1967 (4) TMI 124 - SC - VAT and Sales Tax

Whether Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941, defines a dealer as meaning any person who carries on the business of selling goods in West Bengal and as including the Government ? Held that - Appeal allowed. The material facts of this case are closely parallel to those in the present case and it must be held that the appellant was not carrying on the business of selling goods and was not a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act 6 of For these reasons we hold that the appellant did not carry on the business of selling goods in West Bengal and therefore was not a dealer within the meaning of section 2(c) of the Act and the question referred to the High Court under section 21(3) of the Act must be answered in the negative and in favour of the appellant. We accordingly set aside the judgment of the High Court dated November 26, 1964, and allow this appeal with costs.

Issues Involved:
1. Definition and interpretation of "dealer" under Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941.
2. Determination of whether the Directorate of Disposals was carrying on the business of selling goods.
3. Applicability of sales tax to the transactions conducted by the Directorate of Disposals.

Issue-Wise Detailed Analysis:

1. Definition and Interpretation of "Dealer" under Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941:
Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941, defines a "dealer" as "any person who carries on the business of selling goods in West Bengal and as including the Government." The core issue revolves around whether the Directorate of Disposals, which was responsible for selling surplus American war equipment, qualifies as a "dealer" under this definition.

2. Determination of Whether the Directorate of Disposals was Carrying on the Business of Selling Goods:
The Government of India set up the Directorate of Disposals to manage and sell surplus war equipment acquired from the American forces after World War II. The equipment was sold through a systematic and organized process involving advertisements, auctions, and a wide-spread organization. The sales were not casual but spread over several years, indicating a structured activity aimed at disposing of the goods.

The High Court of Calcutta, in a reference under Section 21(3) of the Act, agreed with the taxing authorities that the Directorate was a dealer as per the Act. The Court observed that the activity undertaken by the Directorate was not merely for realizing capital but was systematic, organized, and profit-oriented, thus satisfying the tests of frequency, continuity, and system typically used to determine business activities.

3. Applicability of Sales Tax to the Transactions Conducted by the Directorate of Disposals:
The appellant argued that the Directorate was not engaged in the business of buying and selling and thus not liable to pay sales tax. The High Court, however, found that the Directorate's activities constituted business within the meaning of Section 2(c) of the Act. The Court cited previous judgments, such as The State of Andhra Pradesh v. H. Abdul Bakshi and Bros., which emphasized that business involves a systematic course of activity with a profit motive.

The Court distinguished the present case from Commissioner of Taxes v. British Australian Wool Realization Association Limited, where the sale of surplus wool was deemed a realization of capital assets and not taxable. The High Court found no evidence that the Directorate was merely realizing capital; rather, it was conducting a business of selling goods.

Separate Judgments:
- SHAH, J.: Shah, J. dissented, emphasizing that the Directorate's activities were akin to the realization of capital assets rather than carrying on a business. Shah, J. drew parallels with the British Australian Wool Realization Association case, arguing that the Directorate's purpose was to dispose of surplus equipment, not to engage in a business for profit.

- RAMASWAMI, J.: Ramaswami, J., delivering the majority judgment, upheld the High Court's view that the Directorate was carrying on business and thus liable to pay sales tax. The judgment highlighted that the systematic and organized nature of the Directorate's activities, along with the profit motive, qualified it as a dealer under the Act.

Conclusion:
The Supreme Court, by a majority decision, held that the Directorate of Disposals was carrying on the business of selling goods and was a dealer within the meaning of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941. Consequently, the Directorate was liable to pay sales tax on the transactions conducted. The appeal was allowed with costs, setting aside the judgment of the High Court.

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