1989 (2) TMI 363 - SC - VAT and Sales Tax

Whether the price realised by the assessee on the sale of firewood timber sleepers and charcoal was assessable to sales tax? Held that - Appeal allowed and set aside the order of the High Court and Tribunal in these cases. In the result the turnovers in dispute in the two cases before the High Court will stand included in the assessees turnover and the assessments modified accordingly.

Summary

Issues Involved:

1. Whether the price realized by the assessee on the sale of firewood, timber, sleepers, and charcoal was assessable to sales tax.
2. Interpretation of the expressions "dealer" and "business" under the Tamil Nadu General Sales Tax Act.
3. Whether the activities of clearing the forest and selling the resultant produce constituted a trading activity or an adventure in the nature of trade.

Issue-wise Detailed Analysis:

1. Assessability of Sales Tax on Sale of Forest Produce:

The respondent-assessees acquired reserve forests to raise coffee and cardamom plantations, necessitating the clearing of unwanted trees, which were then sold as firewood, timber, sleepers, and charcoal. The core question was whether the income from these sales was subject to sales tax. The assessees argued that their primary business was plantation, and the sale of forest produce was merely incidental, not a trading activity.

2. Interpretation of "Dealer" and "Business" under Tamil Nadu General Sales Tax Act:

The definitions under scrutiny were:

- "Business": Includes any trade, commerce, manufacture, or any adventure in the nature of trade, whether or not profit-oriented, and any transaction incidental or ancillary to such trade.
- "Dealer": Any person engaged in the business of buying, selling, supplying, or distributing goods, including firms and casual traders.

The Court noted that the assessees' activities of clearing and selling forest produce were systematic and organized, aligning with the definitions of "business" and "dealer." The lease deed's reference to "development and exploitation of the lands" indicated a broader intent beyond mere plantation.

3. Nature of Activities - Trading Activity or Adventure in the Nature of Trade:

The Court found that the assessees' acquisition of large forest areas, awareness of the valuable trees, and the systematic clearance and sale of trees indicated a business venture. The activities were not merely incidental but an integral part of the business plan. The sale of forest produce was a recurring feature, even after the plantation started, marking it as a concern in the nature of trade.

The Court rejected the assessees' contention that the sales were mere realization of capital assets. Instead, it held that the acquisition and subsequent exploitation of the forest produce were intended as a commercial venture from the outset.

Supporting and Contradicting Judgments:

The Court referred to several judgments:

- State v. Burmah Shell and District Controller of Stores v. Assistant Commercial Taxation Officer: These cases supported the view that disposals incidental to the principal business are taxable.
- Deputy Commissioner v. Palampadam Plantation: This case was distinguished as it turned on the specific language of the Kerala General Sales Tax Act and did not apply to the present case.

Conclusion:

The Court allowed the appeals, setting aside the High Court and Tribunal's orders. It concluded that the turnovers in dispute should be included in the assessees' turnover for sales tax assessment. The activities of clearing the forest and selling the produce were deemed part of a business venture, thus taxable under the Tamil Nadu General Sales Tax Act. No order was made regarding costs. Appeals allowed.