2014 (7) TMI 72 - HC - VAT and Sales Tax

Demand of tax - Sale of prospectus and application forms by the university - whether sale of Sale of prospectus is amount to sale of books - Imposition of interest and penalty - Held that - Registration certificate is not meant for carrying on business in buying or selling of any particular commodity or goods, but it is general in nature. - once having registered as a dealer under Section 22 of the Act the total turnover would mean aggregate turnover in all goods of a dealer at a place of business in the State, whether or not the whole or any portion of such turnover is liable to tax. The University cannot conveniently take a stand that they were registered as dealer and certificate issued by the concerned authority was only for the sale of medicines and equipments in the hospital and not for the sale of prospectus and application forms. Collection towards sale of prospectus and application forms during particular months was more than one crore. It is not the case of the University that they sale or sold the prospectus and application forms at cost. The price, as contended by learned counsel for the University, of the prospectus during the relevant period was ranging from ₹ 350-Rs.500. We have perused the prospectus for the relevant period, which, in our opinion, was on the higher side. Therefore, it cannot be stated that there was no profit motive as claimed by the University. Merely because, the University was established for imparting education does not mean that it is not indulging in the business so as to make profit out of the sale of prospectus and application forms. Their intention to make profit is clear from the facts and figures placed on record. 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. sale of prospectus and application forms would fall under Entry 71 of the Third Schedule. - Decided against assessee.

Summary

Issues Involved:
1. Whether the University is engaged in the activity of the sale of prospectus and application forms so as to attract levy of VAT under the provisions of the Karnataka Value Added Tax Act, 2003.
2. Whether the activity of sale of prospectus and application forms falls under Entry 11 of the First Schedule or Entry 71 of the Third Schedule of the Act.

Detailed Analysis:

Issue 1: Applicability of VAT on the Sale of Prospectus and Application Forms

The University, a registered dealer under the Karnataka Value Added Tax Act, 2003, contested the levy of VAT on the sale of prospectus and application forms. The University argued that it is primarily engaged in imparting education and that the sale of prospectus and application forms is incidental to its educational activities, not a business activity. They contended that their registration as a dealer was for the sale of medicines and other equipment, not for the sale of prospectus and application forms.

The Court examined the definitions of 'dealer', 'business', 'sale', 'taxable turnover', and 'total turnover' under the Act. It was noted that a dealer is any person who carries on the business of buying, selling, supplying, or distributing goods. The Court emphasized that the registration certificate issued to the University was not limited to specific commodities and that the University was obligated to file returns for all sales made, including the sale of prospectus and application forms.

The Court referred to various judgments, including the Supreme Court's observations in *Board of Trustees of the Port of Madras*, which highlighted that whether a person carries on business depends on the volume, frequency, continuity, and regularity of transactions. The Court found that the University sold prospectus and application forms regularly and in large volumes, generating significant revenue. Therefore, the sale of these items constituted a business activity subject to VAT.

Issue 2: Classification under the Schedules

The University argued that the sale of prospectus and application forms should be exempt from tax under Entry 11 of the First Schedule, which exempts "Books, periodicals, and journals." Alternatively, they contended that it should not fall under Entry 71 of the Third Schedule, which covers "Printed materials other than books meant for reading."

The Court examined the definitions and common understanding of the terms 'prospectus' and 'book'. It referred to dictionary definitions and previous judgments to conclude that a prospectus is a printed document outlining plans or details of an educational institution, not a book meant for reading. The Court cited the Kerala High Court's decision in *Swaraj Printers v. State of Kerala*, which distinguished between books meant for reading and other printed materials.

The Court concluded that the University's prospectus and application forms do not qualify as books under Entry 11 of the First Schedule. Instead, they fall under Entry 71 of the Third Schedule, which includes printed materials other than books meant for reading. Consequently, the sale of prospectus and application forms is subject to VAT.

Conclusion:

The Court dismissed the revision petitions, upholding the Tribunal's decision that the sale of prospectus and application forms by the University attracts VAT under the Karnataka Value Added Tax Act, 2003. The Court affirmed that these items fall under Entry 71 of the Third Schedule and not under Entry 11 of the First Schedule, thereby rejecting the University's contentions.