1987 (7) TMI 542 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of the definition of "business" under the M.P. General Sales Tax Act and Central Sales Tax Act for the period 1958 to 1963.
2. Taxability of sales of discarded machinery, chemicals, scrap, empty drums, unsuitable, and unserviceable stores by a public limited company engaged in the manufacture of cloth and yarn.
3. Application of profit motive in determining tax liability on sales of miscellaneous items.
4. Legal significance of frequency, continuity, and regularity of transactions in establishing a profit motive for sales.

Analysis:

1. The judgment concerns multiple references made under the M.P. General Sales Tax Act, 1958, and the Central Sales Tax Act, 1956, regarding the taxability of sales of various materials by a company engaged in the manufacture of cloth and yarn. The central question posed to the court was whether the sales of discarded machinery, chemicals, scrap, empty drums, and unsuitable stores were liable to tax under the given circumstances.

2. The court noted that the definition of "business" was crucial in determining the tax liability for the relevant period (1958 to 1963). The petitioner argued that since the definition of "business" was not explicitly defined during that period, the subsequent definition inserted in the Acts should not apply retroactively. This argument was not disputed by the respondents.

3. The petitioner contended that the sales in question were not made with a profit motive and were more akin to casual sales rather than part of their regular business activities. The court analyzed previous decisions and emphasized that the profit motive is essential in determining tax liability. It was highlighted that the mere act of selling surplus or discarded items does not automatically imply a profit motive unless there is evidence to support such a claim.

4. The court emphasized the need for a profit motive to exist in the series of transactions to consider them as part of the business activities. It was clarified that the intention to carry on business in a specific commodity must be inferred from the volume, frequency, continuity, and regularity of transactions. In the absence of concrete evidence demonstrating a profit motive behind the sales of the materials in question, the court ruled in favor of the assessee, stating that the sales were not liable to tax.

5. In conclusion, the court answered the reference in favor of the assessee, stating that the sales of discarded machinery, chemicals, scrap, empty drums, and unsuitable stores were not liable to tax based on the absence of a profit motive in the transactions. The judgment underscored the importance of establishing a profit motive in determining the taxability of sales, especially when dealing with materials not directly related to the core business activities of the assessee.