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Judgment
Rajiv Sharma, ACJ
Since common questions of law and facts are involved in the above-numbered special appeals, hence the same are being taken up together and
adjudicated by this common judgment. In order to maintain clarity, the facts of WPMS No.1611 of 2009, “M/s Scholors Home Senior Secondary
School vs. State of Uttarakhand & anotherâ€, have been taken into consideration.
The State Government has filed these special appeals against the common judgment rendered by learned Single Judge in WPMS No.1611 of 2009
and analogous matter on 07.07.2011.
“Key factsâ€, necessary for the adjudication of these appeals are that the respondent-school is an educational institution managed by Vidya
Mandir Society, Dehradun, which is a society registered under the Societies Registration Act, 1960. The respondent-institution is affiliated to the
Central Board of Secondary Education, Delhi since 1971. The institution was established in the year 1949 and is a day-cum-residential school having
approximately 2700 students and is imparting education from Kindergarten to XII Class.
According to the Memorandum of Association of the Society, the aims of the institution is to provide education without discrimination on the basis of
race, caste or religion. One of the aims is to impart education to boys and girls through Hindi and English medium and to develop the students into all-
round personalities with the help of different activities. The respondent-institution receives a lumpsum amount towards tuition fee and boarding fee.
It is the specific case of the respondent-institution that it is not charging any separate amount or cost for food supplied to the students, who are
using the hostel facility. The mess is not run through the agency of catering contractor.
The respondent-institution received a notice dated 02nd June, 2009 for the assessment years 2005-2006, 2006-2007, 2007-2008 and 2008- 2009
from the Assistant Commissioner, Commercial Tax to show cause as to why the respondent should not be liable to pay Value Added Tax on the
supply of food to its students, which amounted to a sale under the Act. The respondent-institution filed the reply on 14.09.2009.
It is in these circumstances, the respondent-institution i.e. M/s Scholars Home Senior Secondary School and other similarly situate schools filed the
writ petitions, challenging the notice dated 02.06.2009 issued by Assistant Commissioner, Commercial Tax.
The case of the respondent, before learned Single Judge, was that supply of food stuff to its residential students was only incidental activity which
did not amount to a “sale†nor such activity amount to “business†as contemplated under the Act.
The appellant-State has filed its counter affidavit. The appellant has admitted that a lumpsum fee is charged and no separate bill is raised by the
respondents for the cost of food supplied to its students.
We have gone through the judgment passed by learned Single Judge carefully.
Section 3 of the Uttarakhand Value Added Tax Act, 2005 is the charging section.
Learned Single Judge has already quoted Section 3 of the Act verbatim. We need not reproduce the same for brevity sake. However, it would be
apt at this stage to take into consideration the definition of word “saleâ€, as per sub-Clause 40 of Section 2 of the Act. It reads as under:-
“2(40) “Sale†with its grammatical variation and cognate expressions means any transfer of property in goods (other than by way of mortgage,
hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or deferred payment or other valuable
consideration, and includes- -
(a) a transfer otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment of other valuable consideration;
(b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) the delivery of goods in hire purchase or any system of payment by instalments;
(d) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable
consideration;
(e) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable
consideration;
(f) any supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human
consumption or drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration;
(g) a transfer of property in goods by an auctioneer referred to in clauses (g) of sub-section (11) or sale of goods by any dealer in the course of any
other activity in the nature of banking or insurance, who in the course of his main activity also sells goods repossessed or reclaimed,
And such delivery, transfer or supply of any goods under clause (a) to (g) above shall be deemed to be the sale of those goods by the person making
the delivery, transfer or supply, and purchaser of those goods shall be the person to whom such delivery, transfer or supply is made; Explanation 1 : A
sale or purchase shall not be deemed to have taken place in side the State if the goods are soldâ€
(a) in the course of inter-state trade or commerce; or
(b) outside the State of Uttaranchal otherwise than by way of sale; or
(c) in the course of import into or export out of the territory of India;
Explanation 2 : A sale or purchase shall be deemed to have taken place in the State under sub-clause (b) if the goods are in the State at the time of
transfer of property in such goods (whether as goods or in some other form) involved in the execution of works contract, notwithstanding that the
agreement for works contract has been wholly or in part entered into outside the State; Explanation 3 : Notwithstanding anything contained in this Act,
