Bombay High Court Quashes GST Demand On Mumbai University, Says Affiliation Not 'Supply' Of Service

The Bombay High Court has recently set aside a GST demand of Rs 16.90 crore on the University of Mumbai, holding that affiliation fees collected by the university are part of its statutory duties and not taxable.

“Thus, having examined Section 7 and its purport in regard to its applicability in the context of the petitioner University receiving affiliation fee, in our opinion, there ought not to be any ambiguity that the collection of affiliation fees by the petitioner University in the discharge of its statutory functions, as noted hereinabove, can at all amount to a “supply” as defined under Section 7 of the CGST Act. As a consequence thereto, once such activity itself is not 'supply' and/or it is not business within the meaning and purview of sub-section 1(a) of Section 7, there is no question of the charging provision i.e. Section 9 which provides for levy and collection being applicable,” the Court held.

A division bench of Justices G.S. Kulkarni and Aarti Sathe was hearing a petition filed by the University of Mumbai. The university had challenged a tax demand raised on affiliation fees collected between 2017–18 and 2022–23, along with interest and penalties.

The university argued that granting affiliation to colleges is a statutory function under the Maharashtra Public Universities Act, 2016. It said this activity is part of its role in regulating education and cannot be treated as a business activity or a service.

The Court examined the law governing universities and noted that affiliation involves inspection of colleges, checking infrastructure, and ensuring academic standards. These functions are carried out as part of the university's legal duties.

“All such activities are, however, within the framework of the statutory scheme and not for any profit or per se any service being provided under any business as the law would envisage. Such activities of the University are required to be read in the context of definition of 'affiliated college', 'college', 'conducted college', 'university', 'university areas', university teacher, as relied on behalf of the petitioner. All such activities do not admit of any commercial concept, so as to regard the activities of the university as any business activities. It is in fact a mission to disseminate education, where the considerations of commerce are alien to the object and purpose of a statutory university being founded under the law.” the Court observed.

The court held that such functions are not commercial in nature and cannot be treated as business activities. It said GST can apply only when there is a supply of goods or services in the course or furtherance of business.

The court rejected the tax department's argument that the broad definition of “business” would cover these activities. It said treating statutory educational functions as business would defeat the purpose of the law governing universities.

The court further held that since the activity itself is not a “supply” under Section 7 of the CGST Act, GST cannot be levied under Section 9. It also said the authorities had no jurisdiction to issue the show cause notice or pass the demand order.

The High Court accordingly quashed the tax demand as well as the rectification order.