1987 (8) TMI 414 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of unserviceable items of stores.
2. Definition and scope of "business" under the M.P. General Sales Tax Act, 1958.
3. Determination of whether the assessee qualifies as a "dealer."
4. Impact of tax-free status of cloth on the assessee's tax liability.
5. Whether the sale of obsolete machinery constitutes a taxable event.
6. Taxability of coal ash as a by-product.

Issue-wise Detailed Analysis:

1. Taxability of Unserviceable Items of Stores:
The Tribunal referred the question of whether unserviceable items such as scrap, dyes, chemicals, broken iron hoops, obsolete machinery, coal ash, etc., were exigible to tax. The court affirmed the Tribunal's decision that these items were taxable. The court noted that the sale of these items was connected with or incidental to the assessee's business of manufacturing cloth and yarn, thus falling within the definition of "business" under section 2(bb)(ii) of the Act.

2. Definition and Scope of "Business":
The court examined the definition of "business" as per section 2(bb) of the Act, which includes any trade, commerce, manufacture, or any transaction incidental or ancillary to such activities, irrespective of profit motive. The court emphasized that the sale of unserviceable items was incidental to the assessee's manufacturing business, making these transactions taxable under the Act.

3. Determination of Whether the Assessee Qualifies as a "Dealer":
The court concluded that the assessee, engaged in the manufacture and sale of cloth and yarn, qualifies as a "dealer" under section 2(d) of the Act. The court rejected the assessee's argument that its main business of manufacturing tax-free cloth excluded it from being a dealer. The court highlighted that the assessee also sold yarn, which is not tax-free, further solidifying its status as a dealer.

4. Impact of Tax-Free Status of Cloth on the Assessee's Tax Liability:
The court clarified that while the sale of cloth, being tax-free, would not contribute to taxable turnover, it still forms part of the gross turnover. The taxable turnover is determined by deducting the sale price of tax-free goods from the gross turnover. The court emphasized that the assessee was required to file returns reflecting its gross turnover, including sales of tax-free cloth and other taxable items.

5. Whether the Sale of Obsolete Machinery Constitutes a Taxable Event:
The court addressed the argument that obsolete machinery, being a capital asset, should not be taxed under the Act. The court distinguished between taxes on the capital value of assets (entry 86 of List I) and taxes on the sale or purchase of goods (entry 54 of List II). The court held that the sale of obsolete machinery, being a transaction incidental to the assessee's business, was taxable under the Act.

6. Taxability of Coal Ash as a By-Product:
The court upheld the Tribunal's finding that coal ash, resulting from the burning of coal in boilers, undergoes a manufacturing process and is a by-product distinct from coal. Therefore, coal ash is considered a separate taxable item.

Conclusion:
The court answered the reference in the affirmative, holding that unserviceable items of stores, including scrap, dyes, chemicals, broken iron hoops, obsolete machinery, coal ash, etc., were exigible to tax. The court ruled in favor of the Revenue and against the assessee, with no order as to costs.