1964 (10) TMI 78 - HC - VAT and Sales Tax

Issues Involved:
1. Liability to pay sales tax on the turnover of Rs. 4,20,000 from the sale of arc furnaces.
2. Definition and scope of "dealer" under the Sales Tax Act.
3. Determination of whether the sale was in the course of business or an isolated transaction.
4. Relevance of profit motive and business activity in determining tax liability.

Issue-Wise Detailed Analysis:

1. Liability to Pay Sales Tax on the Turnover of Rs. 4,20,000 from the Sale of Arc Furnaces:
The primary issue was whether the company was liable to pay sales tax on the turnover of Rs. 4,20,000 from the sale of arc furnaces. The company contended that the sale was an isolated transaction of a fixed capital asset, not in the course of its business. The assessing authorities and the Tribunal rejected this claim, leading to the revision petition.

2. Definition and Scope of "Dealer" Under the Sales Tax Act:
The court examined the definition of "dealer" under the Sales Tax Act, which requires a person to carry on the business of buying and selling goods. The court emphasized that the term "business" should be understood in a restricted and commercial sense, implying an activity with a view to earn profit. The court referred to several precedents to elucidate this point, including:
- Gannon Dunkerley and Co. v. State of Madras [1954] 5 S.T.C. 216: Highlighted that the word "business" in the Act implies an activity with a profit motive.
- Deputy Commissioner of Commercial Taxes, Coimbatore Division v. Sri Lakshmi Saraswathi Motor Service, Gudiyattam [1954] 5 S.T.C. 128: Stated that isolated transactions of selling unserviceable assets do not make a company a dealer in those assets.

3. Determination of Whether the Sale Was in the Course of Business or an Isolated Transaction:
The court analyzed whether the sale of arc furnaces was part of the company's business activity or an isolated transaction. The court noted:
- The arc furnaces were purchased as capital assets for the company's manufacturing operations and not as stock-in-trade.
- The sale of the furnaces was an isolated transaction due to their unsuitability, not a regular business activity.
- The court referred to several cases to support its analysis:
- State of Bombay v. Ahmedabad Education Society [1956] 7 S.T.C. 497: Emphasized that the sale must be in the course of business activity to be taxable.
- Steelage Industries Ltd. v. State of Bombay [1957] 8 S.T.C. 376: Held that the sale of a motor car used by the managing director was not a business activity.
- Commissioner of Sales Tax v. Ram Dulare Balkishan & Bros. [1963] 14 S.T.C. 202: Stated that frequency, regularity, and volume of sales do not alone make an activity a business if there is no profit motive.

4. Relevance of Profit Motive and Business Activity in Determining Tax Liability:
The court considered the relevance of profit motive and the nature of business activity in determining tax liability. It concluded:
- The sale of the arc furnaces lacked a profit motive and was not ingrained in the company's regular business activity.
- The sale did not have a reasonable connection with the company's normal business of manufacturing and selling machinery.
- The court referred to several decisions to support this view:
- Mining & Chemical Industries v. Commissioner of Sales Tax [1963] 14 S.T.C. 391: Held that selling machinery due to business closure was not a business activity.
- Ambica Mills Ltd. v. State of Gujarat [1964] 15 S.T.C. 367: Stated that sales made during a modernization program without a profit motive do not constitute business activity.

Conclusion:
The court held that the turnover from the sale of arc furnaces was not liable to sales tax. It concluded that the sale was an isolated transaction of a capital asset, not part of the company's regular business activity. The revision petition was allowed, and the decisions of the Tribunal and the assessing authorities were set aside. No costs were awarded.

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