1985 (12) TMI 348 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the insurance company is a "dealer" within the meaning of section 2(c) of the U.P. Sales Tax Act.
2. Whether the activities carried on by the insurance company constitute "business" as defined in section 2(aa) of the U.P. Sales Tax Act.
3. Whether the sale of salvage by the insurance company is exigible to sales tax.

Issue-wise Detailed Analysis:

1. Definition of "Dealer":
The primary issue is whether the insurance company qualifies as a "dealer" under section 2(c) of the U.P. Sales Tax Act. The Act defines a "dealer" as any person engaged in the business of buying, selling, supplying, or distributing goods, directly or indirectly, for cash or deferred payment or for commission, remuneration, or other valuable consideration. The insurance company argued that it does not engage in such activities and hence, should not be classified as a dealer.

2. Definition of "Business":
The second issue is whether the activities of the insurance company fall under the definition of "business" as per section 2(aa) of the Act. The Act defines "business" to include any trade, commerce, manufacture, or any adventure or concern in the nature of trade, commerce, or manufacture, whether or not carried on with a profit motive. The insurance company contended that its primary activity is to provide services and indemnify customers against loss, which is not akin to buying or selling goods.

3. Applicability of Sales Tax on Salvage Sales:
The third issue revolves around whether the sale of salvage by the insurance company is subject to sales tax. The insurance company occasionally sells salvage obtained from settled motor claims by inviting quotations. It argued that such sales are incidental and not frequent enough to be considered a business activity.

Analysis and Judgment:

1. Not a "Dealer":
The court analyzed the definitions and concluded that the insurance company does not fit the definition of a "dealer." The court referenced the Madras High Court's decision in New India Assurance Company Limited v. Deputy Commercial Tax Officer, where it was held that an insurance company selling a damaged motor car acquired through settlement of claims does not qualify as a "dealer." The court also cited the Supreme Court's decision in State of Gujarat v. Raipur Manufacturing Co. Ltd., which emphasized that occasional sales of discarded items do not constitute carrying on a business of selling goods.

2. Not Engaged in "Business":
The court concluded that the insurance company's activities do not constitute "business" as defined in section 2(aa) of the Act. The court distinguished the insurance company's activities from those of the Northern Railway in District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer, where the Supreme Court held that sales of unserviceable materials by the railway were ancillary to its commercial activities. The court emphasized that the insurance company's primary purpose is to provide services, not to engage in commerce or trade.

3. Occasional Sales Not Taxable:
The court agreed with the insurance company's argument that the sale of salvage is occasional and incidental to its main activity of providing insurance services. The court referenced the Gujarat High Court's decision in Mehsana District Shanker-4 Seeds Produce and Sale Cooperative Society Ltd. v. State of Gujarat, which held that the dominant factor in determining whether an activity is a business is whether the service rendered is the primary objective, with sales being incidental.

Conclusion:
The court concluded that the insurance company is not a "dealer" within the meaning of section 2(c) of the Act and its activities do not constitute "business" as defined in section 2(aa) of the Act. Consequently, the sale of salvage by the insurance company is not subject to sales tax. The revisions were allowed, and the order of the Tribunal was set aside, with no order as to costs.

Petitions allowed.