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

University's Sale of Prospectus Subject to VAT under Karnataka Value Added Tax Act

The Court upheld the Tribunal's decision that the University's sale of prospectus and application forms is subject to VAT under the Karnataka Value Added ... Sale of goods - carrying on business - dealer - taxable turnover - incidental or ancillary activity - volume, frequency, continuity and regularity - registration certificate not confined to specified commodities - exemption under Entry 11 of the First Schedule (books, periodicals and journals) - taxability under Entry 71 of the Third Schedule (printed materials other than books)Carrying on business - dealer - volume, frequency, continuity and regularity - taxable turnover - registration certificate not confined to specified commodities - Whether the University's sale of prospectus and application forms during the relevant period amounted to carrying on business attracting VAT liability - HELD THAT: - The Court applied the established tests that whether a person carries on business in a commodity depends on volume, frequency, continuity and regularity of transactions and that profit motive, though relevant, is not an essential constituent given the statutory definitions. The material shows regular monthly sales of prospectus and application forms across the relevant period and substantial receipts in each year; the University did not sell at cost and obtained significant surplus. Once registered as a dealer, a person is obliged to include all sales in taxable turnover and the registration certificate under the Rules is general and not confined to particular commodities listed in the Form VAT-1. The burden on Revenue to show an independent intention to carry on business in an incidental activity is met here by evidence of continuous, regular sales and profitable collections. Consequently the University was carrying on business in prospectus/application-form sales and those sales formed part of its taxable turnover. [Paras 9, 15, 16]University's sale of prospectus and application forms constituted carrying on business and is exigible to tax; it could not exclude such sales from returns.Exemption under Entry 11 of the First Schedule (books, periodicals and journals) - taxability under Entry 71 of the Third Schedule (printed materials other than books) - Whether prospectus are 'books' exempt under Entry 11 of the First Schedule or fall within Entry 71 of the Third Schedule - HELD THAT: - The Court examined ordinary and dictionary meanings of 'prospectus' and authorities on the meaning of 'book' in taxing statutes. A prospectus is a printed brochure or catalogue describing courses and facilities and is not a 'book meant for reading' or a periodical/journal. Authorities recognize that 'book' in tax statutes denotes material meant for reading or reference; prospectus serve an advertising/informational function and fall within the descriptive scope of printed materials other than books. Accordingly the prospectus cannot be treated as exempt under Entry 11 and instead falls within Entry 71 of the Third Schedule. [Paras 17, 18, 20, 21]Prospectus are not 'books' for the purpose of the First Schedule exemption and are taxable under Entry 71 of the Third Schedule.Final Conclusion: The revision petitions are dismissed; the Tribunal's conclusion that the University's sale of prospectus and application forms during April 2005 to December 2009 was taxable (being business turnover) and that prospectus do not attract the Entry 11 exemption but fall under Entry 71 is upheld; no order as to costs. 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 FormsThe 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 SchedulesThe 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.