1966 (12) TMI 57 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the Southern Railway's operation of refreshment rooms constitutes a "business" under the Madras General Sales Tax Act.
2. Whether the absence of a profit motive exempts the Southern Railway from sales tax liability.
3. The applicability of Section 9 of the Madras General Sales Tax (Second Amendment) Act, 1964, in validating the sales tax assessment.

Issue-wise Detailed Analysis:

1. Whether the Southern Railway's operation of refreshment rooms constitutes a "business" under the Madras General Sales Tax Act:

The petitioner, Southern Railway, contended that its operation of refreshment rooms did not constitute a business of buying or selling foodstuffs or refreshments but was merely an activity undertaken to provide amenities to passengers. The Railway argued that these operations were run on a non-profit basis, with prices equivalent to the cost of production and administrative charges. However, the State of Madras countered that the continuous course of selling food and refreshments by the Railway constituted "business" within the definition of "sale" in the Madras General Sales Tax Act. The court referred to the relevant provisions of the Act, including Section 2(d) defining "business" and Section 2(g) defining "dealer." The court concluded that the activity of catering to passengers was an integral part of the Railway's transport business, involving elements of continuity, frequency, and regularity similar to private catering businesses, thereby constituting a business activity.

2. Whether the absence of a profit motive exempts the Southern Railway from sales tax liability:

The Railway argued that the absence of a profit motive in its catering operations should exempt it from sales tax liability. The court examined the historical context and amendments to the Madras General Sales Tax Act. Prior to the amendments in 1962 and 1964, a profit motive was necessary for an activity to be considered a business. However, the 1964 amendment to Section 2(d) redefined "business" to include activities "whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit." The court cited previous decisions, including K.C.P. Ltd. v. State of Madras and Southern Railway Employees' Workshop Canteen v. Deputy Commercial Tax Officer, to support the view that an activity could be considered a business even without a profit motive if it exhibited regularity and continuity. The court concluded that the Railway's catering activity, despite being non-profit, was a business activity subject to sales tax.

3. The applicability of Section 9 of the Madras General Sales Tax (Second Amendment) Act, 1964, in validating the sales tax assessment:

The Railway contended that Section 9 of the 1964 Act, which validated past levies of sales tax, should not apply to its catering operations. The court examined the language of Section 9, which stated that any tax levied or collected "whether or not it is carried on with a motive to make gain or profit" shall be deemed valid. The court concluded that Section 9 validated the sales tax assessments retrospectively, even if the transactions were not carried out with a profit motive. The court emphasized that the catering activity was integrated with the Railway's transport activity and formed part of its business. Therefore, the sales tax assessments for the periods 1959-60, 1960-61, and 1961-62 were valid under Section 9 of the 1964 Act.

Conclusion:

The court dismissed the petitions, holding that the Southern Railway's catering operations constituted a business activity subject to sales tax, regardless of the profit motive. The retrospective validation provided by Section 9 of the 1964 Act upheld the sales tax assessments for the relevant periods. The petitions were dismissed without any order as to costs.

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