KNRUHS affiliated private medical, nursing colleges must pay GST on inspection, affiliation fee: HC

Pronouncing the decision on October 17, a division bench of Justice P. Sam Koshy and Justice Laxmi Narayana Alishetty dismissed about 35 petitions filed by private medical colleges against the university’s GST demand notice, and observed that educational institutions will need to pay GST on affiliation and inspection fees as imposed by KNRUHS.

Background and Petitioner's Stand

The case between Care College of Nursing along with 34 other educational institutions, and Kaloji Narayana Rao University of Health Sciences (KNRUHS) was dealing with the issue of the applicability of Goods and Services Tax (GST) on affiliation and inspection fees.

The batch of writ petitions was filed by educational institutions, primarily nursing colleges, affiliated with KNRUHS. These institutions contested a demand notice issued by the University for GST payments on affiliation and inspection fees dating back to July 2017. The demand for GST on these fees arose after the Central Board of Indirect Taxes and Customs and the Additional Director General of the Directorate General of GST Intelligence raised demands on KNRUHS. In other words, the university had been directed by the GST authorities to collect and deposit the GST dues from July 2017 on affiliation and inspection fee paid by private institutions.

The institutions argued that the imposition of GST on these fees was erroneous based on exemptions provided in Notification No.12 of 2017, dated 28.06.2017. The exemption in question was Serial No.66, which pertained to services provided by educational institutions. The petitioners contended that GST was not applicable to fees associated with education services.

Legal Arguments

The petitioners argued that under the definition provided in the notification, an institution providing education services as part of its curriculum, which includes universities, should be exempt from GST. Furthermore, they contended that an amendment added to Serial No.66 by incorporating Clause (aa) specifically included the exemption of GST on affiliation and inspection fees.

In support of their position, the petitioners cited a recent judgment from the Karnataka High Court that allowed similar writ petitions. They also referenced several decisions from the Supreme Court that emphasized the intrinsic connection between educational institutions and affiliations, arguing that the university should also qualify as an "educational institution."

Government's Stand

The respondents, represented by Dominic Fernandes, argued that the GST law, which came into effect on 1st July 2017, initially included education services under 'Heading No.9992' for taxation. While there were exemptions, Serial No.66, according to the government, did not specifically exempt affiliation and inspection fees. The government also highlighted the GST Council's resolution from its 47th meeting, which clarified that GST was applicable to the accreditation of educational institutions by boards or universities.

Court's Decision

The court carefully analyzed relevant notifications, amendments, and previous decisions to arrive at its conclusion.

The court first referred to Notification No. 11 of 2017, dated 28.06.2017, which specified the taxable services and their respective GST rates. It was observed that educational services were explicitly mentioned as taxable in this notification.

The court then highlighted Notification No. 12 of 2017, dated 28.06.2017, which provided exemptions for certain services. Under Serial No. 66 of this notification, services provided by an educational institution to its students, faculty, and staff were exempt from GST. Furthermore, it exempted services related to admission and conduct of examinations, including entrance examinations, up to higher secondary levels.

However, the court pointed out that this notification did not specifically exempt inspection and affiliation fees charged by a university to educational institutions. This omission indicated that these fees were not exempt from GST.

The court also discussed an amendment brought about by Notification No. 2 of 2018, dated 25.01.2018, which inserted Clause (aa) after Clause (a) in Serial No. 66. This amendment exempted GST on services provided by an educational institution by way of conducting entrance examinations against consideration in the form of entrance fees.

The court emphasized that the GST law made a clear distinction between the services rendered by educational institutions to students, faculty, and staff, which were exempt, and the services provided by universities to educational institutions, such as inspection and affiliation, which were not specifically exempted.

In conclusion, the court held that the exemption granted under Notification No. 12 of 2017, dated 28.06.2017, did not apply to inspection and affiliation fees charged by the university. It also noted that these fees were typically collected before student admissions, making them distinct from the services to students, faculty, and staff. It held;

"Notification No.12 of 2017, dated 28.06.2017, which stood amended further vide Notification No.2 of 2018, dated 25.01.2018, specifically enumerates the specific nature of service rendered by the educational institutions which would stand exempted. Inspection and affiliation fees however is not part of the said notification granting exemption. Yet another aspect which needs to be considered is that Notification No.12 of 2017, dated 28.06.2017, provides for exemption of services rendered by the educational institutions to three different categories, i.e., students, faculty and staff. It does not deal with the services rendered by the university to the educational institutions. ‘Affiliation’ and ‘inspection’ is a service rendered by the university to the educational institutions for which the university had charged the respective educational institutions."

"Surprisingly, in the instant case, as of now, the 1st respondent-University does not seem to be aggrieved of the demand raised by the respondent-Department so far as payment of G.S.T. on the inspection and affiliation fees is concerned. What is further necessary to be reflected at this juncture is that the nature of service rendered by the 1st respondent-University to the respective educational institutions is at a stage where the admissions to the students have not commenced. It is at the inception stage of the educational institutions that the inspection is conducted and the affiliation is thereafter granted. The admission and the services rendered by the educational institutions to the students, the faculty and the staff are all services rendered subsequent to the affiliation. Therefore, the contention that the petitioners have canvassed is hard to accept."

The court's decision was in line with previous Supreme Court judgments, emphasizing the need for strict interpretation of exemption clauses, particularly when there is ambiguity.

As a result, the writ petitions challenging the imposition of GST on inspection and affiliation fees were dismissed, and the petitioners' claims were not deemed sustainable. The court noted;

"For all the aforesaid reasons, we do not find any substance in the contentions raised by the learned counsel for the petitioners. Accordingly, the Writ Petition No.34617 of 2022 stands dismissed. Consequently, all the connected writ petitions also stand dismissed. No costs."

The court also disagreed with previous decisions by the Karnataka High Court, which relied on different provisions that were not applicable under the GST law. The judgment clarified that in matters of exemption, the benefit of ambiguity should not be extended to the subject or taxpayer, as exemptions must be established clearly and strictly complied with.

To view the original judgement, click on the link below: