1967 (11) TMI 102 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether the Madhya Pradesh Electricity Board is a "dealer" under the relevant Sales Tax Acts.
2. Taxability of turnover from the sale of coal-ash.
3. Taxability of turnover from the supply of steam.
4. Taxability of turnover from the sale of specification and tender forms.
5. Liability for purchase tax on goods bought from unregistered dealers.

Issue-Wise Detailed Analysis:

1. Dealer Status of Madhya Pradesh Electricity Board:

The primary issue was whether the Madhya Pradesh Electricity Board (the Board) qualifies as a "dealer" under section 2(c) of the C.P. and Berar Sales Tax Act, 1947, and section 2(d) of the M.P. General Sales Tax Act, 1958, in relation to its activities of generating, distributing, selling, and supplying electrical energy. The Tribunal had concluded that the Board did not engage in these activities with a profit motive but rather to promote coordinated development efficiently and economically. However, the Court disagreed, noting that the Board's operations under the Electricity (Supply) Act, 1948, are indeed carried out with a view to earn profits, as evidenced by sections 59, 67, and 80 of the Act, which emphasize the Board's obligation to avoid losses and distribute profits. Despite this, the Court ultimately held that electrical energy does not fall within the definition of "goods" under the Sales Tax Acts, and therefore, the Board cannot be considered a "dealer" in this context.

2. Taxability of Turnover from Sale of Coal-Ash:

The Court addressed whether the turnover from the sale of coal-ash, a by-product of the Board's thermal power generation, is subject to sales tax. The Tribunal had previously ruled that these sales were not taxable, as the Board did not produce coal-ash for sale. The Court, however, referenced the Supreme Court's decision in The State of Gujarat v. Raipur Manufacturing Co. Ltd., which established that regular and continuous sales of a by-product indicate an intention to carry on business in that product. Given the regularity and continuity of the Board's coal-ash sales, the Court concluded that these transactions are indeed subject to sales tax.

3. Taxability of Turnover from Supply of Steam:

The Court examined whether the supply of steam by the Board to Nepa Mills is taxable. The Tribunal had found that steam is not "goods" and that the supply was an isolated transaction conducted on a "no profit, no loss" basis. The Court, however, determined that steam qualifies as "goods" under the Sales Tax Acts, as it is a tangible, movable property. Despite this, the Court upheld the Tribunal's finding that the supply of steam was not taxable due to the lack of a profit motive, as the arrangement was based on the cost of coal consumed and included reimbursement for any losses incurred by the Board.

4. Taxability of Turnover from Sale of Specification and Tender Forms:

The Court considered whether the sale of specification and tender forms by the Board is taxable. The Tribunal had ruled that these forms are not marketable goods and that their sale did not involve a profit motive. The Court agreed, noting that the forms were provided to individuals submitting tenders for Board contracts and that the Board did not engage in the business of selling these forms. Consequently, the turnover from these sales is not subject to sales tax.

5. Liability for Purchase Tax on Goods from Unregistered Dealers:

The final issue was whether the Board is liable for purchase tax on goods bought from unregistered dealers for activities not directly related to its main business of generating, distributing, and supplying electricity. Given the Court's determination that the Board is not a "dealer" concerning its electrical energy activities, it concluded that the Board is not liable for purchase tax under section 4(6) of the C.P. and Berar Sales Tax Act, 1947, or section 7 of the M.P. General Sales Tax Act, 1958, as these provisions apply only to registered dealers purchasing taxable goods free of taxes.

Conclusion:

The Court provided the following answers to the referred questions:

1. The Board is not a "dealer" under the relevant Sales Tax Acts for its electrical energy activities.
2. The turnover from the sale of coal-ash is liable to sales tax.
3. The turnover from the supply of steam is not taxable.
4. The turnover from the sale of specification and tender forms is not taxable.
5. The Board is not liable for purchase tax on goods bought from unregistered dealers.

The Court left the parties to bear their own costs for these references.