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TMI Blog2024 (8) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... hout any consideration like donations, gifts or free charity ordinarily is outside the ambit of service. The concept activity for a consideration involves an element of contractual relationship wherein the person doing the activity does so at the desire of another in exchange for a consideration. There should be something like quid pro quo. An activity done without such a relationship i.e., without the express or implied contractual reciprocity of a consideration would not be an activity for consideration even though such an activity may lead to accrual of gains to the person carrying out the activity. Thus, an award received in consideration for contribution over a life time like Nobel Prize, Jnana Peeta, etc., will not be a consideration. the concept of sovereign function being impertinent, does not factor in the discussion. The function related to affiliation cannot be treated as a bundled service under clause (3) of section 66F of the Finance Act, 1994, either. The interests/fines/penalties leviable on account of default also have a thick connect with the fees regularly leviable and therefore, they would partake the character of fees only. In view of all this, the Revenue is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it is absolutely without jurisdiction; where authorities act with demonstrable incompetence, a litigant cannot be relegated to the sending of reply to such notices. (b) University like the respondent herein cannot be anything but an educational institution; it does not lose its character as an educational institution merely because it has rented out certain spaces and generates income therefrom; granting of affiliation, its denial or renewal do not have commercial elements and therefore the amounts such as fees, late fees, fines, penalties, etc., generated on account of said acts do not admit the idea of consideration as employed in section 65B (44) of the Finance Act, 1994. The statutory bodies which grant affiliation as a matter of statutory policy have the trappings of State Authorities and their activities are pregnant with abundant public elements. Activities of educational/professional regulatory bodies cannot be termed as commercial vide ACIE (Exemption vs. Ahmedabad Urban Development Authority. [2022] 143 taxmann.com 278. (c) Every educational institution during the particular period in question was not within the ambit of Finance Act, 1994; even otherwise, because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2011-12 this list consisted of 119 services. (c) The Service Tax law took giant leaps in the next seven years of its initiation both in terms of wider coverage and increase in tax rate. The newer additions to the Positive List of services often raised issues of overlap with the previously existing services confounding both sides as to whether some activities were taxed for the first time or were already covered under an earlier, even if under a little less specific head. With the accumulated experience, Budget 2012 ushered a new system of taxation of services, popularly known as Negative List. The next changes are a paradigm shift from the existing system where, only services of specified descriptions are subjected to tax. In the new system, all services, except those specified in the Negative List, are subject to taxation. (B) A THUMBNAIL DESCRIPTION OF RELEVANT PROVISIONS OF THE FINANCE ACT, 1994: (a) As already mentioned, 1994 Act enacts the law relating to Service Tax. Sec.66 till 30.06.2012 and Sec.66B w.e.f. 01.07.2012 are the charging provisions. They provide for levy of tax at the rate of 12% on the value of all services other than those enlisted in the Negative List. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta [Indian Epic, (approx 400 BCE), Shloka Sankhya-38] which nearly means that in this world, there is nothing as sublime pure as knowledge. Greek historian Megasthenes during 302 to 298 BCE and Chinese Buddhist scholar Hiuen Tsang, during 629-645 A.D traveled throughout India and recorded their appreciation for our civilization. In ancient India, there had been thousands of schools (gurukuls) spread all over and catering to the educational needs of people, free of cost. There were at least two dozen Universities of great repute to which even foreign students in huge numbers thronged. Takshashila, Nalanda, Mithila, Telhara, Sharadapeet, Vallabhi, Pushpagiri, Odantapuri, Vikramashila, Somapura, Vikrampura, Kanathalloor Sala, Jagaddala, Nadia Nagarjuna are only a few to name. Rollin M Perkin [(2007), History of Universities, In J.F. (Eds), International Handbook of Higher Education, Springer Publication, P.159-205.] writes which is largely true of other parts of the globe but not India: All advanced civilizations have needed higher education to train their ruling, priestly, military, and other service elites, but only in medieval Europe did an institution recognizable as a university ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduced vide 86th Constitutional Amendment w.e.f. 12.12.2002, has added greater impetus to this invaluable right to primary education. (c) This discussion assumes significance because of statutory policy enacted in Finance Act, 1994 as amended from time to time and the subordinate legislations promulgated thereunder which intended to keep a class of educational services / institutions away from their embrace. It is relevant to mention that learned Sr. Advocate Mr. Raghuraman appearing for the University succinctly put forth a two-fold submission viz., Act is not applicable to the University till particular period, and later when the Act was made applicable, the University has been immune from the tax liability by virtue of Exemption Notification. In