1995 (11) TMI 399 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of penalty under section 43(1) of the M.P. General Sales Tax Act, 1958 for non-inclusion of sales of unserviceable items and purchases on account of canteen in returns.
2. Determination of whether unserviceable items sold were part of the business of the assessee.
3. Consideration of whether the act of the assessee was bona fide and without mens rea in imposing the penalty.

Analysis:
1. The case involved a sales tax reference concerning the imposition of a penalty under section 43(1) of the M.P. General Sales Tax Act, 1958 for non-inclusion of sales of unserviceable items and purchases on account of canteen in returns. The Tribunal confirmed the penalty, leading to the reference to the High Court for resolution. The primary question was whether the Tribunal was justified in upholding the penalty considering the debatable nature of the inclusion of these items in the returns.

2. The assessee, a public sector undertaking engaged in the production and sale of aluminum, disposed of unserviceable items and made purchases for the canteen during the assessment period. The Tribunal observed that the taxability of purchases for the canteen had not been decided, rendering the reference on this matter infructuous. However, the focus remained on whether the unserviceable items sold were part of the business of the assessee. The definition of "business" under the Act was crucial in determining the inclusion of such items in the turnover.

3. The High Court referred to various precedents, including the case of Burmah Shell Co. Ltd., to establish that sales incidental to the trading activity of the assessee are taxable. The consistent view was that any material connected with or incidental to the business is liable to tax. Although the unserviceable items sold may not have been directly involved in the business, they were deemed part of the turnover. The Court held that the scraps sold were includible in the taxable turnover and thus exigible to tax, ruling in favor of the Revenue and against the assessee.

4. However, the question of the assessee's mens rea and the bona fide nature of their actions was raised. Citing relevant case law, the Court acknowledged the debatable nature of including such scraps in the taxable turnover. Considering the peculiar circumstances of the case and the absence of a guilty mind on the part of the public sector undertaking, the Court concluded that the levy of a penalty was not justified. While affirming the inclusion of scraps in the turnover, the Court held that the penalty was unwarranted, ultimately answering the reference accordingly.