two independent sales or purchases shall, for the purpose of this Act, be deemed to have taken placeâ€
(a) when the goods are transferred from a principal to his selling agent and from the selling agent to his purchaser;
(b) when the goods are transferred from the seller to a buying agent and from the buying agent to principal, and if the agent is found in either of the
cases aforesaidâ€
(i) to have sold the goods at one rate and passed on the sales proceeds of his principal at another rate, or
(ii) to have purchased the goods at one rate and passed them to his principal at another rate, or
(iii) not to have accounted to his principal for the entire collection or deductions made to him, from the sales or purchases effected by him on behalf of
his principal, or
(iv) to have acted for a fictitious or non-existent principal;â€
Similarly, term “dealer†has been defined under Section 2(11) of the Act. It reads as under:-
“2(11) “Dealer†means any person who, for the purposes of or in connection with or incidental to or in the course of his business, carries on in
Uttaranchal the business of buying, selling, supplying or distributing goods with a motive of profit or not directly or indirectly, regularly or otherwise,
whether for cash or deferred payment or for commission, remuneration or other valuable consideration, and
includesâ€"……………………………………………………â€
“Person†has also been defined under Section 2 (27) of the Act, which reads as under:-
‘Person’ has also been defined under Section 2(27) which is extracted hereunder:- “2 (27) “Person†includes-- (a) an individual; (b) a
Joint Hindu Family; (c) a company or a corporation; (d) a firm; (e) an association of person or a body of individuals, whether incorporated or not; (f)
the Central Government or the Government of Uttaranchal or the Government of any other State or Union Territory in India; (g) a local authority, a
club, a society or trust;â€
“Business†has been defined under Section 2(6) of the Act was under:-
“2 (6) “Business†includes â€
(a) any trade, commerce or manufacture, or
(b) any adventure or concern in the nature of trade, commerce or manufacture, or
(c) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern, or
(d) any occasional transaction in the nature of such trade, commerce, manufacture, adventure or concern whether or not there is volume, frequency,
continuity or regularity of such transaction, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to
make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern, or
(e) the execution of any works contract or the transfer of the right to use any goods for any purpose (whether or not for a specified period), and
(f) Any transaction of buying, selling or supplying plant, machinery, raw materials, processing material, packing material, empties, consumable stores,
waste or byproducts, or any other goods of a similar nature or any unserviceable or obsolete or discarded machinery or any parts or accessories
thereof or any waste or scrap or any of them or any other transaction whatsoever which is ancillary to or is connected with or is incidental to, or
results from such trade, commerce, manufacture, adventure or concern or works contract or lease but does not include any activity in the nature of
mere service or profession which does not involve the purchase or sale of goods;â€
It is evident from the harmonious reading of definition clause read with charging section that there should be transfer of property in goods by one
person to another in the course of trade or business. Dealer is a person who for the purpose of or in connection with or incidental to or in the course of
his business carries on the business of buying, selling, supplying or disturbing goods with a motive of profit. Business includes any trade, commerce or
manufacture or any adventure or concern in the nature of trade, commerce or manufacture or any transaction in connection with, or incidental or
ancillary to such trade, commerce, manufacture, adventure or concern.
We are of the considered view that the Act would be application only in those cases, where the sale is made by a dealer or a person who carries
on the business of taxable goods.
Learned Single Judge has rightly relied upon the judgments rendered in the case of “Indian Institute of Technology, Kalanpur, Kanpur vs. the
State of Uttar Pradesh & anotherâ€, reported in 1976 (38) STC 428, in the case of “Swadeshi Cotton Mills Co. Ltd. vs. Sales Tax Officerâ€,
reported in AIR 1965 Allahabad 86 and in the case of “University of Delhi vs. Ram Nathâ€, reported in AIR 1963 SC 1873.
In Indian Institute of Technology, Kalanpur, Kanpur Vs. The State of Uttar Pradesh & another 1976 (38) STC 428 (Allahabad), the Allahabad
High Court has held that the Indian Institute of Technology, Kalyanpur was maintaining a hostel for the scholars who would come for a brief period to
the institute for the purpose of research. The food being supplied to these scholars was assessed to sales tax. The Allahabad High Court held that the
Institute’s principal activity was not doing business in a commercial way of buying food stuff and that the principal activity was predominantly
academic and that the supply of food stuff was minor, subsidiary and incidental to the principal activity and was an integral part of the academic
activity. The Allahabad High Court further held that the I.I.T. could not be dubbed as a dealer within the meaning of ‘dealer’ as defined under
Section 2(c) of the U.P. Sales Tax Act and that the Sales Tax Officer had no jurisdiction to initiate proceedings for the levy of sales tax.
