1982 (8) TMI 199 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the assessee-society is a dealer under Section 2(10) of the Gujarat Sales Tax Act, 1969.
2. Whether the assessee-society's activities constitute "business" under Section 2(4) of the Gujarat Sales Tax Act, 1969.
3. Whether the assessee-society, acting as an agent for its agriculturist-members, is liable to be treated as a dealer.

Issue-Wise Detailed Analysis:

1. Whether the assessee-society is a dealer under Section 2(10) of the Gujarat Sales Tax Act, 1969:
The Tribunal held that the assessee-society was a dealer within the meaning of Section 2(10) of the Gujarat Sales Tax Act, 1969, and was liable to pay sales tax on the sales of cotton-seeds. The relevant objects of the assessee-society included producing, multiplying, and selling Shanker-4 cotton-seeds for members and non-members. The scheme of distribution and multiplication of seeds was wholly government-controlled. The assessee-society contended that it was not carrying on business but merely implementing a government scheme for the betterment of cotton quality. However, the Tribunal concluded that the assessee-society was a dealer because it bought and sold goods in connection with its business, even if the transactions were routed through it. The Tribunal's decision was based on the definition of "dealer" under the Gujarat Act, which includes any society that buys goods from or sells goods to its members or other persons.

2. Whether the assessee-society's activities constitute "business" under Section 2(4) of the Gujarat Sales Tax Act, 1969:
The definition of "business" under Section 2(4) of the Gujarat Act includes any trade, commerce, or manufacture, whether or not carried on with a profit motive. The assessee-society argued that its activities were in the nature of mere service and not business. The court examined the legal position under the Bombay Sales Tax Act, 1959, and noted that the Gujarat Act made a material departure by defining "business" and including exceptions to the definition of "dealer." The court emphasized that the essential characteristic of business is commercial activity undertaken with a set purpose of earning profit. The court concluded that the assessee-society's activities were in the nature of mere service, as they were designed to implement a government scheme for the betterment of cotton quality and not for commercial purposes.

3. Whether the assessee-society, acting as an agent for its agriculturist-members, is liable to be treated as a dealer:
The court considered whether the assessee-society could be held liable as a dealer if its agriculturist-members, who sell exclusively agricultural produce grown on their land, are not deemed to be dealers under Exception I to Section 2(10) of the Gujarat Act. The court referred to various decisions of different High Courts, which held that an agent's liability is coextensive with that of the principal. However, the court noted that no material was placed on record to establish that the cotton-seeds were exclusively the agricultural produce of the members grown on land cultivated by them personally. Therefore, the court concluded that the assessee-society could not invoke the principle of coextensive liability and claim that it was not a dealer.

Conclusion:
The court held that the assessee-society was not carrying on business and consequently could not be held to be a dealer. The essential purpose of the assessee-society's activity was to render service to its members by implementing a government scheme for the betterment of cotton quality. The court answered the reference in the negative, in favor of the assessee-society, and against the State Government. The State was directed to pay the costs of the reference to the assessee-society.