Opening Reflection - Where Taxation Meets Constitutional Restraint
Some judicial decisions do far more than settle a dispute between the taxpayer and the department - they quietly define the limits within which the State itself must operate. The ruling of the Bombay High Court in University of Mumbai v. Union of India & Others- 2026-VIL-418-BOM /2026:BHC-OS:10764-DB dated 27.04.2026 is one such decision. Delivered through an extensive and carefully reasoned judgment running into twenty-six pages, the Court does not merely answer whether GST is payable on affiliation fees. It steps back and examines a larger concern - whether the reach of taxation can extend into areas where the State is discharging a statutory and public duty.
At first glance, the issue appears narrow - whether the University's affiliation fees are subject to GST. However, the judgment raises a deeper question: can a statutorily mandated activity, performed for regulatory and public welfare purposes rather than profit, be treated as a commercial supply? In addressing this, the Court moves beyond the CGST framework into the constitutional domain, reaffirming that taxation must operate within the limits prescribed under Article 265 of the Constitution of India - namely, that a levy must be supported by clear legal authority and a valid taxable event. The decision thus underscores the need to align statutory interpretation with constitutional discipline, ensuring that essential public functions remain outside the reach of unwarranted taxation.
From Regulation to Revenue: The Genesis of the Dispute
The University of Mumbai, established under State legislation, operates within a structured statutory framework where its functions are clearly defined and legislatively mandated. Among its core responsibilities is the granting of affiliation to colleges - a process that is not merely administrative but regulatory, involving oversight of infrastructure, academic standards, and institutional compliance. It is not an activity undertaken for economic gain or offered in a marketplace, but rather a statutory mechanism in which fees are incidental to regulatory oversight.
It is within this framework that the GST authorities sought to intervene by treating affiliation fees as taxable receipts. Proceedings were initiated, culminating in a demand exceeding ₹16.9 crore under Section 74 of the CGST Act. The Department proceeded on the premise that the act of granting affiliation constitutes a "service" rendered by the University to colleges, and that the fees collected in this process represent consideration received in the course or furtherance of business. This approach treated a statutory regulatory activity as a commercial transaction, thereby subjecting it to GST. It treated the mere existence of monetary flow as sufficient to render the activity taxable.
The University, however, challenged this characterisation at its very foundations by shifting the focus back to the activity's intrinsic nature. The dispute, therefore, was not merely about the taxability of a particular receipt, but about the correct legal understanding of a statutory function whether it can be viewed through the lens of commerce or must be appreciated in its true regulatory context.
Beyond Classification: Testing the Very Foundations of Taxability
What distinguishes this judgment is the manner in which the Court chose not to confine itself to the narrow boundaries of classification or rate determination. Instead of asking whether affiliation could fit within any existing taxable category, the Court elevated the inquiry to a more fundamental level - whether the basic building blocks of GST itself were present in the transaction. This shift in approach is significant because it moves the discussion away from surface-level categorisation and towards examining the very existence of a taxable event. The Court thus reframed the controversy as a structural question: do the essential elements of GST - namely supply, business, and consideration - arise at all in the context of a statutory university granting affiliation?
By adopting this perspective, the Court anchored its analysis in first principles rather than interpretative convenience. It clarified that GST is not attracted merely because money changes hands or an activity is loosely described as a "service." Taxability must arise from the existence of a legally sustainable taxable event, where each statutory ingredient - particularly "supply" and its nexus with business - is independently satisfied. If these foundational elements are absent, the enquiry must end there. In doing so, the Court shifted the focus from classification to fundamentals, emphasising that the authority to tax flows not from labels or interpretative ingenuity, but from the clear presence of all essential conditions in substance and in law.
Taxability Depends on Fulfilling the Basic Conditions of GST
The Court approached the issue by returning to the basic framework of GST law. It clarified that tax cannot be imposed merely because money has been received or because an activity is loosely described as a "service." Under the statute, taxability arises only when a legally recognised "supply" exists, and that supply must be in the course or furtherance of business.
By adopting this approach, the Court shifted the focus from labels to substance. Instead of asking how an activity should be classified, it first examined whether the essential ingredients required by law were present. If the activity itself does not qualify as a "supply," or if it lacks the necessary connection with business, the question of taxability does not arise.
