1995 (10) TMI 204 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the transfer of plant and machinery, finished goods, raw materials, etc., after the dissolution of the firm and formation of a new company, constitutes a "sale" in the course of business under section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957.
2. Whether the proceeds from such a transfer are liable to be included in the taxable turnover and subject to sales tax.

Issue-Wise Detailed Analysis:

Issue 1: Definition of "Sale" and "Business" under the Act

The primary issue was whether the transfer of assets (plant, machinery, finished goods, etc.) after the dissolution of the firm and the formation of a new company could be treated as a "sale" in the course of business under section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957. The court examined the definitions of "sale," "business," and "turnover" under section 2(1) of the Act.

The term "sale" was defined as "every transfer of the property in goods whether as such goods or in any other form in pursuance of a contract or otherwise by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration." The term "business" included "any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure, or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain, or profit accrues therefrom; and any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern."

The court concluded that the definition of "business" was broad enough to include any commercial activity connected with or incidental to the business of the dealer, and thus, the transfer of assets was considered a "sale" in the course of business.

Issue 2: Liability of Proceeds from Transfer to Tax

The court then addressed whether the proceeds from such a transfer should be included in the taxable turnover and subject to sales tax. The Commercial Tax Officer initially brought the amount of Rs. 9,59,455.28 to tax, rejecting the appellant's objection that the items were sold after the closure of the unit and could not be treated as a "sale."

On appeal, the Deputy Commissioner of Commercial Taxes accepted the appellant's contention and excluded the turnover from tax. However, the respondent, exercising revisional powers, set aside the appellate authority's order and restored the Commercial Tax Officer's order, holding that the transaction fell within the ambit of "business" and "sale" under the Act.

The court referred to several precedents, including the Supreme Court's decision in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd., which held that even commercial transactions carried out without a profit motive could be included in the definition of "business." The court also noted that the sale of assets during the winding up of a firm, before the actual closure of business, should be treated as a sale in the course of business.

The court further explained that under rule 6(h) of the Andhra Pradesh General Sales Tax Rules, the proceeds from the sale of the business as a whole are not exempt from taxation, except for the amount realized from the sale of goodwill if sold separately. Since the goodwill was not separately valued and sold, the turnover from the sale of plant and machinery, finished goods, etc., was liable to be taxed.

The court distinguished the present case from other cited cases where the sale of business as a whole was exempted from tax, noting that in the instant case, each item was valued separately and sold, and there was no sale of business as such to the new company.

Conclusion

The court held that the transfer of plant and machinery, fittings, raw materials, laboratory equipment, stock of stores, furniture, and car was incidental to and connected with the closure of business on the dissolution of the firm and was "in the course of business" within the meaning of section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957. Consequently, the proceeds from such a transfer were liable to tax. The special appeal was dismissed, and the Commissioner of Commercial Taxes' order was upheld.

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