1997 (12) TMI 612 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Timing of the sale of the ship.
2. Imposition of sales tax and penalty based on section 2(5A) of the Bombay Sales Tax Act, 1959.
3. Liability to pay tax prior to the amendment of section 2(11) of the Bombay Sales Tax Act, 1959.
4. Classification of the sale of the tanker as a sale within the State under section 2(28) of the Bombay Sales Tax Act, 1959.

Detailed Analysis:

1. Timing of the Sale of the Ship
The Tribunal was questioned on whether the sale of the ship had taken place prior to May 6, 1985, considering the provisions of the Merchant Shipping Act, 1958, and the Sale of Goods Act, 1930. The Tribunal held that the sale occurred before this date, but this issue became academic due to the resolution of the third issue.

2. Imposition of Sales Tax and Penalty
The Tribunal confirmed the imposition of sales tax and penalty on the applicant based on section 2(5A) of the Bombay Sales Tax Act, 1959, and a public circular dated January 21, 1986. The applicant argued that no tax was collected from the Indian Navy, and the sale was of a capital asset, not subject to tax. However, the Tribunal and the Deputy Commissioner (Appeals) dismissed these contentions. This issue also became academic due to the resolution of the third issue.

3. Liability to Pay Tax Prior to Amendment
The core issue was whether the applicants were liable to pay tax prior to August 16, 1985, when an explanation was inserted in section 2(11) of the Bombay Sales Tax Act, 1959, making shipping companies liable as dealers. The Tribunal's decision was challenged, with the assessee arguing that the sale of a capital asset could not be taxed under the Act. The Court noted that the sale of a capital asset by a dealer was not connected with or incidental to the business of selling goods, as per the decision in Morarji Brothers (Import & Export) Pvt. Ltd. v. State of Maharashtra [1995] 99 STC 117. The Court also highlighted that the Maharashtra Ordinance No. 11 of 1996, and subsequent amendments, provided relief for past transactions involving sales of capital assets. The Court concluded that no tax could be levied on the sale of the ship, a capital asset, made prior to August 16, 1985. Therefore, question No. 3 was answered in the negative and in favor of the assessee.

4. Classification of the Sale as Within the State
The Tribunal was asked whether the sale of the tanker on the high seas was a sale within the State as defined by section 2(28) of the Bombay Sales Tax Act, 1959. This issue also became academic due to the resolution of the third issue.

Conclusion:
The Court concluded that no tax could be levied on the sale of the ship, a capital asset, made prior to August 16, 1985. Consequently, question No. 3 was answered in the negative and in favor of the assessee, rendering the other three questions academic and unanswered. The reference was disposed of accordingly with no order as to costs.