WHETHER A DEEMED UNIVERSITY IS REQUIRED OBLIGATORY REGISTRATION UNDER RAJASTHAN VAT ACT, 2003?

[RENGARAJ R.K]

Introduction:

VAT Registration under the respective State VAT Act is mandatory for any dealer to carry on any trade or commerce or business in the state after crossing the threshold limit available in the respective section of the State VAT Act. A question arises whether an educational institution or a trust registered under 12AA of Income Tax Act is also to be granted “obligatory registration” under the VAT Act.? In the recent judgement in the case of the Commercial Taxes Officer Vs M/s. Banasthali Vidyapith - 2015 (4) TMI 393 - RAJASTHAN HIGH COURT held that imparting of education cannot be said to be in the nature of business activity, a trade, commerce or manufacture and once the assessee is not carrying on business or a trade or commerce or manufacture and the predominant and main activity is that of imparting education, it cannot be said to be a dealer and once this Court comes to the conclusion that the assessee does not carry on any business and is not a dealer then it is not required to get itself registered under the provisions of Rajasthan VAT Act, 2003.

Background of the case:

Banasthali Vidyapith is a renowned institution imparting education primarily to female students and is claimed to be not carrying on any trade, commerce or business but only carrying on the activity of imparting education. The assessee-institution is registered under Section 12AA of Income Tax Act and it is a public society formed and registered under the provisions of Indian Societies Act, 1860 and also under Rajasthan Societies Act, 1958. It was noticed by the Commercial Taxes Department that from the Assessment Years 2007-08 to 2012-13, the institution provided material namely; cement, iron and steel to the contractors for constructing its premises or/and maintenance of the properties being owned by it. Apart from the same, it sold prospectus to the prospective students who wanted to seek admission in the institution. It has been claimed by the Revenue that providing material namely; cement, iron and steel to the contractors and reducing the value of the same from the contract amount as also selling of the prospectus to the students is sale liable to RVAT under Entry 104 and despite of the assessee-institution being a dealer, liable to get registered under RVAT, prospectus cannot be termed as a "book". Accordingly, the AO registered the assessee under the category of 'Obligatory Registration" under Section 11 of the RVAT, 2003 and also imposed a penalty as the assessee did not get itself registered under the Act.

In appeal, appellate authority upheld the finding of the AO after considering Entry 54 of the List-2 of the same Schedule to the Constitution; definition of sale under Section 2(35); definition of taxable turnover under Section 2(4); Incidence of Tax under Section 3 and Rule 11(4). In further appeal, Rajasthan Tax Board concluded that the assessee cannot be said to be a "dealer" under Section 2(11) as it does not carry on any business.

Relevant Provisions:

Sec11. REGISTRATION OF DEALERS

(1) Every dealer liable to pay tax undersub-section (1) or (5) of section 3 shall get himself registered by submitting an application to the authority competent to grant registration, in such form and in such manner and within such time as may be prescribed.

(2)The authority competent to grant registration, after making such enquiry as it may consider necessary, may grant a certificate of registration in the prescribed form.

(3)The certificate of registration shall be granted from the date he becomes liable to pay tax under section 3.

(4)The certificate of registration so granted shall not be transferable and it shall remain in force unless it is cancelled.

(5)Where a dealer is registered under the repealed Act he shall be deemed to have been registered under this Act from the date of commencement of this Act, provided he has submitted such information as has been required by the Commissioner under the repealed Act by notification in the Official Gazette.

(6)When a dealer, who is liable to get registration, does not make application under sub-section (1), the authority competent to grant registration, after affording an opportunity of being heard to such dealer, shall grant him a certificate of registration from the date he becomes liable to pay tax under this Act and such registration shall take effect as if it has been granted under sub- section (2).

(7)Where a dealer who is already registered, intends to do business at one or more additional places in the State he shall be granted in such manner as may be prescribed, a branch certificate under the certificate of registration already held by him.

(8)Where a dealer has one or more additional registration under the repealed Act, he shall inform to his assessing authority or authority competent to grant registration within sixty days from the commencement of this Act, as to which of the registrations shall be treated registration under this Act and which of the registration certificate may be converted into branch certificates. If the dealer fails to do so, the Commissioner or any officer authorised by him for this purpose, shall declare one such registration to be the registration under this Act and shall issue branch certificate in lieu of remaining registration certificates.

