1957 (1) TMI 26 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the sale of a motor car, purchased for the managing director's use, by a company primarily dealing in steel furniture, should be included in the taxable turnover for sales tax liability.

Analysis:
The case involved Messrs. Steelage Industries, Ltd., registered dealers under the Bombay Sales Tax Act, 1946 and 1953, engaged in manufacturing and selling steel furniture. The company purchased a motor car for the managing director's use, subsequently sold it at a profit. The Sales Tax Officer included the sale price of the motor car in the assessment, subjecting it to sales tax. The Sales Tax Tribunal held that the sale price was liable for tax as it was part of the company's assets and shown in their books. The Tribunal referred the question of tax liability on the motor car sale to the High Court.

The critical issue was whether the sale of the motor car, not being a part of the company's regular business of steel furniture, should be considered in the taxable turnover for sales tax. The definition of a "dealer" under the Bombay Sales Tax Act, 1946 includes any person carrying on the business of selling goods. The court emphasized that liability to pay sales tax is for sales made in the course of business. The Tribunal's view that any sale by a dealer, even if unrelated to their business, is taxable was rejected.

The court held that for a transaction to be taxable, it must be part of the dealer's business activities. The mere sale of an asset, like the motor car in this case, does not automatically qualify as a business transaction unless it aligns with the volume and frequency of typical business dealings. The court disagreed with the argument that selling the motor car as a second-hand item constituted business activity. Since the sale was a one-off casual transaction, not part of the company's regular business, the court ruled in favor of the company, stating they were not liable for sales tax on the motor car sale.

In conclusion, the High Court answered the reference question in the negative, ruling that the company was not liable to pay sales tax on the sale of the motor car. The court directed the state to pay the costs of the reference and ordered the refund of the deposit made by the company.