2009 (3) TMI 971 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, Tribunal is correct to apply the test of business to the transaction falling in clause (ii) of section 2(b) of the Orissa Sales Tax Act, 1947? Held that - In the present case, manufacturing and selling of iron, steel products, chemical fertilizers, etc., are the main business activities of the petitioner. It is a registered dealer both under the OST and CST Acts and it regularly pays tax on sale of these goods. It is an ongoing big business concern and sporadic/occasional sale of scrap materials and old unserviceable materials is obvious. It cannot be said that such transaction is not in connection with, or incidental or ancillary to the main business in terms of section 2(b)(ii) of the OST Act. Therefore, the sale of scrap materials and old unserviceable materials is liable to tax. Thus answer the question in negative, i.e., in favour of the petitioner-Revenue and against the dealer.

Summary

Issues Involved:
1. Applicability of the test of business to transactions under clause (ii) of section 2(b) of the Orissa Sales Tax Act, 1947.
2. Tax liability on the sale of scrap materials and unserviceable items by a registered dealer.

Issue-wise Detailed Analysis:

1. Applicability of the Test of Business:
The primary legal question was whether the Orissa Sales Tax Tribunal was correct in applying the test of business to transactions falling under clause (ii) of section 2(b) of the Orissa Sales Tax Act, 1947. The Tribunal had held that the sale of scrap materials and unserviceable items did not constitute business activities and thus were not taxable. However, the petitioner argued that any transaction incidental or ancillary to the main business should be taxable, regardless of frequency or profit motive. The court examined the definitions of "business," "casual dealer," and "dealer" under the OST Act, emphasizing that transactions incidental or ancillary to the main business also attract tax liability. The court concluded that the words "in connection with" or "incidental" or "ancillary" in section 2(b)(ii) broaden the scope of taxation, including incidental sales as part of "business."

2. Tax Liability on Sale of Scrap Materials:
The court analyzed whether the sale of scrap materials and unserviceable items by the opposite party, who is primarily engaged in manufacturing and selling iron, steel products, and chemical fertilizers, is liable to tax under the OST Act. The court referred to several precedents, including the Supreme Court's decisions in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Commissioner of Sales Tax v. Sai Publication Fund, which clarified that sales incidental to the main business are taxable. The court also noted that the sale of unserviceable stores and scrap by Northern Railway was held taxable in District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer. The court concluded that the sporadic sale of scrap materials by the opposite party is incidental to its main business and thus liable to tax. The court overruled its previous decisions in Steel Authority of India Limited v. State of Orissa (1988) and Steel Authority of India Ltd. v. State of Orissa (1999), which had exempted such sales from tax, citing the reversal of State of Orissa v. Orissa Road Transport Company Ltd. by the Supreme Court.

Conclusion:
The court answered the legal question in the negative, favoring the petitioner-Revenue and against the dealer. The sale of scrap materials and unserviceable items by the opposite party was deemed taxable under the OST Act. The tax revision was accordingly disposed of.