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2023 (2) TMI 4 - HC - VAT and Sales TaxExemption from tax - Taxability of Selling of food items in the school / hostel - whether the petitioner s educational institution imparts education on non-profit motive but not on commercial basis and if so, it is exempted from tax under AP VAT Act, 2005? - HELD THAT - The activity of a person must be a trade, commerce or manufacture so as to bring such activity as business . If such business is carried out for buying, selling, supplying or distribution of the goods, such person who is involved in that business shall be regarded as dealer and under Section 4 of A.P. VAT Act, such dealer shall be excisable to tax. In the instant case, as rightly submitted by the counsel for petitioner, the fundamental or principal activity of the petitioner s educational institution is not that of buying, selling, supplying or distribution of the goods rather its function is to impart education that too on a non-profit motive. The petitioner in its hostel supplies food to the students but the said activity is not done in the course of business of running restaurant, eating house or a hotel. As rightly submitted by the learned counsel for the petitioner, section 2(10) (d) of the VAT Act specifically refers to only a restaurant or eating house or a hotel but the word hostel is not specifically included therein. Therefore, the inclusion of the petitioner s institution in the category of dealer for the purpose of AP VAT Act, 2005 and assessing the same to tax U/s 21 of AP VAT Act is not correct. The petitioner s case was that the fee charged from the visitors of the hostel is not the actual price of the food consumed by them and the principle of charging the fee is the same as in the case of other hostels where students reside and that a fixed fee is charged for tea, breakfast, lunch and dinner and the same has no relation to the actual consumption and the charges paid by the residents have really a very remote relation to the actual value of the food stuffs consumed by them. Thus, according to petitioner, the transaction of supplying food stuffs to the residents of the hostel cannot be termed as sale nor can the petitioner be said to be carrying on business of buying or selling goods within the meaning of UP Sales Tax Act. The respondent however contended that the petitioner charges price of foodstuffs supplied to the visitors separately in the bills and that the customers of the petitioner include all and sundry. In the instant case also the principal function of petitioner is to impart education with a non-commercial motive and running of the hostel is incidental to the main activity and as such, though subsidized prices are charged from the students for supply of the food items and beverages, the transaction cannot be treated as sale of goods to bring the activity within the mischief of AP VAT Act - In the instant case the 2nd respondent has passed the impugned assessment order though the petitioner under law does not come under the purview of dealer as per the provisions of AP VAT Act, 2005. Therefore, the impugned order can be said to be passed wholly without jurisdiction and hence the writ petition is maintainable. Petition allowed.
Issues Involved:
1. Whether the petitioner's educational institution can be classified as a "dealer" under the Andhra Pradesh Value Added Tax (AP VAT) Act, 2005. 2. Whether the petitioner's institution is liable to pay VAT on the supply of food and beverages to students. 3. The maintainability of the writ petition in light of the availability of an alternative remedy. Detailed Analysis: Issue 1: Classification as a "Dealer" under AP VAT Act, 2005 The petitioner, an educational institution run by Bharatiya Vidya Bhavan, a public trust, contends that it operates on a non-profit basis with the primary objective of imparting education. The institution is recognized as an educational institution of national eminence under Section 80(g)(1) of the Income Tax Act, 1962, and receives donations eligible for tax exemption. The petitioner argues that the supply of food to students is incidental and ancillary to its main educational activities and does not constitute a business activity under the AP VAT Act. The court examined the definition of "dealer" under Section 2(10) of the AP VAT Act, which includes those engaged in the business of buying, selling, supplying, or distributing goods. The term "business" under Section 2(6) encompasses trade, commerce, or manufacture, even if not motivated by profit. However, the court emphasized that the primary activity of the petitioner is education, not the sale of goods. The supply of food in the hostel is incidental to the educational activities and does not transform the institution into a dealer. Issue 2: Liability to Pay VAT on Supply of Food and Beverages The respondents argued that the petitioner's institution is liable for VAT on the supply of food and beverages to students, considering it a business activity. They cited a ruling from the Advance Ruling Authority under the AP VAT Act, which clarified that similar institutions are liable for VAT on such supplies. The court referred to the case of Indian Institute of Technology vs. State of U.P, where the supply of food in a hostel was deemed incidental to the institution's primary educational activities. The court held that the petitioner's activity of supplying food to students is not a business activity and does not fall within the scope of the AP VAT Act. Therefore, the institution cannot be treated as a dealer liable for VAT. Issue 3: Maintainability of the Writ Petition The respondents contended that the writ petition is not maintainable due to the availability of an alternative remedy of appeal. However, the court noted that the availability of an alternative remedy does not preclude the exercise of writ jurisdiction, especially when the impugned order is passed without jurisdiction. The court cited the decision in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, which allows writ petitions in cases where the order is without jurisdiction. Since the petitioner does not qualify as a dealer under the AP VAT Act, the assessment order was deemed to be without jurisdiction, making the writ petition maintainable. Conclusion: The court concluded that the petitioner's educational institution, engaged primarily in imparting education on a non-profit basis, cannot be classified as a dealer under the AP VAT Act. The supply of food to students is incidental to its educational activities and does not constitute a business activity subject to VAT. The writ petition was allowed, and the assessment order directing the petitioner to obtain dealer registration and pay VAT was set aside as illegal and arbitrary. Any amount deposited by the petitioner in respect of the assessment order was ordered to be refunded.
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