Kerala AAR Rules GST Payable on Exam Fees and Recruitment Activities of Devaswom Board

Introduction

In a significant ruling for governmental recruitment bodies in India, the Kerala Authority for Advance Ruling (AAR) has determined that the Kerala Devaswom Recruitment Board (KDRB) must collect Goods and Services Tax (GST) on application fees charged to candidates and on its overall activity of conducting examinations for recruitment to posts in Devaswom Boards. Issued on October 8, 2025, by a bench comprising Shri Jomy Jacob IRS and Shri Mansur M.I., Additional Commissioner of Central Tax, the decision clarifies that such services constitute a taxable "supply" under the Central Goods and Services Tax (CGST) Act, 2017, despite the board's status as a statutory governmental authority. This ruling addresses longstanding ambiguities in the taxability of public sector recruitment processes, potentially impacting similar institutions across states by mandating GST compliance if turnover thresholds are met. The KDRB, established under the Kerala Devaswom Recruitment Board Act, 2015, sought advance ruling on three key questions related to GST registration, tax on fees, and applicability to exam conduction, highlighting the intersection of public service mandates and fiscal obligations under GST.

Case Background

The Kerala Devaswom Recruitment Board (KDRB) is a statutory autonomous institution created by the Kerala Legislative Assembly through the Kerala Devaswom Recruitment Board Act, 2015. Its primary mandate is to conduct fair and transparent examinations for selecting suitable candidates for various permanent posts—such as Clerk/Cashier, Confidential Assistant, and Office Attendant—in five Devaswom Boards responsible for temple administration across Kerala. These Devaswom Boards manage religious institutions in different geographical areas, ensuring the recruitment aligns with governmental oversight for public welfare roles tied to cultural and religious administration.

The dispute arose from the KDRB's operational model, which relies on a mix of state government grants and self-generated funds, primarily from application fees collected from candidates. The board utilizes a software system called "Devajalika" to handle the entire recruitment process, from notification publication to result declaration, emphasizing transparency. However, government budgetary allocations often fall short of covering expenses like advertisement costs, printing of question papers, invigilation, evaluation, and honorariums for experts. To bridge this gap, the KDRB collects fees, treating them as its own funds to defray recruitment-related expenditures.

The legal questions at the heart of the advance ruling application, filed under Section 97 of the CGST Act, were:

• Whether the KDRB is required to obtain GST registration.
• Whether GST must be collected on application fees from candidates.
• Whether GST applies to the activity of conducting examinations.

The application was submitted with GSTIN 32A25DRB0002R1ZZ (temporary), and a personal hearing was held on May 19, 2025, where Smt. Sreekala T.P., Secretary of the KDRB, represented the board. No prior proceedings were pending against the applicant, as confirmed by the jurisdictional State Tax Officer. This case is particularly timely, as it comes amid evolving GST interpretations for public entities, similar to recent Kerala AAR decisions on taxability during exceptional circumstances, such as payments to manpower suppliers by the Vikram Sarabhai Space Centre (VSSC) during the COVID-19 lockdown, where GST was upheld even without physical services.

Arguments Presented

As an advance ruling application, the proceedings were inquisitorial rather than adversarial, with the KDRB presenting detailed contentions to seek clarity on tax liabilities. The jurisdictional officer provided no objections, reporting no ongoing cases.

The applicant's primary submission was that the KDRB functions as a grant-in-aid institution under direct government control, aimed at public service rather than profit. They argued that the core activity—conducting examinations for permanent posts in Devaswom Boards—is a statutory function, not a commercial "supply" under GST. The board detailed the recruitment process, spanning notification, application processing via "Devajalika," examination conduction, evaluation, interviews, and rank list publication. Application fees were portrayed as nominal charges to cover essential costs, such as newspaper advertisements (expense item 1), printing and transport of materials (item 2), stationery supply (item 3), supervision charges to schools (item 4), and remuneration for deputed officials, including vehicle and food expenses (item 5). Additional costs included practical tests (item 6), venue rents (item 7), script valuation (item 8), question setter remuneration (item 9), and expert honorariums (item 10).

The KDRB contended that these activities do not constitute "business" as defined in Section 2(17) of the CGST Act, since they lack pecuniary motive and are incidental to governmental duties. They sought exemption as a "governmental authority" under Notification No. 12/2017-Central Tax (Rate), arguing alignment with public welfare functions akin to those under Articles 243G or 243W of the Constitution. Furthermore, they questioned the need for GST registration, asserting that fees are not "consideration" for taxable services but statutory collections to offset deficits, not generating surplus. In the personal hearing, the Secretary reiterated these points, emphasizing the board's non-commercial nature and reliance on grants, and requested a ruling favorable to exempting exam-related activities from GST.

While no formal respondent arguments were presented, the AAR's discussion implicitly addressed potential counterpoints by examining statutory definitions and exemptions rigorously, ensuring the ruling's balance.