(9)Notwithstanding anything contained in this Act, a dealer dealing exclusively in exempted goods, shall not be required to get registration under this Act

Section 2(6), which defines 'business'; Section 2(11), which defines 'dealer' and Section 2(35), which defines 'sale', under the RVAT Act to decide the controversy:-

"2(6) "business" includes-

(i) any trade, commerce or manufacture; or

(ii)any adventure or concern in the nature of trade, commerce or manufacture-Whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit, and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern;or

(iii) any transaction in connection with or incidental to or ancillary to such trade, commerce, manufacture, adventure or concern; or

(iv) any transaction in connection with or incidental or ancillary to the commencement or closure of such business; or

(v) any occasional transaction in the nature of such trade, commerce, manufacture, adventure or concern whether or not there is volume, frequency, continuity or regularity of such transaction;"

Sec "2(11) "dealer" means any person, who carries on business in any capacity, of buying, selling, supplying or distributing goods directly or otherwise, or making purchases or sales as defined in clause (35) for himself or others, whether for cash or deferred payment, or for commission, remuneration or other valuable consideration and shall include

(i) a factor, broker, commission agent, del credere agent or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of buying, selling, supplying or distributing any goods belonging to any principal whether disclosed or not;

(ii) an auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;

(iii) a manager or an agent, of a non-resident dealer who buys, sells, supplies or distributes goods in the State belonging to such dealer;

(iv) any society, club, trust or other association, whether incorporated or not, which buys goods from or sells goods to its members;

(v) a casual trader;

(vi) the Central or any State Government or any of their Departments or offices which, whether or not in the course of business, buy, sell, supply or distribute goods directly or otherwise, whether for cash or deferred payment or for commission, remuneration or other valuable consideration; and

(vii) any trading, commercial or financial establishment including a bank, an insurance company, a transport company and the like which, whether or not in the course of its business, buys, sells, supplies or distributes goods, directly or otherwise, whether for cash or deferred payment, commission, remuneration or other valuable consideration;

Explanation- A person, who sells agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest as owner or tenant as defined in the Rajasthan Tenancy Act, 1955 (Act No.3 of 1955), shall not be deemed to be a dealer in respect of such sales within the meaning of this clause;"

Decision:

The Hon’ble Rajasthan High Court has held that imparting of education cannot be said to be in the nature of business activity, a trade, commerce or manufacture and once the assessee is not carrying on business or a trade or commerce or manufacture and the predominant and main activity is that of imparting education, it cannot be said to be a dealer and once this Court comes to the conclusion that the assessee does not carry on any business and is not a dealer then it is not required to get itself registered under the provisions of RVAT Act and therefore, Tax Board was right in coming to the conclusion that the assessee was not required to be granted "Obligatory Registration" under Section 11 of the RVAT Act.

Judicial guidelines:

The Allahabad High Court in Mahatma Gandhi Kashi Vidhyapeeth observed "that the element of business i.e., motive on the part of the University to indulge in any business activity is totally lacking and statutorily impossible. The University in that case was established under the U.P. State Universities 21 Act, 1973 to impart education in various discipline of higher education and research. In that case High court observed that, it was a matter of mere convenience for students and University to get the forms printed for a price and not more than that and thus the University was not a 'dealer' within the meaning of Section 2(h) of the U.P. Value Added Tax Act and, its activities of printing and selling of admission forms to the students did not amount to business within the meaning of Section 2(e) of the Act.

Uttarakhand High Court in the case of Scholars Home Senior Secondary School Vs. State of Uttarakhand and another considering a case of supply of food to its residential students, which is incidental, whether would mean to business or not, held as under:-

The Supreme Court has clearly held that such business activity must be predominant i.e. the main activity. As held earlier, the Petitioner's main activity is to impart education which is not a business activity nor is a trade and, consequently, the Petitioner is not a dealer and is not liable to be taxed under the Act."

The Hon'ble Apex Court in State of Tamil Nadu vs. Board of Trustees of the Port of Madras in paras 15- 16 has stated:

"The word "business" is wider than the words trade, commerce or manufacture etc." The word business though extensively used is a word of indefinite import. In taxing statutes, it is normally used in the sense of an occupation, a profession which occupies time, attention and labour of a person, normally with a profit motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure (State of A.P. v. H.Abdul Bakhi and Bros. [1964 (4) TMI 75 - SUPREME COURT OF INDIA]. The words "carrying on business" require something more than merely selling or buying etc. Whether a person "carries a business" in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A.M. Ansari  [1976 (3) TMI 198 - SUPREME COURT OF INDIA]

While it is so, the Hon’ble High Court of Karnataka has held in the case of Manipal University Vs State of Karnataka, Dept of Finance reported in 2014 (7) TMI 72 - KARNATAKA HIGH COURT that “thus, having regard to meaning of the word "prospectus", we have no doubt that the prospectus of the University cannot be treated as "book" or "book meant for reading" It is a printed document which could be called a brochure or a catalogue or a printed document detailing the courses, facilities etc. of their colleges. In any case, it cannot be treated as a book meant for reading as is known in common parlance. The prospectus of the University cannot be treated even as periodical or journal. In this view of the matter, the contentions urged on behalf of the University must be rejected. We are in agreement with the view taken by the Tribunal that the sale of prospectus and application forms would fall under Entry 71 of the Third Schedule”.

Conclusion:

In the author’s opinion, it is well settled that if the main activity is not business, then the connected, incidental or ancillary activities of sales would not normally amount to business unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. In such cases the onus of proof of an independent intention to carry on business connected with or incidental or ancillary sales would rest on the department, as decided in the court of law.