1964 (11) TMI 98 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the sales of machinery by the petitioners were casual sales or part of their business activity.
2. The applicability of Section 31 of the Bombay Sales Tax Act, 1953, versus Section 35 of the Bombay Sales Tax Act, 1959.
3. The impact of the Bombay Sales Tax (Gujarat Amendment) Act, 1962, on the proceedings and orders previously made.
4. The validity of the Commissioner's order under the amended provisions.
5. The Tribunal's interpretation of the law and its decision on the preliminary question.

Detailed Analysis:

1. Casual Sales vs. Business Activity:
The primary issue was whether the sales of machinery by the petitioners were casual sales or part of their business activity. The Commissioner of Sales Tax concluded that the sales were part of the business activity, applying the test of volume and frequency, and considering that the petitioners collected sales tax from the purchaser and obtained certificates in "L" Form. However, the High Court found that the Commissioner applied the wrong tests and omitted relevant ones. The Court emphasized the importance of profit-motive in determining business activity, citing their decision in Ambica Mills Ltd. v. State of Gujarat, which held that sales of assets like old machinery, made without a profit-motive, do not constitute business activity. The Court concluded that the sales were casual, as the machinery was sold at a loss and was unsuitable for the petitioners' requirements.

2. Applicability of Section 31 vs. Section 35:
The petitioners contended that the proceedings under Section 31 of the Bombay Sales Tax Act, 1953, were misconceived due to the saving provision in Section 77 of the Bombay Sales Tax Act, 1959, which made the operation of the 1953 Act subject to Section 35 of the 1959 Act. The Tribunal accepted this contention, holding that after the 1959 Act came into force, the Commissioner was obliged to act under Section 35 for reassessment, even for periods before the commencement of the 1959 Act. The High Court agreed with the Tribunal's interpretation before the amendment of the Act in 1962.

3. Impact of the 1962 Amendment Act:
The Bombay Sales Tax (Gujarat Amendment) Act, 1962, amended Sections 35 and 77 of the 1959 Act, removing the overriding effect of Section 35 and validating proceedings under the earlier law. The State argued that this amendment revived the Commissioner's order, making it valid and effective despite the Tribunal's decision. However, the High Court noted that the amendment did not apply to proceedings that had already terminated in favor of the assessee before the amendment came into force. Thus, the Tribunal's decision remained unaffected by the amendment.

4. Validity of the Commissioner's Order:
The High Court found that the Commissioner's order disclosed an error of law apparent on the face of the record. The Commissioner wrongly applied the test of volume and frequency as a decisive factor and gave undue importance to the collection of sales tax and obtaining certificates in "L" Form. The Court reiterated that the correct test involved the presence of a profit-motive, which was absent in this case. Consequently, the Commissioner's order was quashed.

5. Tribunal's Interpretation and Decision:
The Tribunal held that the proceedings under Section 31 of the 1953 Act were misconceived due to the saving provisions of the 1959 Act. The High Court agreed with this interpretation before the amendment. However, since the second contention regarding the error of law in the Commissioner's order was upheld, the Court did not need to address the third contention regarding the Tribunal's error.

Conclusion:
The High Court quashed the order of the Commissioner of Sales Tax, holding that the sales were casual and not part of the business activity of the petitioners. The petitioners were entitled to a refund of the tax paid, and the petition was allowed with costs awarded to the petitioners.

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