other words, the educational institutions, according to him, stand as a class apart for a favourable treatment even in the GST Law. D. NATURE FUNCTIONS OF RESPONDENT UNIVERISTY: (a) Earlier, all colleges/institutions in the State were affiliated to conventional universities in the region; these universities ordinarily had one constituent college of their own. However, that had created some functional difficulties and therefore, as a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examinations and to confer honorary degrees or other distinctions under conditions as may be prescribed; . (vii) to affiliate or recognize colleges and institutions and to withdraw such affiliation or recognition; (viii) to institute, suspend or abolish University Professorships, Associate Professorships, Readerships, Assistant Professorships, Lecturerships and other teaching posts in the University and to make suitable appointments thereto; (ix) to institute and award fellowships, scholarships, studentships, stipends, medals and prizes; (xvi) to undertake publication of works of merit and research pertaining to health sciences; (xx) to establish and maintain University Libraries, Research Station, Museums and Press and Publication Bureau; (xxi) to establish research posts and to appoint suitable persons to such posts; (d) Section 5 r/w sections 45 46 inter alia provides for privileges, recognition and affiliation of all colleges and autonomous institutions of health sciences that were affiliated to conventional universities. Sec.48 provides for their withdrawal. Section 7 empowers the Government to transfer its colleges to the university and on transfer they become university col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that it is miles away from the precincts of the Finance Act, 1994 more particularly because of Sec.66D(l) which enacts Negative List and the educational services rendered by the University therefore are not taxable. It is a further case that in any event, the University enjoys exemption granted to educational institutions vide Notifications dated 25.06.2012, 01.03.2013, 11.07.2014, 01.03.2016 08.03.2017, all issued by the Central Government u/s. 93. Thus there is an eminent case for examination on merits. Therefore, the preliminary objection to the very entertainment of writ petition cannot be sustained. VII. AS TO RESPONDENT-UNVERSITY NOT BEING AN EDUCATIONAL INSTITUITON: (a) The second contention of learned Panel Counsel that University as such is not an educational institution and therefore, it is very much within the precincts of Finance Act, 1994, has many reflections repercussions. Essentially, this contention is structured on a premise that the University in question is a statutory body which only affiliates institutions of health sciences, and nothing beyond that. This is only a partial truth. As already mentioned above, section 4 of RGUHS Act, 1994 prescribes pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing examination and grant of certificate or degree or diploma, as the case may be and would not be limited to the actual imparting of education in schools, colleges or institutions only without a degree or diploma being conferred by the University, college education would not be complete. Therefore, examinations are an indispensable component of education... Therefore, to say that Boards/Universities are not educational institutions would amount to divorcing examinations from education (c) Section 66 of 1994 Act provides for charging service tax at 12% of the value of taxable services that were enumerated in the specified clauses of section 65, whereas section 66B inter alia excludes the services specified in the Negative List provided u/s 66D. Clause (l) of section 66D enlists services by way of pre-school education and education up to higher secondary school or equivalent; education as part of curriculum for obtaining a qualification recognized by law; and education as a part of approved vocational education course. Obviously, the services catered by the respondent-University are by way of education as a part of curriculum for obtaining a qualification recognized by any law as st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom is liable to service tax. Learned Sr. Advocate representing the University repels this submission contending that the statutory activities of an entity that lack commercial elements do not answer this definition. Substantive part of Clause 44 reads as under: Service means any activity carried out by a person for another for consideration, and includes a declared service It is apparently a means, includes excludes definition. It is not the case of either party that the exclusion part of the definition is invokable, and therefore a long list of exclusion is not reproduced. (b) The substantive definition of service has four building blocks namely: activity ; carried out ; by one person for another and, for consideration . The word activity has not been defined in the Act. In common parlance, it would mean an act, a deed, a work, an operation or the like. An activity carried on means an act executed, a deed done, a work accomplished or an operation carried out. This expression has a wider connotation and includes both active and passive act. The second component of the definition is consideration, which again is not well defined. However, as per Explanation (a) to section 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op a coin in his bowl. They are, however, under no obligation to pay any amount for his performance since they have not engaged him for that. On the other hand if the same person is called to perform on payment of an amount of money, then the performance becomes an activity for a consideration. (d) In the above backdrop, let us examine affiliation which has yielded income to the