GST - Affiliation Fee collected by CBSE from schools for granting affiliation not taxable

CBSE Wins Appeal: Affiliation Fees Not Subject to Service Tax, Says CESTAT Tribunal Rules CBSE's Affiliation Activities Outside the Scope of Taxable Services

In a landmark judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in New Delhi has ruled in favor of the Central Board of Secondary Education (CBSE), stating that the affiliation fees collected by the board from schools do not constitute a taxable service under the Finance Act, 1994. The tribunal's decision effectively overturns a previous order demanding service tax from the CBSE on these fees.

The case, titled "Central Board of Secondary Education v. Additional Director General (Adjudication)," centered on whether the fees collected by CBSE for school affiliations were subject to service tax. The Additional Director General (Adjudication) had earlier confirmed a demand for service tax amounting to over Rs. 16 crore, asserting that the affiliation constituted a service rendered for consideration.

However, the tribunal, presided over by Justice Dilip Gupta and Member P.V. Subba Rao, found that the affiliation fees did not meet the criteria of a taxable service. The ruling emphasized that the affiliation process does not involve a commercial transaction or constitute an "activity done for consideration." Instead, it establishes a formal connection between the affiliating body and the affiliated entity, which is a necessary part of regulating educational standards.

The tribunal also referenced earlier judgments, including that of the Karnataka High Court, which clarified that the act of affiliation is not a service provided for consideration. The CBSE's affiliation activities were deemed to fall within the realm of education, thus placing them within the "Negative List" of services under the Finance Act, exempting them from service tax.

Moreover, the tribunal noted that the affiliation activities are covered under Entry 9 of the Exemption Notification No. 25/2012-S.T., which pertains to services related to the conduct of examinations by educational institutions. This exemption was applicable for the period from July 11, 2014, to March 31, 2017, further reinforcing the board's position.

The ruling also addressed the issue of the extended period of limitation, stating that the CBSE did not engage in suppression of information, thereby nullifying the application of the extended period for tax demand.

This judgment is seen as a significant victory for educational institutions across the country, as it clarifies the tax status of affiliation fees and underscores the non-commercial nature of educational regulatory activities. The decision is expected to have wide-ranging implications for other educational boards and universities facing similar tax demands.

Bottom Line:

Service Tax - Affiliation Fee collected by CBSE from schools for granting affiliation does not amount to a taxable service under Section 65B(44) of the Finance Act, 1994. Affiliation creates an "umbilical cord" between the affiliating body and the affiliated entity and does not constitute an "activity done for consideration."

Statutory provision(s): Sections 65B(44), 66D of the Finance Act, 1994; Notification No. 25/2012-S.T., Entry 9

Central Board of Secondary Education v. Additional Director General (Adjudication), (CESTAT)(New Delhi)(Principal Bench) : Law Finder Doc Id # 2818748