1970 (4) TMI 132 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the proceeds of the sales made through the canteen run by the petitioner for the benefit of its employees should form any part of the petitioner's turnover.

Issue-Wise Detailed Analysis:

1. Statutory Obligation and Business Definition:
The dealer, Fort Gloster Industries Limited, included Rs. 46,258 as canteen sales in its gross turnover for the period ending 31st March 1957. The company claimed exemption for Rs. 15,426 under section 5(2)(a)(i) of the Bengal Finance (Sales Tax) Act, 1941, arguing that the sales were not made in the course of its business of selling goods (jute) and lacked profit-motive. The Commercial Tax Officer allowed only 50% of the claim, and subsequent appeals and revisions upheld the partial exemption.

2. Board of Revenue's Decision and Doubts:
The Board of Revenue, despite doubting the correctness of its previous decisions, followed the precedent that canteen sales are liable to be taxed. This was based on earlier cases (Nos. 61 of 1957 and 208 of 1958) where it was held that such sales are taxable.

3. Dealer's Arguments:
The dealer's main arguments were:
- The company's articles of association did not authorize running a canteen.
- The canteen was run under a statutory obligation (section 46 of the Factories Act, 1948) and not as a business.
- The canteen was operated for the benefit of workers, often at a loss, and was not part of the company's business.
- The definitions of "dealer," "sale," and "business" did not apply to the canteen sales as they lacked the profit-motive and were not part of the company's business activities.

4. Additional Commissioner's Rejection:
The Additional Commissioner rejected these arguments, distinguishing the Bengal Sales Tax Act from other states' acts (e.g., Madras Act). He concluded that sales under the Bengal Act were not limited to those made in the course of trade or business, thus including non-commercial sales without profit-motive.

5. Legal Complexity and Relevant Law:
The Supreme Court in Commissioner of Sales Tax, U.P. v. Bijli Cotton Mills, Hathras, U.P. (1964) laid down that the relevant law applicable to a transaction is the law in force at the time of the transaction. However, if the law is amended with retroactive effect, the High Court must apply the amended law. The Bengal amendment in question, which included business without profit, was retrospective but did not explicitly override past transactions.

6. Vires of the Amendment:
The amendment's validity was questioned, arguing that the State Legislature exceeded its competence by including non-commercial sales without profit-motive within the definition of "business." The Supreme Court decisions in Young Men's Indian Association v. Joint Commercial Tax Officer (1963) and New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar (1963) supported the view that "sale of goods" must be understood in the commercial sense as per the Sale of Goods Act, 1930.

7. High Court's Jurisdiction on Vires:
The Supreme Court in K.S. Venkataraman & Co. (P.) Ltd. v. State of Madras (1966) held that taxing authorities and tribunals could not decide on the vires of statutory provisions. This principle was extended to the High Court in its advisory jurisdiction under the Sales Tax Act, indicating that the High Court could not decide on the vires of the Bengal amendment in a reference proceeding.

8. Interpretation of the Amended Section 2(1a):
The High Court interpreted the amended section 2(1a) of the Bengal Finance (Sales Tax) Act, 1941, to mean that the basic condition of trade, commerce, manufacture, adventure, or concern must be satisfied before any tax can be attracted. The running of the canteen was not considered a business of the dealer-company under its charter of incorporation, and it was a statutory obligation under the Factories Act, 1948, rather than a commercial activity.

9. Conclusion:
The High Court concluded that the sale proceeds from the canteen did not form part of the dealer's turnover and were not liable to tax under the Bengal Finance (Sales Tax) Act, 1941. The canteen was operated as a welfare activity under statutory obligation and not as a business. The question was answered in the negative in favor of the dealer-assessee, with no costs awarded to either party.

Judgment:
Reference answered accordingly.