VAT is not imposed on incidental food supplies made to pupils by a registered public trust that provides educational services

Fact and issue of the case

Petitioner seeks writ of mandamus declaring the action of respondents in directing the petitioner’s school to obtain dealer registration under Andhra Pradesh Value Added Tax (AP VAT) Act, 2005 and their action in assessing the petitioner’s school under the said Act for the period 01.04.2005 to 31.12.2005 vide order dated 08.03.2006 is arbitrary, illegal and violative of Articles 14, 19, 21A and 265 of the Constitution of India and to set aside the same and pass such other orders.

Petitioner’s case succinctly is thus: (a) Petitioner is Bharatiya Vidya Bhavan’s Residential Public School located at Vidyashram, Pedatadepalli (PO), West Godavari District. The Bharatiya Vidya Bhavan is a public trust registered under Bombay Public Trust Act bearing Registration No.F-358 (Bom). The petitioner’s school was established in the year 1983 with an object to provide education on non-profit basis. It was established by the Philanthropists for development of society. The petitioner’s school is run on non-profit basis. The school offers courses from LKG to 10th standard as is recognized by Central Board of Secondary Education (CBSE), New Delhi. As on the date of writ petition, the petitioner’s school has 832 students and 70 staff members of both teaching and non-teaching category. A number of schools were sponsored by Bharatiya Vidya Bhavan in the State of Andhra Pradesh and petitioner’s school is one among them. (b) The further case of the petitioner is that the Government of India having recognized services of Bharatiya Vidya Bhavan, notified the society as an educational institution of national eminence for the purpose of Section 80(g)(1) of the Income Tax Act, 1962 (for short ‘I.T. Act’). As a result, the funds and donations received by the society and the institutions sponsored by it are eligible for exemption U/s 80 (g)(1) of the I.T Act. The petitioner’s school is being run from out of the donations received by it. Apart from the donations, petitioner’s school collects nominal fees and mess charges from the students. During the financial year 2004-05, the petitioner’s institution had a surplus of Rs.2.87 lakhs which was remitted to Bharatiya Vidya Bhavan Society. The petitioner’s school does not retain any surplus amounts with it. Petitioner’s accounts are audited by the auditors appointed by the Bharatiya Vidya Bhavan Society. All these facts would manifest that petitioner’s school is a non-profit entity engaged in dissemination of knowledge in the spheres of culture, arts and science. It is further submitted that the maintenance of hostels by the petitioner’s school is incidental, ancillary and connected with the main object and activity of imparting education. (c) While so, the 2nd respondent visited the petitioner’s school on 10.12.2005 and inspected the records. Thereafter he issued a notice dated 30.12.2005 and called for the sales turnover for the period up to 30.12.2005 along with the Form-100 and directed the petitioner to obtain registration under the provisions of AP VAT Act, 2005. Subsequently 2nd respondent issued notice of assessment under AP VAT Act,2005 on 17.02.2006 proposing to levy VAT for the period 01.04.2005 to 01.01.2006 amounting to Rs.3,67,050/- on the ground that the petitioner’s school sells the food items and thus treated the activity of the petitioner in providing food as a business of running restaurant / hotel for the purpose of the AP VAT Act, 2005. The said act of 2nd respondent is arbitrary, illegal and unconstitutional. (d) For the purpose of AP VAT Act a dealer is one who carries on the business of buying, selling, supplying or distributing goods for cash or deferred payments and includes any person who in the course of business of running a restaurant or eating house or hotel, sells or supplies by way of or as a part of any service, goods being food or any other article for human consumption. Therefore, for the purpose of bringing any person within the fold of Section 2(10) i.e., the definition of dealer under the AP VAT Act, the said person shall have to carry on the business of buying, selling of goods and in the course of a person selling or supplying food or any other article for human consumption, the same will have to be made in the course of business of running a restaurant or eating house or hotel. The petitioner is concerned, it is engaged in the activity of providing education to the children in the age group of 3+ to 15 years. The activity of providing education will not qualify to be an activity connected with trade, commerce or manufacture and as such the petitioner cannot be termed as a dealer for the purpose of APGST and VAT Acts and the provisions of those enactments are not applicable to the petitioner institution. The supply of food by the petitioner’s school to its students is not being made in the course of business and running restaurant, eating house or hotel. Whereas, Section 2(10(d) of the VAT Act specifically refers to only a restaurant, eating house or a hotel. Hence the said act has no application to the petitioner.

Observation of the court

The contention of the respondents that the writ petition is not maintainable in view of availability of alternative remedy is concerned, we find no much force in it. It must be reiterated that mere availability of alternative remedy is not an embargo to entertain the writ petition, rather, constitutional Courts observe judicial restraint and discipline and generally desist from entertaining writ petitions when alternative remedy is available in a given case. That does not mean they lack jurisdiction. Even in cases where alternative efficacious remedy is available, still the constitutional Courts can entertain the writ jurisdiction in certain occasions. In Whirlpool Corporation v. Registrar of Trade Marks, Mumbai2 the Hon’ble Apex Court enumerated such occasions and held as follows:

Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this court not to operate as a bar in at least three contingencies, namely, where the Writ Petition has been filed for the enforcement of any of the Fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.” 15. As can be seen, the above decision expostulates that when the impugned order is passed by an authority without having jurisdiction, the writ petition can be entertained in spite of availability of alternative efficacious remedy. In the instant case the 2nd respondent has passed the impugned assessment order though the petitioner under law does not come under the purview of “dealer” as per the provisions of AP VAT Act, 2005. Therefore, the impugned order can be said to be passed wholly without jurisdiction and hence the writ petition is maintainable.

In the result, the writ petition is allowed and action of the 2nd respondent in directing the petitioner school to obtain registration as a dealer under AP VAT Act, 2005 and the further action of respondents in assessing the petitioner’s school to VAT under the provisions of AP VAT Act, 2005 for the period from 01.04.2005 to 31.12.2005 vide order dated 08.03.2006 is held as illegal, arbitrary and contrary to provisions of AP VAT Act, 2005 and accordingly the said order is set aside and if any amount is deposited by the petitioner in respect of the above assessment order, the same shall be refunded to the petitioner. No costs. As a sequel, interlocutory applications pending, if any, shall stand closed.

Read the full order from here

Bharatiya-Vidya-Bhavans-Residential-Public-School-Vs-The-State-of-Andhra-Pradesh-Andhra-Pradesh-High-Court