1985 (1) TMI 287 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether the services rendered at the petitioner's canteen, in compliance with the provisions of the Factories Act and the Mines Act, involved any element of sale?
2. Whether, on the facts and in the circumstances of the case, the petitioner was a dealer in respect of the canteen sale and liable to sales tax?

Issue-wise Detailed Analysis:

Issue I: Whether the services rendered at the petitioner's canteen, in compliance with the provisions of the Factories Act and the Mines Act, involved any element of sale?

The court addressed this issue by referencing the settled law in Vishnu Agencies (Private) Limited v. Commercial Tax Officer [1978] 42 STC 31 (SC); AIR 1978 SC 449, which concluded that "a transaction which is effected in compliance with the obligatory terms of a statute may nevertheless be a sale in the eye of the law." Therefore, the court affirmed that the services rendered at the petitioner's canteen did involve an element of sale. The answer to question No. I was rendered in the affirmative, i.e., in favor of the Revenue and against the assessee.

Issue II: Whether, on the facts and in the circumstances of the case, the petitioner was a dealer in respect of the canteen sale and liable to sales tax?

The court delved into whether the petitioner could be considered a "dealer" under section 2(f) of the Bihar Sales Tax Act, 1959, as it stood unamended in the year 1962-63. The petitioner argued that to be classified as a dealer, there must be a business with a profit motive or at least an element of commercial character, which was absent in this case since the canteens were run on a no-profit-no-loss basis due to statutory obligations.

The court noted that the statutory definitions required a person to be engaged in a business or sustained commercial activity to be deemed a dealer. The court cited precedents such as Director of Supplies and Disposals, Calcutta v. Member, Board of Revenue, West Bengal [1967] 20 STC 398 (SC) and State of Gujarat v. Raipur Manufacturing Company Ltd. [1967] 19 STC 1 (SC), which emphasized that a business must have a profit motive, even if no profit is actually made.

The court highlighted three key premises:
1. The statutory obligation under the Factories Act and Mines Act mandated the maintenance of canteens, eliminating voluntary engagement in the business of selling foodstuffs.
2. The canteens were run without any profit motive, as required by law.
3. The Memorandum and Articles of Association of the company did not authorize it to run canteens as a business.

The court concluded that merely complying with statutory obligations does not constitute engaging in a business. The petitioner-company was not carrying on the business of running canteens and, therefore, could not be considered a dealer under section 2(f) of the Act.

The court also referred to binding precedents from the Supreme Court, such as State of Tamil Nadu v. Thirumagal Mills Limited [1972] 29 STC 290 (SC) and State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Company of India Limited [1973] 31 STC 426 (SC), which supported the view that running canteens under statutory obligations did not make the company a dealer liable for sales tax.

The court overruled the Division Bench judgment in Commissioner of Commercial Taxes, Bihar v. Burn and Company Limited (Tax Case No. 58 of 1966) and expressed dissent from the Orissa High Court's judgment in Tata Iron and Steel Company Limited v. State of Orissa [1975] 35 STC 195, which had taken a contrary view.

Finally, the court held that the petitioner was not a dealer under section 2(f) of the Act in respect of the canteen sales and was consequently not liable to sales tax. The answer to question No. II was rendered in the negative, i.e., in favor of the assessee and against the Revenue.

Separate Judgments:

UDAY SINHA, J. - I agree.

NAZIR AHMAD, J. - I agree.