Karnataka High Court rules against service tax levied on affiliation fees by universities

Karnataka High Court rules against service tax levied on affiliation fees by universities

It observed that facilities provided by educational institutions came under the Finance Act

The Karnataka High Court has held that the service tax cannot be levied on the affiliation fee and other incidentals, including the rent collected by the universities.

The court was considering the writ petitions filed by Bangalore University and the Rajiv Gandhi University of Health Sciences. The petitioners challenged the show-cause notices issued to them proposing to demand service tax on affiliation fees.

The bench of Justice M I Arun quashed the demand for service tax along with interest and equivalent penalties. It observed that the negative list of services, set out under the Finance Act, 1994 was not chargeable to service tax. It covered the services provided by educational institutions.

The court ruled, "From the provisions of the statutes under which the said universities are formed, apart from providing higher education through their own institutions, the universities impart education through affiliated colleges and conduct examinations. Therefore, they qualify as educational institutions and services provided would not be chargeable to tax on the affiliation and other incidental charges collected from colleges."

As for the issue of the rent collected by a university towards allowing canteen and banking facilities, the court observed that those were incidental to the main activity of education. The same was also exempted from service tax.

While the petitioners were represented by senior advocates V. Raghuraman, Bhanu Murthy JS, and C.R. Raghavendra, the respondents were represented by advocates Jeevan Neeralgi and Amit Despande.