Scholars Home Senior Secondary School vs. State of Uttarakhand and another and other cases [2011] 42 VST 530 (Utk)

Facts:
Petitioners were educational institutions providing boarding and lodging facilities to students staying inside the campus in the hostel and they were provided food. The supply of foodstuff was sought to be assessed as a sale under the Act. The petitioner managing the institution on a non-profit basis as a charitable organisation without there being any profit-motive involved and, in this regard, also registered u/s. 12A of the Income-tax Act as a charitable organisation. Many students of the petitioner-institution are using the boarding facilities provided by the institution and, for this purpose, the petitioner charged a lump sum amount towards tuition fee and boarding fee. The petitioner was not charging any separate amount or cost for food supplied to the students, who were using the hostel facility. The mess was run by the institution itself and was not being done by any catering contractor. It was alleged that before the promulgation of the Uttarakhand Value Added Tax Act, 2005 (hereinafter referred as “the Act”), the U.P. Trade Tax Act was applicable in the State of Uttarakhand and, while the said Act was in force, the petitioner was not subjected to any tax for the supply of food to its residential students nor was the petitioner recognised as a “dealer” under the Act, but after coming into force the Act of 2005, the petitioner received a notice dated 2nd June 2009, for the assessment years 2005-06, 2006-07, 2007-08 and 2008-09 from the Assistant Commissioner Commercial Tax to show cause as to why the petitioner 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 petitioner, being aggrieved by the issuance of the notice, filed the writ petition before the High Court praying for the quashing of the notice for assessment years 2005-06, 2006-07, 2007-08 and 2008-09, for a direction restraining the respondents from making any assessment pursuant to the notice dated 2nd June 2009, as it is not carrying on the business of sale of foodstuff and, therefore, is not liable to be taxed, nor the Act is applicable and consequently, the issuance of the notice is wholly illegal and without jurisdiction.

Held:
Merely because there is a deemed sale or the fact that the deemed sale is incidental or casual, the tax could only be imposed if the person is a dealer and is engaged in a business activity of purchase and sale of taxable goods. The main activity of the petitioner is imparting education and is not business. Any transaction, namely, supply of foodstuff to its residential students which is incidental would not amount to “business” since the main activity of the petitioner could not be treated as commerce or a business as defined u/s. 2(6) of the Act. Consequently, since no business is being carried out and there is no sale, the petitioner would not come within the meaning of the word “dealer” as defined under the Act.

Accordingly, the HC allowed all writ petitions and said notices were consequently quashed.