The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has overturned a service tax demand of ₹16.07 crore issued to the Central Board of Secondary Education (CBSE), holding that the affiliation fee charged to schools is not consideration for a taxable service under the Finance Act, 1994. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Member Technical) ruled that affiliation is part of a statutory and regulatory framework essential to the education system rather than a commercial activity.
The case arose from a show cause notice dated 27 September 2017, which sought service tax of more than ₹18.22 crore on affiliation fees collected between July 2012 and June 2017. The demand was later reduced to ₹16.07 crore. Through an order dated 11 October 2021, the Additional Director General (Adjudication) of DGGI confirmed the tax along with interest and penalties, reasoning that affiliation amounted to a taxable service for monetary consideration and was not covered by the Negative List or any exemption.
Challenging the order, CBSE argued that affiliation is a process of certification and recognition that enables schools to present students for public examinations and ensures adherence to academic and infrastructural standards. It submitted that CBSE was created by a Government Resolution to standardize school education and conduct examinations nationwide, and its functions were public and regulatory, not commercial. CBSE maintained that affiliation is inseparable from admission and the conduct of examinations, both of which are exempt from service tax.
The Tribunal accepted these arguments and relied on the Karnataka High Court ruling in Rajiv Gandhi University of Health Sciences, which described affiliation as an “umbilical cord” relationship rooted in public duty, not commercial exchange. Observing that no activity is performed for schools in exchange for affiliation fees, CESTAT held that the process does not qualify as an “activity for consideration” under Section 65B(44) of the Finance Act.
The bench also cited the Gujarat High Court’s ruling in Sahitya Mudranalaya, which held that education encompasses curriculum, examination, and certification and cannot be confined to classroom teaching. On that basis, it held that school boards are educational institutions and fall within the Negative List under Section 66D(l) for the relevant period. For the period from July 2014 to March 2017, the Tribunal found that CBSE satisfied both conditions of Entry 9 of Exemption Notification No. 25/2012-ST, since affiliation relates directly to admission and the conduct of examinations.
CESTAT further noted that even after the April 2017 amendment reducing the scope of exemption to institutions providing education up to the higher secondary level, CBSE remained eligible because it affiliates schools offering education from pre-school to senior secondary.
Concluding that the demand was without legal basis, the Tribunal said the adjudication order “cannot be sustained and is set aside.” The appeal was allowed, quashing the tax demand of ₹16.07 crore along with interest and penalties.
Counsel appearing were B.L. Narasimhan, Ms. Shagun Arora, Ms. Srishty Yadav and Kunal Aggarwal for the appellant, and S.K. Meena for the respondent.
Cause Title: CBSE v. Additional Director General (Adjudication)
Case No.: Service Tax Appeal No. 50294 of 2022
Coram: Justice Dilip Gupta and P.V. Subba Rao
