An educational institution's activities, such as selling prospectus, are integral to its educational mission and not considered 'business' under VAT laws when not profit-driven.

C.A.V. ORDER

(PER: HON'BLE MR. JUSTICE K.V. ARAVIND)

STRP No.36/2025 has been filed by the State, and STRP No.37/2025 by the University. Both petitions arise out of the order of the Karnataka Appellate Tribunal, Bengaluru (hereinafter referred to as “the Tribunal”) in STA Nos.233 to 238 of 2015, dated 02.02.2024, for the assessment periods 2007-08 to 2012-13.

2. As both appeals arise out of the common order of the Karnataka Appellate Tribunal, they are heard together and are being disposed of by this common order. Though the appeals are listed for admission, with the consent of learned counsel for both parties, they were heard for final disposal.

2.1 The parties are referred to herein according to the rank in which they appear in STRP No. 36 of 2025.

2.2 As can be found from the pleadings, the respondent is an educational university, an autonomous body, engaged in imparting education primarily to students in rural areas, including those who have discontinued their studies. The respondent also offers distance education to enable such students to complete their education. Being engaged solely in educational activities, without any commercial or business intentions, the respondent is not required to be registered under the KARNATAKA VALUE ADDED TAX ACT, 2003 (hereinafter referred to as “KVAT Act”), and accordingly, has not filed any monthly returns in VAT Form-100. The petitioner-State, having observed that the respondent is engaged in the sale of various printed materials in addition to its educational activities and services, conducted a re-assessment for the period 2006-07 to 2012-13.

3. The Assessing Authority passed re-assessment orders on 26.05.2014, 08.08.2014 and 25.08.2014 under Section 39(1) of the KVAT Act, determining the taxable turnover for the period in question, along with levy of interest and penalty for non-filing of returns. The respondent preferred an appeal under Section 62(6) of the KVAT Act before the Joint Commissioner of Commercial Taxes (Appeals), contending that it is engaged in imparting education to students and that the distribution of printed materials is merely incidental to the educational activities, without any profit motive. The First Appellate Authority allowed the appeal filed by the respondent for the period 2006-07, but dismissed it for the remaining period from 2007-08 to 2012-13. In arriving at this conclusion, the First Appellate Authority relied upon the judgment of this Court in Manipal University vs. State of Karnataka [(2014) 71 VST 442]

4. The respondent, being further aggrieved, preferred an appeal under Section 63 of the KVAT Act before the Tribunal. By the impugned order, the Tribunal set aside the order of the First Appellate Authority to the extent of the levy of interest and penalty, but upheld the levy of tax on the sale of prospectus. The State is in appeal against the deletion of interest and penalty, whereas the respondent is in appeal against the levy of tax.

5. The following substantial questions of law arise for consideration in the above appeals:

In STRP No.36/2025:

(iii) Whether the Appellate Tribunal was right in holding that interest and penalty under Section 39 and Section 72, respectively, of the KARNATAKA VALUE ADDED TAX ACT, 2003 can only be imposed if there is intent to evade tax?

(iv) Whether the Tribunal was right in concluding that interest and penalty cannot be levied in the present matter?

In STRP No.37/2025

1) Whether or not in the facts and circumstances of the case the Petitioner University established by Statute to