The judgment therefore demonstrates that the validity of a tax demand depends on the existence of these foundational elements. Where such elements are absent, the demand cannot be sustained - not because of procedural lapses, but because it lacks the substantive legal basis required under GST law.
A Unified Judicial Voice: When Multiple Courts Speak the Same Principle
What lends enduring strength to the present decision is that it does not stand alone; rather, it forms part of a broader and consistent judicial movement across High Courts in India. The reasoning adopted by the Bombay High Court finds clear support in earlier decisions, each of which has examined similar issues from its own perspective but arrived at a common conclusion. This convergence of judicial thought reflects not an isolated interpretation, but a settled and emerging legal position that carries both persuasive and precedential weight.
The Karnataka High Court, in Rajiv Gandhi University of Health Sciences v. Principal Additional Director General, DGGSTI - 2024-VIL-780-KAR-ST dated 30.07.2024.
had already laid the foundation by recognising that the grant of affiliation is inherently a statutory function, by recognising the inherent nature of affiliation within the educational framework, a view that has since attained finality with the Supreme Court's dismissal of the challenge vide 2025-VIL-46-SC dated 24.01.2025.
This reasoning was further reinforced by the Goa Bench of the Bombay High Court in Goa University v. Joint Commissioner of Central Goods and Services Tax-2025-VIL-358-BOMdated 15.04.2025, which examined the issue in the broader context of public functions. In doing so, it drew support from the principles laid down by the Supreme Court in Assistant Commissioner of Income Tax (Exemptions) v. Ahmedabad Urban Development Authority- (2023) 4 SCC 561, particularly the observations in Para 160 .
The Supreme Court, adopting a purposive interpretation, clarified that collections such as fees, cess, or similar charges levied by statutory bodies in the discharge of their legal mandate do not, by that reason alone, acquire the character of consideration for trade, commerce, or business. Where such collections arise from regulatory functions or from activities carried out in furtherance of public duties - such as education, regulation of professions, or development of public infrastructure - they are intrinsically non-commercial in nature. The Court further recognised that, even where cross-subsidisation exists, or higher charges are levied on certain beneficiaries, the underlying character of the activity does not change so long as it remains anchored in a statutory purpose serving the larger public interest.
"A statutory levy in discharge of a public function does not become a commercial transaction merely because it involves consideration." (Para 160)
Equally significant is the caution that the nature of the receipt must be determined by its substance and statutory context, and not merely by its nomenclature. Thus, a levy described as a "fee" or "cess" does not automatically imply a commercial transaction; nor does the involvement of consideration convert a public function into a business activity. It is this substantive test - focusing on the purpose, statutory mandate, and public character of the activity - that decisively distinguishes sovereign or regulatory functions from taxable commercial supplies.
The Rajasthan High Court, in Rajasthan Technical University v. Union of India & Others-2026-VIL-206-RAJdated 23.02.2026, added analytical clarity by structuring the issue into distinct legal components, systematically examining the elements of taxability, and reinforcing the conclusion through a layered reasoning approach. When viewed together, these decisions do more than resolve individual disputes; they collectively establish a coherent judicial trajectory. They signal a consistent recognition that activities performed within a statutory framework, particularly in the field of education, must be understood in their proper legal context. The judgment thus reinforces that taxability must arise from the statute itself, not from interpretative expansion.
Taken together, these decisions establish a consistent judicial approach, ensuring that similar activities are assessed within a uniform legal framework.
Preserving the Public Character of Education: A Constitutional Boundary
The judgment reflects a deeper constitutional understanding that not all State or instrumentalities' activities can be viewed through the lens of taxation. There exists a well-recognised distinction in constitutional law between functions carried out in the realm of public duty and those undertaken in a commercial or economic capacity. This distinction is crucial because it determines the very character of an activity - whether it belongs to the domain of governance or that of the marketplace. The Court's reasoning implicitly reinforces this divide, recognising that certain functions, by their very nature, serve societal objectives and cannot be equated with revenue-generating operations.
In this context, education occupies a unique and elevated position. It is not merely an activity but a foundational element of social development, shaping knowledge, skill, and institutional integrity. The role of a university in granting affiliation extends this larger purpose, ensuring that institutions meet prescribed academic standards before they participate in the educational ecosystem. By treating such functions as part of a broader public responsibility, the Court safeguards their essential character and prevents their dilution into transactions driven by commercial logic. This approach ensures the focus remains on the activity's purpose rather than the incidental flow of funds associated with it.
