Manonmaniam Sundaranar vs. The Joint Director

Held

The Court held that the fees collected by the petitioner University for affiliation and inspection of colleges are in the nature of statutory levies and are not amenable to Service Tax. The Court reasoned that the University was discharging a statutory function as mandated by its establishing Act and UGC regulations, and these fees were compulsory levies. However, the Court found a clear commercial element in the renting of immovable property by the University to other institutions. Therefore, the demand for Service Tax on renting of immovable property was sustained. The Court also held that levying penalty was unjustified as the petitioner was not a private entity and no allegations of forgery or misrepresentation were made. The impugned order was sustained only in respect of the demand for Service Tax on renting of immovable property and quashed in all other respects. The writ petition was partly allowed.

Facts

The petitioner, Manonmaniam Sundaranar University, challenged an order passed by the Joint Commissioner, CGST & Central Excise, Tirunelveli. The impugned order confirmed a demand for service tax, interest, and penalty. The revenue's contention was that the University had been collecting affiliation fees, inspection fees, and other fees from affiliated colleges, and also charging for renting immovable property. The University was alleged to have rendered services to affiliated colleges and failed to register for service tax. The University argued that its activities were statutory obligations and the fees collected were compulsory levies, not subject to service tax. The revenue reiterated its stand in a counter-affidavit.

Key Issues

1. Whether the fees collected by the petitioner University for affiliation, inspection, and other statutory purposes from affiliated colleges constitute a compulsory levy that is not amenable to Service Tax, as per Circular No.89/7/2006-ST and Circular No.96/7/2007-ST? (Question of law) 2. Whether the demand for Service Tax on the renting of immovable property by the petitioner University is justified, considering the commercial element involved? (Question of mixed law and fact) Petitioner's arguments: The petitioner contended that the fees collected for affiliation and inspection were statutory levies discharged as part of their legal obligations, citing the aforementioned circulars. They argued that these activities were not services rendered for consideration in the commercial sense. Respondents' arguments: The respondents reiterated the stand taken in the impugned order, asserting that the University was rendering services to affiliated colleges and engaging in commercial activity by renting out immovable property, thus liable for Service Tax.