Recently in a notable ruling, the Karnataka High Court, Dharwad Bench, quashed show cause notices demanding service tax from a university on income earned through affiliation fees. The court ruled that income from affiliation is not subject to service tax, setting a precedent for educational institutions across the state.
The petitioner/assessee is Visvesvaraya Technological University (VTU).
The writ petition, filed by the assessee sought relief against two separate show cause notices issued by tax authorities. The first notice, dated March 29, 2018, demanded service tax amounting to ₹2,29,84,152 for the period from July 2012 to March 2017. The second notice, dated July 22, 2019, sought an additional ₹10,90,142 for the period from April 2017 to June 2017.
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Before the Court, the assessee-university argued that its affiliation-related income should not be subject to service tax. The legal team, led by Ms Bhanu Murthy J.S. and Mr Shashank Hegde, contended on behalf of the assessee that such charges fell outside the scope of taxable services under the relevant provisions.
In response, the respondents, the Revenue, defended the tax demand. The Revenue’s counsel headed by Mr Girish S. Hulmani and Mr M.B. Kanavi maintained that the university’s income from affiliation constituted taxable service revenue.
However, Justice Jyoti Mulimani, presiding over the case, took note of a recent division bench ruling in a similar case involving Rajiv Gandhi University of Health Science. In that case, the court had ruled that service tax cannot be levied on affiliation fees collected by universities, as affiliation activities are educational in nature and do not constitute a taxable service.
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Based on the earlier division bench ruling in another case, the High Court further observed that service tax on income from affiliation fees was unwarranted. The court concluded that the show cause notices issued by the tax authorities against the assessee university were unjustified and liable to be quashed.
As a result, the Court issued a Writ of Certiorari, formally annulling the show cause notices dated March 29, 2018, and July 22, 2019, thus providing full relief to the assessee. The court’s ruling is expected to have widespread implications for universities and educational institutions, reinforcing that affiliation fees do not fall under the ambit of service tax.
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