be held
to be incidental to education. The term ‘educational
17
(2009) 17 SCC 391
- 37 -
WA No. 856 of 2022
services’ has been employed in these Exemption
Notifications in a reasonable sense if not restrictive. In
ascertaining whether banking service is part of educational
service in the contemplation of the subject Notifications,
there is no scope for employing the ‘ predominant object ’
test, either, in the light of latest decision of the Apex Court
in NEW NOBLE EDUCATIONAL SOCIETY vs. CHIEF
18
COMMISSIONER OF INCOME TAX . Therefore, we are of
the considered view that the income from the rentals of
buildings leased/licensed for banking facilities is not
exempted from service tax.
(d) The above being said, there is force in the
submission of Mr.Raghuraman that the income accruing to
the University because of renting of property for providing
canteen facilities is entitled to be exempted from service
tax. It is a matter of common knowledge that normatively
the campuses of universities nowadays are huge and their
areal hugeness would justify providing canteen facilities
within the campus, especially when the courses comprise
of long hours. Otherwise, interest of the teachers and
taught is likely to be affected since they have to spend
time in traveling to the eateries ex-campus. It is
presumably with that purpose, the Exemption Notifications
of the years 2014 to 2017 specifically immuned the
catering services provided by an educational institution to
18
(2023) 6 SCC 649
- 38 -
WA No. 856 of 2022
its students, faculty & staff. There may be economic
considerations too. Clause (ix)(b)(ii) is printed in all these
Notifications, almost verbatim, is not in dispute. The said
clause is inclusive. Apparently it is not self-catering-
specific. The word ‘catering’ employed in these
notifications, in the context does not imply that the
University/Educational Institution itself should undertake
that activity, in order to claim exemption. It can do it on
its own or cause it to be done through agencies, regard
being had to intricacies involved in the venture. The
contention of learned CGC to the contrary if countenanced
would defeat the intent of granting exemption and
therefore does not merit acceptance. His submission that
clause (d) of section 96D of the Finance Act, 1994 itself is
deleted w.e.f. 14.05.2016 and therefore, whatever
protection the educational services enjoyed under the
Exemption Notifications would come within the taxability
after the said date, is only a partial truth. As already
stated, the Exemption Notifications issued post this
deletion would bind the authorities. There is nothing
repugnant to the policy content of the Finance Act, 1994.
In the above circumstances, we make the following
O R D E R
[1] The appeal is allowed in part. The impugned
judgment is modified to the following effect that the
quashment of Show Cause Notice bearing No.22/2018-19
- 39 -
WA No. 856 of 2022
dated 20.04.2018 at Annexure-B to the Writ Petition
No.57941/2018 is set at naught only to the extent:
(i) it seeks to levy service tax on the
income accruing on account of or attributable
to grant, renewal, withdrawal or denial of
affiliation/recognition to the institutions
concerned and that such income/service would
include fee, late fee, fine, penalty and the like;
and
(ii) it holds that under the extant
Exemption Notifications, the University is not
immune from the levy of service tax on the
income earned by leasing/licensing its
immovable properties for providing or causing
to be provided certain canteen facilities to the
students, faculty & staff.
[2] The appellant-Revenue shall restructure &
reissue the subject Show Cause Notice in the light of
observations herein above made within six weeks;
however, for all practical purposes, the said notice shall be
treated to have been issued on 20.04.2018 itself. It is
open to the respondent-University to send its reply to the
said notice in contemplation, within six weeks following
the date of receipt thereof.
- 40 -
WA No. 856 of 2022
[3] The appellant-Revenue shall decide the matter
afresh within next eight weeks following the receipt of
reply; it shall provide an opportunity of personal hearing
to the lawyer/representative of the University if requested,
since matter involves complexities. However, unnecessary
adjournment/time shall not be granted to the University.
[4] All contentions of the parties other than those
foreclosed by the observations herein above made
including as to the requirement of registration, etc., are
kept open for being retraded in accordance with law.
Costs made easy.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(RAMACHANDRA D. HUDDAR)
JUDGE
Snb/cbc/bsv