The significance of this reasoning lies in maintaining a careful balance within the legal system. It ensures that activities undertaken in furtherance of public welfare are not inadvertently burdened or distorted by the application of tax laws designed for economic transactions. At the same time, it reinforces the idea that any departure from this position must be grounded in clear legislative intent and consistent with the constitutional limits on the taxing power under Article 265 of the Constitution of India.In doing so, the judgment preserves the integrity of both domains - allowing taxation to operate where it is meant to, while ensuring that essential public functions continue to serve their intended role without unintended fiscal interference.
A Dual Shield of Protection: When Even Hypothetical Taxability Fails
An important feature of the judgment is the Court's decision to extend its analysis beyond the primary conclusion and examine the issue from an alternative standpoint. Even after determining that the activity in question does not attract GST in the first place, the Court proceeds to consider a hypothetical scenario - assuming, for argument's sake, that the activity could fall within the tax framework. This approach reflects judicial thoroughness, ensuring that the conclusion remains robust even when tested against different interpretative possibilities.
In undertaking this exercise, the Court turns to Entry 66 of Services Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017, which grants exemption to services in relation to education. It recognises that the process of affiliation is closely connected with the functioning of educational institutions, as it directly impacts admissions, examinations, and the conferment of degrees. By situating affiliation within this broader educational framework, the Court acknowledges that such activities are not isolated services but form part of an integrated system that supports and sustains education as a whole. Consequently, even if one were to momentarily view affiliation through the prism of taxability, it would still fall within the protective scope of the exemption.
This layered reasoning significantly strengthens the judgment by providing an additional line of defence. It ensures that the outcome does not depend on a single interpretative route but is supported by multiple, independent grounds. Such an approach enhances the durability of the ruling by addressing potential counterarguments in advance and leaving little room for ambiguity. The decision, therefore, stands not only on the absence of taxability but also on the presence of a clear statutory safeguard, making the conclusion both comprehensive and resilient.
Restoring the True Reach of GST: A Judgment that Reaffirms Limits
The ultimate significance of the judgment lies in the clarity with which it draws the outer boundaries of GST. The Court does not merely decide a dispute; it articulates a guiding principle - that the scope of GST must remain confined to activities that genuinely fall within its legislative design. In doing so, it reinforces the idea that tax laws, however broad in language, cannot be interpreted to expand their reach beyond what is structurally intended. This disciplined approach ensures that the GST framework operates with precision, applying only where its core conditions are meaningfully satisfied.
By setting aside the demand raised against the University, the Court effectively restores a clear separation between two distinct spheres: activities performed as part of a statutory mandate and those that fall within the domain of taxable transactions. This distinction is essential for maintaining consistency in the application of tax law. It prevents situations in which functions carried out under legal obligation are inadvertently brought within the tax net solely because they involve the collection of fees. In reaffirming this boundary, the judgment ensures that the interpretation of GST remains aligned with both legislative intent and the functional nature of the activity in question.
The broader impact of this reasoning extends beyond the facts of the case. It provides a principled framework for evaluating similar situations where the character of an activity may not be immediately apparent. By emphasising the need to examine the substance and context of the activity before applying tax provisions, the Court sets a standard for future interpretation. The judgment thus stands as a reminder that the strength of a tax system lies not only in its ability to collect revenue, but also in its commitment to operate within clearly defined and legally sustainable limits.The ruling ultimately restores the boundary that taxation must operate strictly within legislatively defined limits, reaffirming the discipline inherent in the constitutional scheme.
The judgment thus affirms a fundamental principle of tax jurisprudence: taxation cannot be extended to activities merely because they involve a flow of funds; it must rest on the existence of a legally recognised taxable event. Where the law mandates a function, the State cannot, in the absence of clear legislative intent, convert that very obligation into a source of taxation.
" संविधानकहताहै - करवहीजहाँअधिकारहो ,
जहाँकर्तव्यहो , वहाँकरनहीं , सम्मानहो।
When law mandates a duty,
taxation must yield in restraint.
For the Constitution does not permit
the State to tax its own obligations."
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