1990 (10) TMI 344 - HC - VAT and Sales Tax

Summary

Issues:
Sales tax liability on the sale of buses and autorickshaw by a transport company. Whether sales were incidental to the business and exempt from tax.

Analysis:
The judgment pertains to a batch of sales tax revision petitions concerning the liability of a transport company for sales of buses and an autorickshaw. The central question raised was whether the sales of these vehicles, particularly the autorickshaw claimed to be unserviceable, were subject to tax under the Karnataka Sales Tax Act. The company, engaged in operating buses, sold vehicles periodically, with exemption claimed for some sales. However, the tax authority subjected the sale of an autorickshaw to tax under section 5(3)(a) of the Act. The key issue was whether these sales were incidental to the company's business of passenger transport services or not.

The Court examined the nature of the sales in question and the company's explanations. It was noted that the company did not assert that the vehicles were sold as scrap, and details regarding the condition and specifications of the vehicles were lacking. The Revenue contended that the sales were not incidental to the business of passenger transport services. Reference was made to Supreme Court decisions regarding the definition of "business" and the inclusion of incidental transactions within the scope of business activities.

The Court considered the arguments presented by the company's counsel, emphasizing the need to maintain the company's reputation through occasional vehicle sales. However, the Court referenced a Supreme Court case highlighting the importance of frequency and volume of transactions in determining business activities. It was concluded that the replacement of vehicles by the company was part of its business and not merely occasional or unrelated sales.

Ultimately, the Court held that the sale of buses, even those not taxed on their first sale in the State, could not be excluded from the company's turnover. The autorickshaw sale, not directly linked to passenger transport, was deemed exempt. The judgment differentiated between incidental sales related to the primary business, as in the case of the transport company, and sales for other purposes. The Court referred to precedents involving timber sales for plantation establishment to illustrate the concept of incidental sales in business operations.

In conclusion, the Court allowed one petition, quashed the assessment order for a specific year, and dismissed other petitions, affirming the tax liability on sales integral to the company's transport business. The judgment highlighted the distinction between incidental sales and those unrelated to the core business activities, providing clarity on the tax treatment of such transactions.