1968 (8) TMI 111 - SC - VAT and Sales Tax

Whether the respondent-company was liable to pay sales tax on an amount of Rs. 4,20,000 being the sale price of two arc furnaces which had been purchased in 1952 and sold in 1958? Held that - Appeal dismissed. The High Court rightly came to the conclusion that the sale proceeds of the furnaces could not be included in the turnover of the assessee for the purpose of determining the liability of the assessee to sales tax.

Summary

Issues:
- Liability of respondent-company to pay sales tax on the sale of arc furnaces purchased in 1952 and sold in 1958.

Analysis:
The judgment by the Supreme Court of India, delivered by Justice Grover, dealt with the question of whether the respondent-company was liable to pay sales tax on the sale of two arc furnaces. The respondent-company, engaged in the manufacture and sale of machinery, purchased the furnaces in 1952 for use in its foundry. In 1958, the furnaces were sold for a higher price. The assessing authorities sought to include the sale amount in the turnover of the company, considering it part of the normal business activity. The Sales Tax Appellate Tribunal upheld this decision, stating that the sale was within the scope of the company's business of selling machinery. A revision petition was filed before the High Court of Madras, arguing that the furnaces were capital assets, not stock-in-trade, and the sale was not part of the regular business activity.

The High Court, after considering various precedents, including the decision in Ambica Mills Ltd. v. State of Gujarat, held that the sale of the arc furnaces was not ingrained in the business activity of the assessee and did not constitute normal business activity. The High Court concluded that the turnover of the assessee was not liable to sales tax. The appellant contended that the sale was connected to the usual business activity of dealing in heavy machinery and accessories, emphasizing the profit made from the transaction. The appellant relied on the decision in State of Andhra Pradesh v. Abdul Bakshi and Bros. to support their argument.

The Supreme Court, after analyzing the facts and precedents cited, upheld the High Court's decision. It was established that the furnaces were fixed assets or discarded goods found to be unserviceable, not part of the regular stock for sale. The definition of a "dealer" under the Central Act was crucial, requiring a profit motive and a course of dealings for a person to be considered a dealer. The Court found that the sale of the furnaces did not align with the business activity of the assessee, as they were not intended for sale initially. Therefore, the sale proceeds were not includable in the turnover for sales tax purposes. The appeal was dismissed, affirming the High Court's decision.