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

Institution exempt from tax on food supply to students under Uttarakhand VAT Act

Scholors Home Senior Secondary School Versus State of Uttarakhand and another (and other cases)

Scholors Home Senior Secondary School Versus State of Uttarakhand and another (and other cases) - [2011] 42 VST 530 (Utl) 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.