Isabella Mariam

The High Court of Himachal Pradesh Division Bench of Justice Tarlok Singh Chauhan and Justice Sushil Kukreja held that a private university, established for imparting education and functioning on a not-for-profit basis, is not liable to pay Value Added Tax (VAT) on food and ancillary services provided exclusively to students within campus premises. The Court quashed the impugned assessment orders and set aside the Himachal Pradesh VAT Tribunal’s directions. It concluded that the proceedings initiated by the tax authorities were void ab initio and lacked legal justification.

The petitioner, a private university established in 2002 under the Jaypee University of Information Technology Act, 2002 by the Government of Himachal Pradesh, functions under the aegis of Jaiprakash Sewa Sansthan—a registered public trust operating on a not-for-profit basis. The University is termed as a "Private University" under the University Grants Commission Regulations of 2003 and is also exempt from income tax under Section 10(23C)(vi) of the Income Tax Act, 1961.

Also Read: Supreme Court Restores FIR Over Alleged Gold Loan Fraud | Says Patna HC Erred In Treating Complaint As Malicious Without Trial Evidence

The University is situated in Waknaghat, District Solan, Himachal Pradesh, in a remote village with minimal infrastructure and poor connectivity. In light of the inaccessibility of local markets, the University established a student mess facility comprising three units: Annapoorna-A (food), Annapoorna-B (cafeteria), and Annapoorna-C (tuck shop). These services are exclusively for students and operate during fixed hours. Access to outsiders is prohibited, and the income and expenditure related to these services are duly recorded in the University’s accounts.

On 6 March 2013, officials from the Excise and Taxation Department visited the campus to inspect the mess facilities. The University cooperated and submitted records detailing purchases and expenses. However, according to the petitioner, the officers imposed VAT amounting to ₹38,17,348 under Section 21(7) of the Himachal Pradesh VAT Act, 2005 (HPVAT Act) without affording any opportunity for a hearing. The University claims that it was coerced into issuing a cheque for the said amount and was made to sign blank papers under threat of sealing the premises.

The officials issued a receipt in Form T-1-A on the same day, acknowledging the cheque, but did not provide any assessment order. When University representatives visited the department office on 11 March 2013 to request the assessment order and return of the blank signed papers, the department refused, citing procedural timelines and warning against legal action.

Subsequently, the Department initiated proceedings based on the inspection and raised VAT demands for the financial years 2008–2009 to 2011–2012. The turnover was bifurcated into items taxed at 5% and 13.75%, and the aggregate tax liability was computed without issuing the mandatory notice in VAT Form 29 as required under Rules 67 and 78 of the HPVAT Rules.

The petitioner challenged the legality of the entire proceeding before the Himachal Pradesh VAT Tribunal, which remanded the matter without nullifying the assessment order. Aggrieved by the Tribunal’s decision, the University filed civil revision petitions before the High Court.

The Division Bench scrutinised the conduct of the assessing authority and the procedural compliance with the HPVAT Act. It recorded, “The Assessing Officer took the law into his own hand and played as a Prosecutor, Judge and Executor at the same time.” The Court found that the entire VAT liability was fixed on the same day as the inspection, without issuing a notice or following due process.

The Court observed, “There is no material to establish that the ancillary activities of providing canteen facilities to the children is being conducted by the petitioner(s) with an independent intention to conduct business with such activities.” It concluded that the ancillary services provided within the university premises do not constitute “business” under the HPVAT Act.

Further, the Court recorded, “Before imposing any tax, the authorities are required to see whether the Act is applicable or not and in such like cases there cannot be a deemed sale so as to attract the levy of tax.”

Citing precedents including Commissioner of Sales Tax v. Sai Publication Fund (2002) 4 SCC 57 and Queen’s Educational Society v. CIT (2015) 8 SCC 47, the Court noted, “Where the main activity is not business, then any incidental or ancillary transactions would normally amount to business only if an independent intention to carry on the business in the incidental or ancillary transaction is established.”

The Court also expressed concern over the absence of specific goods being itemised in the impugned demand and the failure of the Tribunal to recognize the core educational nature of the institution. It recorded, “The learned Tribunal erred in artificially bifurcating the turnover into exempted and non-exempted goods even though it has been categorically found that the petitioner is not a dealer.”

The Division Bench found the entire tax proceedings against the University to be fundamentally flawed, remarking that there was no justification for the Tribunal to remand the case, especially when the proceedings were void ab initio and all orders should have been set aside.

In line with this reasoning, the Court directed that all the petitions be allowed and any pending applications be disposed of.

Also Read: Uttarakhand HC Quashes Summoning Order Against Patanjali | Cognizance Held Illegal For Want Of Evidence, Jurisdiction And Procedural Compliance Under Drugs Act

It further held that the Tribunal had erred in concluding that the petitioner was liable to pay taxes on the supply of food and other items to students within the campus, even though it had been established that the institution primarily existed for educational purposes.

Additionally, the Court stated that the Tribunal was not justified in determining tax liability on supplies made to students during academic activities, as these did not constitute business.

On the matter of Input Tax Credit, the Court declined to address it, noting that in light of its conclusions on the earlier questions of law, the fifth question no longer required consideration.

Advocates Representing the Parties

For the Petitioners: Mr. Rakesh Kumar, Advocate.

For the Respondents: Mr. Anup Rattan, Advocate General with Mr. Ramakant Sharma, Mr. Navlesh Verma, Ms. Sharmila Patial, Mr. Sushant Kaprate, Additional Advocates General, and Mr. Raj Negi, Deputy Advocate General.

Case Title: M/s Jaypee University of Information Technology v. State of Himachal Pradesh & Ors.

Neutral Citation: 2025:HHC:15313-DB

Case Numbers: Civil Revision Nos. 41 to 44 of 2015

Bench: Justice Tarlok Singh Chauhan and Justice Sushil Kukreja

[Read/Download order]