2012 (4) TMI 550 - HC - VAT and Sales Tax

Activity of rendering telecommunication service - whether the Tribunal was legally justified in holding that the applicant s activity of rendering telecommunication service constitutes a commerce within the meaning of the term in the definition of business in the said section 2(5A) and that therefore the said activity constitutes business for the purpose of the Bombay Act? Whether the Tribunal was legally justified in holding that the appellant is a dealer carrying on business of buying or selling of goods and that therefore his sales of scrap material, etc., effected during the said periods are liable to tax under the Bombay Act? Held that - The decision of the Tribunal to the extent it holds that the main activity of the assessee, viz., providing telecommunication services constitutes business activity, being an issue not raised by any of the parties and not decided by the authorities below, the Sales Tax Tribunal was not justified in travelling beyond the scope of the appeal and decide an issue which was not the subject-matter of the appeal. Accordingly, while keeping the issue open, we hold that in the facts of the present case, the Tribunal was not justified in holding that the main activity of providing telecommunication services constitutes business under the Bombay Sales Tax Act. The first question is answered accordingly. In the present case, the specific case of the assessee was that selling the scrap materials was not the business of the assessee, that the Telegraph Act, 1885 under which the telecommunication services were rendered by the assessee specifically bars the assessee from carrying on any business activity and that the assessee has not collected tax on sale of scrap materials during the period in question. It is only at the insistence of the sales tax authorities the assessee has applied for and obtained registration with effect from January 31, 1985. Therefore, in the absence of any material to the contrary, the contention of the assessee that during the period in question tax has not been collected and paid on sale of scrap materials on the ground that such sales were not effected with a motive to make gain or profit could not be rejected and consequently the benefit of section 30(4) of the Maharashtra Act IX of 1989 could not be denied to the assessee. In the result, the second question is answered in the negative, i.e., in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Whether the activity of rendering telecommunication service constitutes "commerce" and hence "business" under section 2(5A) of the Bombay Sales Tax Act.
2. Whether the appellant is a "dealer" under section 2(11) of the Bombay Sales Tax Act and liable to tax on sales of scrap material.

Issue-wise Detailed Analysis:

1. Telecommunication Service as "Commerce" and "Business":
The Tribunal held that the applicant's activity of rendering telecommunication service constitutes "commerce" within the meaning of "business" under section 2(5A) of the Bombay Sales Tax Act. However, this court found that the main activity of providing telecommunication services was not considered as a business activity in the assessment orders for the relevant years. The Tribunal was not justified in expanding the scope of the appeal to include this issue, which was not raised by any party or decided by the authorities below. Therefore, the Tribunal's decision on this point was set aside, keeping the issue open for future consideration.

2. Appellant as a "Dealer" and Liability on Scrap Sales:
The Tribunal also held that the appellant is a "dealer" under section 2(11) of the Bombay Sales Tax Act and liable for tax on sales of scrap materials. The court examined the legislative amendments and found that the definition of "business" was amended with retrospective effect from August 16, 1985, to include activities incidental or ancillary to trade, commerce, or manufacture. However, for the period from April 1, 1976, to March 31, 1984, the appellant's sales of scrap materials were not considered business activities under the law as it stood then.

The court noted that the Explanation to section 2(11) introduced by Maharashtra Act 25 of 1985, which deemed certain entities as dealers for selling scrap materials, applied only from August 16, 1985. The retrospective amendment to the definition of "business" in section 2(5A) by the 1989 Act also applied from August 16, 1985. Therefore, the Tribunal erred in applying these provisions to transactions before this date.

Section 30 of the 1989 Act:
The court further analyzed section 30 of the 1989 Act, which validates assessments made under the amended provisions but grants immunity from tax for sales made without profit-motive before the amendment. Since the appellant did not collect tax on scrap sales before August 16, 1985, and the sales were not for profit, the appellant was entitled to this immunity.

Conclusion:
The court concluded that the Tribunal was not justified in holding the appellant liable for tax on scrap sales before August 16, 1985. The second question was answered in favor of the appellant, and all references were disposed of accordingly, with no order as to costs.