1962 (12) TMI 42 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the sale of machinery and packing materials can be included in the turnover for tax purposes?
2. Whether the turnover ceased to be liable to tax as the business of selling chemicals had been discontinued and only machinery and packing materials were disposed of?

Analysis:
The case involves a reference under section 11(1) of the U.P. Sales Tax Act, 1948, made by a limited company engaged in manufacturing and selling chemicals. The company sold machinery, packing materials, and other articles, which were taxed by the Sales Tax Officer. The Judge (Appeals) found that the machinery sale was not for carrying on business but to liquidate debts, thus setting aside the assessment order. The Commissioner of Sales Tax contended that the company remained a dealer even after closing its manufacturing activity as long as it was disposing of goods. The reference posed two questions regarding tax liability on the sale of machinery and packing materials.

The Court analyzed the definition of a dealer under section 2(c) of the Act, emphasizing that tax should apply only to transactions falling within the dealer's business scope. Citing precedents, the Court clarified that a person is a dealer only concerning goods in their business domain. The Court distinguished between being a dealer in chemicals, the company's primary business, and being a dealer in machinery. The Court rejected the argument that the machinery sale should be taxed due to its connection with the company's business, citing a case where a similar argument was dismissed.

The Court held that the sale proceeds of the machinery should not be taxable under the Act. It was concluded that the company, being a dealer in chemicals, was not a dealer in machinery, and therefore, the sale of machinery did not fall within the taxable turnover. As the company did not press for an answer regarding packing materials, the second question regarding the cessation of business and tax liability did not arise. The Court answered the first question in the negative and awarded costs to the company. The judgment was to be communicated to the relevant tax authorities as per statutory requirements.

In conclusion, the Court determined that the sale of machinery by the company, primarily engaged in selling chemicals, was not subject to tax under the Sales Tax Act. The judgment clarified the scope of tax liability concerning specific business activities and emphasized the importance of transactions being directly related to the dealer's business for taxation purposes.