1995 (1) TMI 324 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of sales of used motor cars by the assessee under section 2(5A) of the Bombay Sales Tax Act, 1959.
2. Interpretation and application of the definition of "business" u/s 2(5A) of the Act.
3. Relevance of the Supreme Court's decision in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 post the amendment of section 2(5A).

Summary:

Issue 1: Taxability of Sales of Used Motor Cars
The primary question was whether the Tribunal was justified in confirming the levy of tax on the sales of three used motor cars by the assessee, who was a manufacturer of chemicals and not a dealer in motor cars. The Tribunal had held the sales taxable, considering them incidental or ancillary to the assessee's business. However, the High Court concluded that the sales of used or discarded cars by the assessee did not amount to sales by a dealer within the meaning of section 3 read with clauses (11) and (5A) of section 2 of the Bombay Sales Tax Act, 1959. The Court emphasized that such sales were not part of or incidental to the main business of manufacturing and selling chemicals.

Issue 2: Interpretation of "Business" u/s 2(5A)
The Court analyzed the definition of "business" u/s 2(5A) of the Act, which includes any trade, commerce, or manufacture and any transaction incidental or ancillary to such activities. The Court held that the definition did not nullify the principles laid down by the Supreme Court in Raipur Manufacturing Co. [1967] 19 STC 1. Specifically, the sale of fixed assets or discarded goods acquired in the course of business cannot be considered transactions incidental or ancillary to the main business of manufacturing and selling chemicals.

Issue 3: Relevance of Supreme Court's Decision
The Court extensively referred to the Supreme Court's decision in Raipur Manufacturing Co. [1967] 19 STC 1, which established that a person must carry on the business of selling a commodity before the turnover from the sale of that commodity is taxable. The Court reaffirmed that the principles from this decision remain relevant despite the amendment of section 2(5A). The Court noted that the legislative intent was not to levy tax on all sales made by a dealer but only on sales connected with or incidental to the business of selling goods.

Conclusion:
The High Court answered the reference in the negative, holding that the sales of the three used motor cars by the assessee were not taxable under the Bombay Sales Tax Act, 1959, as they were not incidental or ancillary to the assessee's main business of manufacturing and selling chemicals. The Court made no order as to costs.