IMPORTANT POINT
Educational institutions are exempt from service tax for educational services under the Finance Act, 1994, but not for income from non-educational activities.

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 & 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 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:

(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.

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 litigan