Incidental activity and dealer status: prospectus sales by an educational university did not amount to business or attract VAT.

A statutory educational university supplying and selling prospectus as part of admissions was not treated as a dealer under the Karnataka Value Added Tax Act because the activity did not show commercial surplus, volume, frequency, continuity, regularity, or independent business intention. An incidental activity does not become business merely because the main institution charges for it; the revenue must prove a separate intention to carry on business in that activity, and it failed to do so. As the university was not required to register as a dealer, the issues of taxable turnover, return filing, interest, and penalty did not survive, and the tax levy on prospectus sales could not stand.

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Issues: Whether the University was a dealer carrying on business under the Karnataka Value Added Tax Act, 2003 by printing and selling prospectus incidental to its educational object, and whether the sale of prospectus was taxable and could sustain the consequential levy of interest and penalty.

Analysis: The University is a statutory educational body established to impart distance education, and the prospectus was supplied as part of the admission and enrollment process. The material on record did not establish that the fee charged for the prospectus represented a commercial surplus or that the activity exhibited the volume, frequency, continuity, regularity, or independent business intention required to treat it as business. Where the main activity is not business, an incidental or ancillary activity does not become business unless the revenue proves a separate intention to carry on business in that activity. The State failed to discharge that burden. The finding of profit was based only on the price charged, without supporting accounts or material. Once the University was held not to be a dealer required to register, the question of taxable turnover, return filing, interest, and penalty did not survive.

Conclusion: The University was not liable to be treated as a dealer for the sale of prospectus, the levy of tax on that activity could not stand, and the consequential levy of interest and penalty also failed.

Final Conclusion: The revision petitions were allowed and the impugned assessment, appellate, and recovery orders were set aside in full.

Ratio Decidendi: Where the main activity is non-commercial and the revenue fails to prove an independent business intention in an incidental activity, such incidental activity does not constitute business or attract tax under the VAT law.

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