2014 (6) TMI 793 - HC - VAT and Sales Tax

Liability of tax - Whether the supply of foodstuff to the students is a business or not - Held that - Act would be applicable if a sale is made by a dealer or a person who carries on the business of taxable goods. The word business or business activity has been explained by various courts - from a combined reading of sections 3, 2(6), 2(11), 2(27), 2(40) of the Act, that a tax is leviable on the sale made by a dealer or a person who is carrying on the business of taxable goods. There is no dispute that in the case of the petitioner, the primary and dominant activity is to impart education. This main activity of the petitioner does not amount to a commercial activity nor is a trade or business as held by the Andhra Pradesh High Court in Gowtham Residential Junior College 2007 (4) TMI 642 - ANDHRA PRADESH HIGH COURT . In the opinion of the court, such education being imparted by the petitioner is neither a commercial activity nor a trade nor does it amount to business . It cannot be contended that the establishment of an educational institution is a business nor can it be called a trade since no trading activities are being carried out. Main activity of the petitioner is imparting education and is not business. Any transaction, namely, supply of foodstuff to its residential students which is incidental would not amount to business since the main activity of the petitioner could not be treated as a commerce or a business. The incidental activity of supplying foodstuff would not come within the meaning of the word business as defined under section 2(6) of the Act. Consequently, since no business is being carried out and there is no sale, the petitioner would not come within the meaning of the word dealer as defined under the Act. - issuance of notice proposing to make an assessment under the Act on the supply of foodstuff to the residential students is patently without jurisdiction. The said notices are consequently quashed - Decided in favour of assessee.

Issues Involved:
1. Whether the supply of foodstuff to students by the petitioner institution amounts to a "business" under the Uttarakhand Value Added Tax Act, 2005.
2. Whether the petitioner institution qualifies as a "dealer" under the Act.
3. Whether the petitioner institution is liable to pay tax under the Act for the supply of foodstuff to its residential students.

Detailed Analysis:

Issue 1: Whether the supply of foodstuff to students by the petitioner institution amounts to a "business" under the Uttarakhand Value Added Tax Act, 2005.
The court examined the primary and predominant activity of the petitioner, which is to impart education. The supply of foodstuff to residential students was considered an incidental activity necessary for the educational environment. The court referenced several precedents to establish that incidental activities to a primary educational purpose do not constitute "business." For example, in Indian Institute of Technology, Kalyanpur, Kanpur v. State of Uttar Pradesh and Swadeshi Cotton Mills Company Limited v. Sales Tax Officer, the courts held that educational institutions providing food to students as part of their educational services do not engage in "business." The court concluded that the petitioner's main activity of imparting education does not amount to a commercial activity or trade and, therefore, the incidental supply of foodstuff does not constitute "business."

Issue 2: Whether the petitioner institution qualifies as a "dealer" under the Act.
The definition of "dealer" under Section 2(11) of the Act includes any person who carries on the business of buying, selling, supplying, or distributing goods. The court noted that the petitioner institution is a charitable organization registered under Section 12A of the Income-tax Act and is not engaged in any profit-making activities. The court referenced Commissioner of Sales Tax v. Sai Publication Fund, where the Supreme Court held that a trust distributing literature at cost price was not a dealer as its primary activity was not business. Similarly, the court concluded that the petitioner institution, whose primary activity is imparting education, does not qualify as a "dealer" since it does not carry on the business of selling foodstuff.

Issue 3: Whether the petitioner institution is liable to pay tax under the Act for the supply of foodstuff to its residential students.
The court examined the incidence of tax under Section 3 of the Act, which applies to sales made by a dealer. Since the petitioner institution does not qualify as a dealer and its primary activity is not business, the court held that the petitioner is not liable to pay tax under the Act. The court also referenced Gowtham Residential Junior College v. Commercial Tax Officer, where it was held that the supply of food to students did not amount to a sale as the primary object was to impart education. The court reiterated that the incidental supply of foodstuff does not amount to a business activity, and therefore, the petitioner is not liable for tax.

Conclusion:
The court concluded that the petitioner institution's primary activity is imparting education, which is not a business activity. The incidental supply of foodstuff to residential students does not constitute a business, and therefore, the petitioner does not qualify as a dealer under the Act. Consequently, the petitioner is not liable to pay tax for the supply of foodstuff. The notices issued for tax assessment were quashed, and the writ petitions were allowed, with each party bearing its own costs.

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