1991 (1) TMI 399 - AT - VAT and Sales Tax

Summary

Issues:
Interpretation of the term "business" under section 2(1a) of the Bengal Finance (Sales Tax) Act, 1941 regarding sales tax liability after business closure.

Analysis:
The case involved a reference under section 21(1) of the Bengal Finance (Sales Tax) Act, 1941, regarding the tax liability of sales made after the closure of a business. The matter was initially referred to the High Court, Calcutta, by the West Bengal Commercial Taxes Tribunal to decide whether sales of raw materials, stores, and old machinery in West Bengal, amounting to Rs. 41,469.39, were subject to tax under the Bengal Finance (Sales Tax) Act, 1941, even though the business had been closed. The West Bengal Taxation Tribunal later took over the reference under section 15 of the West Bengal Taxation Tribunal Act, 1987.

The facts leading to the reference indicated that the dealer, M/s. Krudd Industries Ltd., had not submitted a return for the relevant period but had produced financial documents showing sales of raw materials, stores, and old machinery. The Commercial Tax Officer assessed a portion of these sales to tax under the Bengal Finance (Sales Tax) Act, 1941, which was upheld by the Assistant Commissioner. However, the West Bengal Commercial Taxes Tribunal, in a revision against the appellate order, ruled that the sales in question were not liable for sales tax.

The Tribunal reasoned that if a business is closed, sales made thereafter cannot be considered part of the business for tax purposes. Even though the definition of "business" under the Act includes transactions related to trade, commerce, or manufacture, such transactions must be connected to an active business. In this case, since the business had been closed in 1965, the sales of raw materials, stores, and old machinery in 1968 could not be deemed incidental or ancillary to the closed business. Therefore, the sales were not subject to tax under the Act.

Ultimately, the reference was answered in the affirmative in favor of the assessee, indicating that the sales in question were not exigible to tax. The case was disposed of with no order as to costs, and the decision of the West Bengal Taxation Tribunal stood, exempting the sales from sales tax liability.