Bombay High Court Holds GST Not Applicable on Affiliation Fees Collected by Statutory Universities; Levy Lacks Jurisdiction

The Bombay High Court, in a significant judgment delivered by Justices G. S. Kulkarni and Aarti Sathe, has held that the collection of affiliation fees by statutory universities does not attract the levy of Goods and Services Tax (GST) under the Central Goods and Services Tax (CGST) Act, 2017. The Court quashed the GST demand of over Rs. 16.9 crores raised against the University of Mumbai, ruling that such fees are collected in the discharge of statutory functions and do not amount to a ‘supply’ as defined under Section 7 of the CGST Act.

Background and Context
The University of Mumbai, established under state legislation, was subjected to a GST demand on the affiliation fees it collected from colleges for the financial years 2017-18 to 2022-23. The GST authorities issued a show cause notice and subsequently confirmed the demand, including penalties, under Section 74(1) of the CGST Act. The University challenged the order, arguing that its activities were statutory in nature and not liable to GST, and further sought to quash related circulars and instructions issued by the tax authorities.

Court’s Analysis
The Court undertook a detailed examination of the statutory framework governing universities, particularly the Maharashtra Public Universities Act, 2016. It noted that the powers and duties of the University, including granting affiliation to colleges, are statutory obligations aimed at disseminating education and not commercial activities. The Court emphasized that the collection of affiliation fees is integral to the University’s regulatory and educational mandate, and not for pecuniary gain or in the course of business.

Interpreting Section 7(1)(a) of the CGST Act, the Court held that ‘supply’ must be understood in the context of business or commercial activity. The statutory functions of a university, including the collection of affiliation fees, do not fall within the ambit of ‘trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity’ as defined under Section 2(17) of the Act. The Court found that treating such statutory activities as business would be contrary to the legislative intent and the object of university laws.

The Court further observed that the concept of ‘consideration’ under Section 2(31) of the CGST Act involves a contractual relationship and quid pro quo, which is absent in the case of statutory affiliation fees. The fees are regulatory in nature, not commercial receipts, and are not paid in exchange for a negotiated service.

Reliance on Precedents
The judgment draws support from previous decisions, including those of the Karnataka High Court in Rajiv Gandhi University of Health Sciences, the Bombay High Court in Goa University, and the Rajasthan High Court in Rajasthan Technical University, Kota. These decisions uniformly held that affiliation fees collected by statutory universities are not consideration for taxable services and are not amenable to GST. The Court noted that the Supreme Court had dismissed the SLP against the Karnataka High Court’s decision, lending finality to the legal position.

Exemption Notification and Circulars
The Court also addressed the applicability of Exemption Notification No. 12/2017-CT(R) dated 28 June 2017, which exempts services provided by educational institutions. It held that, even assuming affiliation fees could be considered a service, such services would fall within the exemption, as they are inseparably connected with the core educational functions of the university. The Court clarified that executive circulars or clarifications cannot override statutory provisions or exemption notifications.

Conclusion and Relief
Concluding that the GST authorities lacked jurisdiction to levy GST on affiliation fees collected by the University of Mumbai, the Court allowed the writ petition and quashed the impugned order-in-original and rectification order. The Court expressly held that the statutory activities of granting affiliation do not constitute a ‘supply’ under Section 7 of the CGST Act, and therefore, the charging provision under Section 9 is not attracted. The Court refrained from adjudicating the legality of the impugned circulars, but observed that no circular contrary to substantive law can stand.

This judgment provides clarity on the non-taxability of statutory affiliation fees under GST and reinforces the principle that statutory and regulatory functions of universities are not commercial activities subject to GST.