2017 (9) TMI 593 - HC - VAT and Sales Tax

Sales tax - services of civil aviation including the running of aircraft, ferrying of passengers and goods through air routes in both the domestic and international sectors - As part of running its business, it sells scrap, depleted parts and sometimes even out-dated or unused aircraft - whether petitioner is liable to pay sales tax on such sales, under the Delhi Sales Tax Act, 1975? - Held that - matter referred to Larger Bench to decide the issue Whether the sale of unserviceable (rejected) aircraft and unserviceable stores, scrap and spare parts by the Petitioner are amenable to Sales Tax under the provisions of the Delhi Sales Tax Act, 1975? - matter referred to Larger Bench.

Issues Involved:
1. Liability of Air India to pay sales tax on sales of scrap, depleted parts, and unused aircraft under the Delhi Sales Tax Act, 1975.
2. Applicability of the judgment in Commissioner of Sales Tax vs. DTC (1996) to Air India.
3. Re-assessment of sales tax for Assessment Years (AY) 1994-95, 1995-96, 1996-97, and 1997-98.
4. Definition and scope of "business" and "dealer" under Sections 2(c) and 2(e) of the DST Act.
5. Determination of whether the sale of scrap and old aircraft is incidental or ancillary to Air India's main activity.
6. Applicability of interest and penalty under Section 27(1) of the DST Act.

Detailed Analysis:

1. Liability of Air India to Pay Sales Tax:
The primary issue is whether Air India is liable to pay sales tax on the sale of scrap, depleted parts, and unused aircraft under the DST Act. The court examined whether these sales are part of Air India's business activities and therefore subject to sales tax.

2. Applicability of the DTC Judgment:
Air India relied on the judgment in Commissioner of Sales Tax vs. DTC (1996) to argue that its services are similar to those of the Delhi Transport Corporation (DTC) and thus not liable for sales tax. The Tribunal, however, found that Air India's case is different from DTC's, as Air India's activities include buying, selling, and dealing in aircraft, which are considered part of its business. The Tribunal concluded that Air India is a dealer "qua the sale of old aircrafts/scraps."

3. Re-assessment for AYs 1994-95 to 1997-98:
The re-assessments for AYs 1994-95 to 1997-98 were upheld by the Tribunal, which found that the sales of scrap and old aircraft were incidental and ancillary to Air India's main business. The Tribunal referred several questions to the High Court, including whether Air India's activities constitute "commerce" under Section 2(c) of the DST Act and whether the sales of scrap and old aircraft are incidental to its business.

4. Definition and Scope of "Business" and "Dealer":
Sections 2(c) and 2(e) of the DST Act define "business" and "dealer." The court examined whether Air India's sale of scrap and old aircraft falls under these definitions. The court noted that "business" includes any trade, commerce, or manufacture, and any transaction incidental or ancillary to such activities. A "dealer" is defined as any person who carries on the business of selling goods in Delhi.

5. Incidental or Ancillary Sales:
Air India argued that its main activity is civil aviation, and the sale of scrap and old aircraft is merely incidental and not subject to sales tax. The Tribunal and the Respondents, however, contended that these sales are regular and routine activities connected to Air India's business. The court considered whether the "dominant activity" test should be applied to determine if the sale of scrap constitutes "business" under Section 2(c)(ii).

6. Interest and Penalty:
The Tribunal referred additional questions regarding the applicability of interest and penalty under Section 27(1) of the DST Act. The court needed to decide whether Air India was liable for interest and penalty on the re-assessed sales tax.

Conclusion:
The court recognized the need to reconsider the judgment in DTC (1996) in light of the differences between Air India's activities and those of DTC. The court referred the following question to a Full Bench: "Whether the sale of unserviceable (rejected) aircraft and unserviceable stores, scrap, and spare parts by the Petitioner are amenable to Sales Tax under the provisions of the Delhi Sales Tax Act, 1975?" The petitions were placed before the Acting Chief Justice for the constitution of a larger Bench to address this question.

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