respondent-University. This word is not defined either in the RGUHS Act or in the Finance Act. The word affiliation is derived from Latin word affiliare which means to adopt as a son. In Ramanath Iyer s The Law Lexicon 2nd Edition Reprint 2010, LexisNexis, page 73, it is described as under: Affiliation of college. To university means such a connection between an existing university and a college as shall be entered into by their mutual consent, under the conditions approved by the University Commissioners or other proper authorities. The Apex Court in BHARATIYA EDUCATION SOCIETY vs. STATE OF HIMACHAL PRADESH (2011) 4 SCC 527, para 19 observed: In the context of NCTE Act, affiliation enables and permits an institution to send its students to participate in the public examinations conducted by the Examining B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt-Revenue vehemently argued that the University derives income by way of rents from the buildings leased out for canteen, bank such other facilities and that the very activity amounts to service, as defined under Section 65B (44) and therefore, regardless of nature of the service provider such as educational institutions, the same is liable to service tax. He hastened to add that the focal point of levy is not the nature of institution but the nature of activities carried on by them for consideration. Mr. Raghuraman, per contra contended, that the said activities are incidental to catering of educational services, such services being in the Negative List; in any event, the University enjoys immunity from the levy in terms of Exemption Notifications issued from time to time, since they have binding effect at least as between the Revenue and the Assessee, of course subject to all just exceptions. (b) The contention of the CGC that the levy of tax is activity-centric and it does not depend on the nature of service provider, in our view is broadly true. The text of Clause (l) of Section 66D of the Finance Act, being supportive of this view, is reproduced: (I) Services by way of- (i) p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the pragmatics of community living. Negative List enacted in section 66D(l) is one such measure. Immunity from taxation in terms of Exemption Notifications is such another. When an activity figures in the Negative List, the same is not liable to service tax at all. This is one scenario. The other is a case of exemption from tax by virtue of statutory notifications. Former is a case of non-applicability of charging section whereas, the latter is a case of its applicability. There lies a subtle difference between these two, and mistaking one to be other will have implications to Caesar Citizen. Not recognising this difference, is consequential. Initial taxability of services is one thing and its exemption from tax is another. To put it succinctly, the question of exemption from tax liability arises when exempted activity/entity does not figure in the Negative List. This logic accords with the opinion of the great jurist of yester decades Mr. Nani A. Palkhivala that Mother Teresa was not taxable because the Nobel Prize was not income and therefore, the question of giving her any special exemption did not arise. [ Nani A.Palkhivala - A Life by M.V.Kamath Pages 74-75] (d) Mr. Ragh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption from service tax liability. In text context, they are almost identical. However, the subsequent Notifications have the text much in variance with these two. Notification No.6/2014-ST dated 11.7.2014, Notification No. 9/2016-ST dated 1.3.2016 and Notification No. 10/2017-ST dated 8.3.2017, retain the definition of educational institution as it is. However, the adjective auxiliary is dropped from the definition of services . This definition in all these Notifications remains substantially same and it is as under: 9. Services provided,- (a) by an educational institution to its students, faculty and staff; (b) to an educational institution, by way of- (i) transportation of students, faculty and staff; (ii) catering, including any mid-day meals scheme sponsored by the Government; (iii) security or cleaning or house-keeping services performed in such educational institution; (iv) services relating to admission to, or conduct of examination by, such institution;] What is conspicuous from the aforesaid subsequent Notifications is the absence of the term renting of immovable property . The intent of this is as clear as gangetic waters that the activity whereby income is derived by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, providing banking facilities by no stretch of imagination can be held to be incidental to education. The term educational services has been employed in these Exemption Notifications in a reasonable sense if not restrictive. In ascertaining whether banking service is part of educational service in the contemplation of the subject Notifications, there is no scope for employing the predominant object test, either, in the light of latest decision of the Apex Court in NEW NOBLE EDUCATIONAL SOCIETY vs. CHIEF COMMISSIONER OF INCOME TAX (2023) 6 SCC 649. Therefore, we are of the considered view that the income from the rentals of buildings leased/licensed for banking facilities is not exempted from service tax. (d) The above being said, there is force in the submission of Mr. Raghuraman that the income accruing to the University because of renting of property for providing canteen facilities is entitled to be exempted from service tax. It is a matter of common knowledge that normatively the campuses of universities nowadays are huge and their areal hugeness would justify providing canteen facilities within the campus, especially when the courses comprise of long hours. Otherwise, int ..... 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