In Commissioner of Sales Tax Vs. Sai Publication Fund 2002 (126) S.T.C. 288 (S.C.), the devotees of Saibaba of Shridi were printing pamphlets
containing messages of Sai Baba and the pamphlets were being made available to the devotees on a nominal charge. The Supreme Court held that the
trust was neither a dealer nor was it doing any activity which could be termed as a business activity under the definition of the word ‘business’
as defined under the Bombay Sales Tax. The Supreme Court held as follows:-
“10. The contention that the Trust in question is ""dealer"" within the meaning of Section 2(11) read with Section 2(5A) requires careful scrutiny. As
is evident from Section 2(11), every person is not ""dealer"" but only those persons ""who carry on the business"" by buying or selling goods are regarded
as ""dealers"". From the very definition of dealer, it follows that a person would not be a dealer in respect of the goods sold or purchased by him unless
he carries on the business of buying and selling such goods. ""Dealer"" and ""person"" are separately defined in Section 2(11) and Section 2(19) of the Act
respectively. ""Person"" means not only natural person but includes any company or association or body of individuals whether incorporated or not and
also a Hindu Undivided Family, a firm or a local authority; whereas ""dealer"" on the other hand means only such persons who carry on the business of
buying and selling of goods in the State including those who are deemed to be dealers by virtue of definition of ""dealer"" contained in Section 2(11) of
the Act. As rightly noticed by the High Court, it is clear from charging Section 3 that every dealer, whose turnover of sale or purchase during any year
exceeds the limits specified therein, is liable to payment of tax under the Act on his turnover of sales or purchases. Although the Act provides for levy
of tax on the sales or purchases of certain goods in the State of Maharashtra, the levy is restricted only to sales or purchases made by dealers. As is
manifest from Section 3 itself, the liability to pay sales tax is only on the dealers. From the combined reading of Section 3, 2(5A) and 2(11) of the Act,
it follows that the tax under the Act is leviable on the sales or purchases of taxable goods by a dealer and not by every person. From the facts of the
present case, the sole object of the assessee Trust is to spread the message of Siababa of Shridi. It is also not disputed that the books and literature
etc. containing the message of Saibaba were distributed by the Trust to the devotees of Saibaba at cost price. There is no dispute that the primary and
dominant activity of the Trust is to spread the message of Saibaba. This main activity does not amount to ""business"". The activity of publishing and
selling literature, books and other literature is obviously incidental or ancillary to the main activity of spreading message of Saibaba and not to any
business as such even without profit motive and it is in a way a means to achieve the object of the Trust through which message of Saibaba is spread.
It is clear from the Trust Deed and objects contained therein that it was not established with an intention of carrying on the business/occupation of
selling or supplying goods. This being the position, it cannot be said that the Trust carries on the business of selling and supplying goods so as to fall
within the meaning of ""dealer"" under Section 2(11) of the Act.
No doubt, the definition of ""business"" given in Section 2(5A) of the Act even without profit motive is wide enough to include any trade, commerce
or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and any transaction in connection with or incidental or
ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any
transaction incidental or ancillary would not normally amount to ""business"" unless an independent intention to carry on ""business"" in the incidental or
ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on ""business"" connected with or incidental or
ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity
may not come within the meaning of ""business"". To put it differently, the inclusion of incidental or ancillary activity in the definition of ""business"" pre-
supposes the existence of trade, commerce etc. The definition of ""dealer"" contained in Section 2(11) of the Act clearly indicates that in order to hold a
person to be a ""dealer"", he must `carry on business' and then only he may also be deemed to be carrying on business in respect of transaction
incidental or ancillary thereto. We have stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message.
Hence, such activity does not amount to ""business"". Publication for the purpose of spreading message is incidental to the main activity which the Trust
does not carry as business. In this view, the activity of the Trust in bringing out publications and selling them at cost price to spread message of
Saibaba does not make it a dealer under Section 2(11) of the Act.â€
In 1963 SC 1873, in the case of “University of Delhi vs. Ram Nathâ€, their Lordships of the Hon’ble Supreme Court have held that
imparting of education was a mission or a vocation rather than a trade or business.
In the judgments, as quoted hereinabove, it was held that if the main activity was not a business, then any transaction incidental or subsidiary to it
would not amount to a business unless the main intention was to carry on the business.
Respondent-institution is a society registered under the Societies Registration Act, 1960. It is running on non-profit basis. It is not raising any
separate bills for the food supplied to the students living in the hostel. It cannot be termed as “sale†to attract the provisions of the Act.
We endorsed the view of learned Single Judge that imparting education cannot be termed as “trade†or “businessâ€. The main activity of
the respondent-institutions is not to do business. Supplying of food to students will not amount to business. The present Act is not applicable to the
respondent-institutions.
There is no question of deemed sale, as argued by learned Additional Advocate General.
Accordingly, there is no merit in all these special appeals and the same are hereby dismissed.
Pending application, if any, also stands disposed of accordingly.