Facts of the Case

A batch of 36 writ petitions was filed by various nursing colleges affiliated to the Kaloji Narayana Rao University of Health Sciences (KNRUHS), Warangal, challenging demand notices raised by the University seeking payment of GST on affiliation and inspection fees collected from the colleges. The colleges argued that the demand notices, issued pursuant to show-cause proceedings initiated by the Directorate General of GST Intelligence against the University, were illegal, arbitrary and violative of Articles 14, 19(1)(g) and 21 of the Constitution. The colleges contended that as institutions imparting education leading to a qualification, they and the University together constituted part of the "educational institution" ecosystem, and that fees for affiliation and inspection were consequently exempt from GST under the general exemption for education services. The respondents included the Central Board of Indirect Taxes and Customs, the Additional Director General, Directorate General of GST Intelligence, and the Commissioner of Commercial Taxes, Telangana, besides KNRUHS. The matter reached the Division Bench after the GST authorities had raised demands treating affiliation and inspection fees charged by the University as taxable "education services" under Heading 9992.

Issues Involved

  1. Whether affiliation and inspection fees collected by a university from its affiliated colleges qualify for exemption under Notification No.12/2017-Central Tax (Rate) dated 28.06.2017, as amended.
  2. Whether the exemption for "services provided by an educational institution to its students, faculty and staff" under Serial No.66 of Notification No.12/2017 extends to services rendered by a university to its affiliated colleges.
  3. Whether two earlier Karnataka High Court decisions exempting similar affiliation-related levies, based on the erstwhile Service Tax exemption under Clause 66D of the Finance Act, 1994, remained good law under the GST regime.

Petitioner's Arguments

  • Since affiliation is intrinsically connected with imparting education, the University itself falls within the meaning of "educational institution" and, therefore, affiliation and inspection fees also stand exempted under Notification No.12/2017.
  • The amendment inserting Clause (aa) to Serial No.66 of Notification No.12/2017 (by Notification No.2/2018) exempting entrance-examination fees showed a legislative intent to exempt allied educational activities including affiliation.
  • Two decisions of a learned Single Judge of the Karnataka High Court — Rajiv Gandhi University of Health Sciences and Bangalore University — had already held such fees exempt, and the burden of any GST would ultimately be passed on to students.

Respondent's Arguments

  • Notification No.11/2017-Central Tax (Rate) made "education services" under Heading 9992 taxable, and the exemption in Notification No.12/2017 covers only services rendered by an educational institution to its own students, faculty and staff — not affiliation or inspection services rendered by a university to third-party colleges.
  • The 47th GST Council Meeting (28-29.06.2022) had clarified that affiliation-related fees are governed by CBIC's Circular dated 17.06.2021, under which GST at 18% applies to accreditation services provided by a Board or University to educational institutions.
  • The Karnataka High Court decisions relied on by the petitioners were distinguishable because they were based on the now-omitted Clause 66D of the Finance Act, 1994, which has no equivalent provision under the GST law.

Court Order / Findings

  • The Division Bench held that Notification No.11/2017 makes "education services" broadly taxable, and the exemption under Notification No.12/2017 is confined strictly to services rendered by an educational institution to its own students, faculty and staff — it does not extend to affiliation or inspection services rendered by a university to affiliated colleges.
  • Relying on the Constitution Bench ruling in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company, the Court held that an exemption notification must be construed strictly against the assessee in case of ambiguity, and the petitioners had not shown that their case squarely fell within the exemption.
  • The Court respectfully disagreed with the Karnataka High Court's Rajiv Gandhi University and Bangalore University decisions, finding them distinguishable as based on a service tax provision (Clause 66D, Finance Act, 1994) with no counterpart under GST law.
  • Finding no merit in the petitioners' contentions, the Court dismissed the lead writ petition and all connected petitions, without costs.

Important Clarification

  • The ruling clarifies that the exemption under Serial No.66 of Notification No.12/2017 is limited to three specified categories of recipients — students, faculty and staff of the institution itself — and does not extend by inference to inter-institutional services such as affiliation and inspection.
  • Precedents decided under the pre-GST Service Tax regime (Finance Act, 1994) cannot be mechanically applied to GST exemption notifications where no corresponding statutory provision exists.

Sections Involved

  • Section 9 of the Central Goods and Services Tax Act, 2017 — the charging provision under which the rate notification (No.11/2017) was issued.
  • Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 — notifies "education services" under Heading 9992 as taxable at 9% CGST.
  • Notification No.12/2017-Central Tax (Rate), Serial No.66, as amended by Notification No.2/2018 — exempts specified services rendered by an educational institution to its students, faculty and staff.

Decision – In Favour of

Department. The Court upheld the GST demand on affiliation and inspection fees charged by the University, holding that no exemption applies to such inter-institutional services.

Case Details

  • Court: High Court for the State of Telangana at Hyderabad
  • Case No.: W.P. No.34617 of 2022 and Batch (35 connected writ petitions)
  • Coram: Justice P. Sam Koshy and Justice Laxmi Narayana Alishetty
  • Date of Order: 17th October 2023

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