Legal Analysis

The Kerala AAR's reasoning hinged on interpreting key provisions of the CGST Act, 2017, to determine if the KDRB's activities qualify as a taxable supply. Central to this was Section 7, defining "supply" as activities for consideration in the course or furtherance of "business." The bench adopted an inclusive view of "business" under Section 2(17), which encompasses any trade, profession, or similar activity, regardless of pecuniary benefit. The AAR found that the KDRB's recruitment services—advertising, printing, invigilation, evaluation, and interviews—constitute business activities, as fees directly fund these operations, creating a quid pro quo with candidates who receive access to the selection process.

A pivotal analysis was whether the KDRB qualifies for exemption as a "governmental authority" per Paragraph 2(zf) of Notification No. 12/2017-Central Tax (Rate), dated June 28, 2017. Established by state legislation, the board met the setup criteria and was linked to the explanation in Section 2(16) of the IGST Act. However, exemptions under Serial Nos. 4 and 5 of the notification apply only to functions entrusted to Panchayats (Article 243G, Eleventh Schedule) or Municipalities (Article 243W, Twelfth Schedule). The AAR meticulously reviewed these schedules: the Eleventh covers agriculture, education, health, and poverty alleviation, while the Twelfth includes urban planning, public amenities, and sanitation. Recruitment for Devaswom posts, tied to temple administration, did not fit—neither as rural/urban governance nor as listed public functions. Thus, the services were deemed outside exemption scope.

No direct precedents were cited in the judgment, but the ruling draws on foundational GST principles from the Act itself, such as the taxable event of supply (Section 7) and liability for registration (Section 22) if aggregate turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for special category states). The AAR distinguished this from pure governmental functions by emphasizing the reciprocal obligation: candidates pay fees for specific services like evaluation and result publication, making it taxable under Section 15 (value of supply). This aligns with broader GST jurisprudence, where public bodies' fee-based services are scrutinized for commercial elements, as seen in analogous rulings like the Kerala AAR's decision on VSSC's manpower payments during lockdown (March 23 to May 31, 2020), where GST applied despite suspended work, reinforcing that consideration triggers taxability irrespective of service rendition.

The bench clarified distinctions: statutory collections (e.g., taxes) differ from fees for services, which are consideration under Section 2(31). Even without profit motive, activities fall under "business" if ancillary to public functions but fee-funded. Implications include mandatory GST at rates for "recruitment or placement services" (typically 18%) on fees, with registration obligatory if thresholds are breached.

Key Observations

The judgment provides several pivotal excerpts underscoring the AAR's rationale:

• On the nature of supply: "The services provided by the applicant to candidates in connection with recruitment of eligible persons to various posts in the Devaswom Boards constitute a taxable supply under Section 2(108) of the CGST Act, 2017."

• Regarding business definition: "'Business' includes- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a)."

• On exemption ineligibility: "The activities undertaken by the applicant, though categorized as a 'governmental authority,' do not fall under any of the functions entrusted to a Panchayat or a Municipality under Articles 243G and 243W of the Constitution, respectively."

• On fees as consideration: "The payment of such fee is not a voluntary contribution or a statutory levy; it is the consideration charged in exchange for permitting the candidate to participate in the selection process and for providing the related administrative and evaluative services. The relationship between the payment and the service rendered is thus one of reciprocal obligation—quid pro quo."

• Final tax liability: "The mere fact that the activity is statutory or that the receipts may only offset costs does not take away its taxable character, since the definition of 'business' under section 2(17) expressly includes activities of public authorities whether or not carried out for pecuniary gain."

These observations highlight the AAR's emphasis on statutory interpretation over the board's public service intent.

Court's Decision

The Kerala AAR issued a clear affirmative ruling on all three questions, affirming the taxability of the KDRB's operations:

• Question 1 : "The applicant is a taxable service provider and is liable to be registered if the aggregate value of the supply of services exceeds the threshold limit prescribed under Section 22 of the CGST Act, or if the applicant falls under any of the categories specified under Section 24 of the Act."

• Question 2 : "Yes, the fees collected from candidates represent consideration for services supplied by the applicant in conducting recruitment examinations and related processes. Accordingly, they are chargeable to GST under Section 9 of the CGST Act."

• Question 3 : "Yes. The services provided by the applicant to candidates in connection with recruitment of eligible persons to various posts in the Devaswom Boards constitute a taxable supply under Section 2(108) of the CGST Act, 2017."

Practically, the KDRB must now obtain GST registration if its annual aggregate turnover from exam fees exceeds Rs. 20 lakhs, collect and remit GST on such fees (likely at 18%), and treat the entire examination conduction as a taxable supply. This decision sets a precedent for other statutory recruitment boards, such as those for public sector undertakings or educational institutions, potentially increasing compliance burdens but ensuring revenue consistency under GST.

Broader implications extend to fiscal policy: it reinforces that exemptions for governmental authorities are narrowly construed to constitutional functions, discouraging fee-based public services from evading tax. For future cases, this could influence appeals to the Appellate Authority or High Court, testing the boundaries of "business" in non-profit public entities. In a post-pandemic context, akin to the VSSC ruling where GST applied to idle payments, it underscores GST's robustness against service disruptions. Legal professionals advising public bodies should review fee structures for tax compliance, while candidates may face marginally higher costs, though offset by the board's efficiency gains. Overall, this ruling promotes transparency in public finance, aligning recruitment processes with India's unified tax regime.