2021 (4) TMI 819 - HC - Service Tax

Levy of Service Tax - fees collected by the University - petitioner had been collecting affiliation fees, inspection fees and other fees etc. from the affiliated colleges and charges by way of renting of immovable properties - demand of interest and penalty as well - Circular No.89/7/2006-ST dated 18.12.2006 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs - HELD THAT - There can be no doubt that a college as per the UGC regulations will have to be affiliated to some University. Therefore, the affiliation fees as well as the inspection commission collected by the University are in the nature of statutory levies. By performing those activities, the petitioner is only discharging a statutory function and the fees collected by the petitioner cannot be amenable to levy of Service Tax. It is true that authorisation is given to the University to maintain the property. But then, there is clear commercial element in these transactions. The University is renting the property to other institutions and collecting rent from them. Therefore, the second respondent was justified in raising demand for the said service. There is no justification in levying penalty - Appeal allowed in part.

Summary

Issues:
1. Liability of a university to pay service tax on fees collected from affiliated colleges and renting of immovable properties.
2. Interpretation of statutory obligations and exemptions under relevant statutes.
3. Justifiability of penalty imposition in service tax matters.

Analysis:

Issue 1: Liability of the university to pay service tax
The petitioner, a university established under the Manonmaniam Sundaranar University Act, 1990, was issued a notice by the second respondent to pay service tax on fees collected from affiliated colleges and renting of immovable properties. The contention was that the university was providing services to the affiliated colleges, and thus, the fees collected should have been reflected in the service tax returns. The court examined Circulars issued by the Government of India and held that the fees collected by the university were in the nature of compulsory levies as per the relevant statute. Affiliation fees and inspection commission were considered statutory levies, exempt from service tax. However, the demand for service tax on renting of immovable properties was upheld due to the commercial element involved.

Issue 2: Interpretation of statutory obligations and exemptions
The court analyzed the statutory provisions under Section 24(16) of the statute establishing the university, which empowered the Syndicate to prescribe fees for various purposes. It was concluded that the university was discharging a statutory function through activities like affiliation and inspection, making the fees collected exempt from service tax. The court differentiated between statutory functions and commercial activities, exempting certain fees but upholding the service tax demand on renting of immovable properties.

Issue 3: Justifiability of penalty imposition
Regarding the penalty imposition, the court found no justification for levying a penalty on the petitioner, considering the university's public nature and lack of forgery or misrepresentation allegations. The court sustained the demand for service tax on renting of immovable property but quashed the penalty imposition. The judgment partly allowed the writ petition, emphasizing that the university's activities were primarily statutory and exempt from service tax, except for commercial transactions like renting properties. No costs were awarded in the case, and connected miscellaneous petitions were closed as a result of the judgment.