1978 (8) TMI 192 - HC - VAT and Sales Tax

Summary

Issues:
Whether the Cantonment Board is considered a 'dealer' under the U.P. Sales Tax Act for the assessment years 1965-66, 1966-67, and 1967-68 based on its sales activities.

Analysis:
The dispute centered around the sales activities of the Cantonment Board, Meerut, involving the sale of fallen trees, fruits, grass, night-soil, water, cement, iron, and steel. The assessing authority initially classified the Board as a dealer and taxed its turnover for the assessment year 1965-66. However, the Judge (Revisions) overturned this decision, stating that the primary function of the Board was to oversee the welfare of its jurisdiction, and the sales were not conducted as a business or commercial activity.

The critical issue revolved around whether the Cantonment Board met the definition of a 'dealer' under section 2(c) of the U.P. Sales Tax Act. The definition of a dealer requires the activity of buying or selling goods to be conducted as a business. While the Act does not explicitly define 'business,' it includes activities carried out without the motive of profit. However, for an activity to be classified as a business, it must resemble a commercial activity akin to that of a trader, involving volume, frequency, continuity, and regularity.

The judgment highlighted that the sales made by the Board were incidental to its statutory duty of providing local administration within its jurisdiction. Citing a precedent, it was emphasized that for an activity to be considered a business, it must be a commercial activity and not merely incidental to the fundamental duty of the entity. The sporadic nature of the sales and their non-systematic organization indicated that they did not meet the criteria of a business activity.

Regarding the supply of cement, iron, and steel to contractors for construction works, the judgment clarified that these transactions did not involve an element of sale as the materials were utilized for the Board's own construction projects. Drawing from a previous case law, it was established that activities incidental to the fundamental duty of the entity do not qualify as business activities.

Conclusively, the judgment answered the question in favor of the assessee, ruling that the Cantonment Board was not a 'dealer' for the purpose of sales tax assessment. The Board was deemed to be entitled to costs, and the reference was resolved in the affirmative in favor of the assessee.