2004 (6) TMI 603 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the East Central Railway's catering services qualify as a "dealer" under section 2(e) of the Bihar Finance Act, 1981.
2. Whether the goods sold by the Railway's catering services are exempt from state taxation under Article 285(1) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Qualification of East Central Railway's Catering Services as a "Dealer":

The petitioner argued that the East Central Railway, which operates catering services, is not a dealer as defined under section 2(e) of the Bihar Finance Act, 1981. They contended that the goods sold by the Railway are properties of the Union of India and are supplied as passenger amenities without profit motive.

The State countered that the Railway Catering Services sell foodstuffs to employees and passengers for valuable consideration, thus fitting the definition of a "dealer" under section 2(e) of the Act. The definition includes any entity that buys, sells, supplies, or distributes goods for cash or other valuable consideration, whether in the course of business or not. Explanation II of the definition explicitly states that the Government, when engaged in such activities, shall be deemed a dealer.

The court examined the relevant provisions of the Act, including the definitions of "dealer," "goods," "sale," and "sale price." It concluded that the Railway sells goods for valuable consideration, making it a dealer under the Act, irrespective of whether the sale is in the course of business.

The court also reviewed the judgments cited by the petitioner, including the Punjab and Haryana High Court's decision in Union of India v. State of Punjab and the Supreme Court's affirmation in State of Punjab v. Union of India. These cases held that the Railway's catering services were not dealers under the Punjab General Sales Tax Act, 1948, due to the absence of profit motive. However, the court noted that the Bihar Finance Act's definition of "dealer" includes government entities selling goods for valuable consideration, making these precedents inapplicable.

2. Exemption from State Taxation under Article 285(1) of the Constitution of India:

The petitioner argued that the goods sold by the Railway's catering services are properties of the Union of India and thus exempt from state taxation under Article 285(1) of the Constitution of India.

The State contended that Article 285(1) exempts Union property from direct taxes imposed by the State but does not bar indirect taxes like sales tax. The tax under the Act is on the sale of goods, not on the goods themselves.

The court referred to the nine-Judge Bench decision in In re Sea Customs Act, 1878, and the Constitution Bench judgment in New Delhi Municipal Committee v. State of Punjab. These judgments clarified that Article 285 exempts Union property from direct taxes but not from indirect taxes such as sales tax. The court also cited the Supreme Court's decision in Collector of Customs v. State of West Bengal, which reaffirmed that sales tax is an indirect tax and not barred by Article 285(1).

Based on these precedents, the court held that the tax imposed on the sale of goods by the Railway's catering services is an indirect tax and not a direct tax on Union property. Therefore, Article 285(1) does not exempt the Railway from such taxation.

Conclusion:

The court dismissed the writ application, concluding that the East Central Railway's catering services qualify as a "dealer" under the Bihar Finance Act, 1981, and the goods sold by them are not exempt from state taxation under Article 285(1) of the Constitution of India. The tax imposed is on the act of sale, an indirect tax, and thus not barred by Article 285(1).

← Previous Next →