The Andhra Pradesh High Court (Amaravati Bench) has held that affiliation fees and NOC fees collected by statutory universities established under State legislation, in the discharge of mandatory statutory functions of considering and granting/refusing affiliation and issuing NOCs, are not collected in the course or furtherance of “business”. Accordingly, such activities do not constitute “supply of services” under Section 7 of the CGST Act and are not exigible to GST under Section 9.
The Court explained that such universities, though created by State enactments, are separate legal entities and are not themselves the Central Government, State Government, or local authority; therefore, the deeming expansion of “business” in Section 2(17)(i) and the treatment of public authority activities under Section 7(2) do not apply to them. The impugned assessment orders were accordingly set aside.
The Division Bench comprising Justice R Raghunandan Rao and Justice T.C.D. Sekhar observed that Section 9(1) of CGST Act levies tax on intra-State supplies of goods and services, and that while “supply of services” is not separately defined in Section 2, Section 7 explains the scope of supply and brings within it any supply of services in any form if it is in the course of or in furtherance of business. The Bench noted that Section 7(2)(a) excludes activities in Schedule III from the concept of supply, and Section 7(2)(b) excludes notified activities undertaken by the Central Government, State Government or local authority while acting as public authorities.
The Bench then observed that the statutory scheme contemplates two categories: first, supplies by non-State authorities, for which Section 7(1) requires the activity to be in the course of or furtherance of business; and second, supplies by the Central Government, State Government or local authorities, for which the business element is treated differently and all supplies are taxable unless protected by Schedule III or a specific notification.
On that basis, the Bench identified the next issue as whether the petitioner universities could be treated as the Central Government, State Government or local authority for purposes of Sections 7(2) and 2(17)(i). The Bench held that the petitioner universities were separate entities created and established under State legislation and were not part of the State Government, local authority, or Central Government. Therefore, Section 7(2) and Section 2(17)(i) were not applicable to them.
The Bench further held that the term “business” in Section 2(17) clearly does not include statutory functions cast upon the petitioner universities. It reasoned that the activities mentioned in Section 2(17) are voluntary actions, whereas the universities were duty bound to consider and grant or refuse affiliation or NOCs. Therefore, grant of affiliation was a statutory function and not a business activity.
Consequently, the Bench concluded that the universities’ activities in granting affiliations and issuing NOCs did not constitute “supply of service” within Section 7 of the GST Act and were therefore not exigible to tax. As to exemption notifications, the Bench observed that once it had held the services not taxable at all, the issue whether they were exempt under the notifications did not arise.
Briefly, the petitioners were public universities established under Andhra Pradesh State legislation, and they challenged GST assessment orders levying tax on affiliation fees and No Objection Certificate (NOC) fees collected from affiliated colleges. The universities had been established under specific State enactments, including the Jawaharlal Nehru Technologies University Act, 2008 and the Andhra Pradesh Universities Act, 1991, depending on the institution concerned.
The assessing authorities sought to tax the receipts of affiliation fees and NOC fees on the basis that such amounts were consideration for services rendered by the universities and were therefore taxable under the GST Act. The universities objected, contending that these were statutory fees collected in discharge of statutory functions and could not be treated as supply of services in the course of business activity. They also relied on exemption Entry 66 of Notification No. 12 of 2017.
The assessing officers rejected those objections, holding that even a supply of service in pursuance of statutory functions would be taxable under the GST Act, and further held that the petitioners were not entitled to the exemption under Entry 66 of Notification No. 12 of 2017 because affiliation and issuance of NOCs did not fall within that entry.
Appearances:
Lakshmi Kumaran Sridharan, for the Petitioner
Harinath N, Deputy Solicitor General of India and Advocate Santhi Chandra, for CBIC
