2012 (12) TMI 826 - HC - VAT and Sales Tax

Inclusion of sales transaction of the cars into total turnover - main business of the petitioner is manufacture and sale of pharmaceutical products - Held that - The vehicles are used by Petitioner company in the course of business which may not lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. The selling of used cars cannot by any stretch of the imagination be characterized as ancillary or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products. They were purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them, thus sold them. Their sales, in a sense are twice removed from the business of the assessee. They cannot be called incidental or ancillary to the manufacture and sale of pharmaceutical products, which the assesse is engaged in. The vehicles had already been taxed once under the first point tax regime then in cases of transactions which are redundant and cannot be considered under the definition of business as they were aimed mainly to get rid of old vehicles which are carried on by persons in normal course of their lives as well and previous orders of the Appellate Tribunal have also been in favour of the petitioner itself, the levy of sales tax on an already taxed vehicle with little relation to the business will give rise to an anomaly - thus the view taken regarding inclusion of the sales transaction of the cars in question, in the turnover of the petitioner is unsustainable in law - writ petition allowed.

Issues Involved:
1. Inclusion of the sale of cars in the total turnover for the relevant assessment year.
2. Applicability of previous Appellate Tribunal orders to the current case.
3. Interpretation of the definition of "business" and "turnover" under the Delhi Sales Tax Act, 1975.
4. Taxability of sales of used motor cars by a dealer engaged in a different primary business.
5. Impact of first-point tax regime on subsequent sales of already taxed vehicles.

Detailed Analysis:

Issue 1: Inclusion of the Sale of Cars in Total Turnover
The primary issue revolves around whether the consideration received from the sale of cars should be included in the total turnover of the petitioner, a pharmaceutical company, for the assessment year 2004-05. The Sales Tax Officer demanded tax on the sale of cars, asserting that these vehicles were used in connection with running the business and were sold after depreciation. The petitioner contended that these sales should not be included in the turnover as they were not part of its primary business activity.

Issue 2: Applicability of Previous Appellate Tribunal Orders
The petitioner argued that the impugned assessment order ignored previous Appellate Tribunal orders in similar cases, such as Powertron Products (2001-02) and L & T Finance Ltd (2003-04), where it was held that the tax paid on the purchase of cars in Delhi could not be taxed again upon their sale. The petitioner claimed that the respondent authorities did not provide reasons for disregarding these precedents.

Issue 3: Interpretation of "Business" and "Turnover"
The court examined the definitions under the Delhi Sales Tax Act, 1975, particularly Section 2 (c) for "business" and Section 2 (o) for "turnover." The definition of "business" includes any trade, commerce, or manufacture, and any transaction incidental or ancillary to such activities. The court cited the Supreme Court's judgment in State of Gujarat v. Raipur Manufacturing Co. Ltd, which clarified that the sale of unserviceable or discarded goods does not necessarily imply an intention to carry on business in those goods.

Issue 4: Taxability of Sales of Used Motor Cars
The petitioner relied on judgments like Morarji Bros. (I&E) Pvt. Ltd v. State of Maharashtra, where it was held that the sale of used motor cars by a dealer engaged in a different primary business did not amount to a sale by a dealer within the meaning of the Sales Tax Act. The court also referred to Base Repair Organisation (Naval Dockyard) v. State of A.P., where sales in a canteen run on a no-profit no-loss basis were not liable to sales tax, emphasizing that incidental activities not integral to the main business should not be taxed.

Issue 5: Impact of First-Point Tax Regime
The petitioner argued that the vehicles were purchased under a first-point tax regime, where tax was paid at the time of purchase. The court noted that the sale of these vehicles, which were not held for sale but for use, should not be taxed again. The court highlighted that the vehicles were sold after being used and were not part of the business of manufacturing and selling pharmaceutical products.

Conclusion:
The court concluded that the sale of used cars by the petitioner could not be considered "ancillary" or "incidental" to its primary business of manufacturing and selling pharmaceutical products. The cars were used for company purposes and sold after their utility had diminished. The court also noted that the vehicles had already been taxed once under the first-point tax regime, and taxing them again would create an anomaly. Consequently, the court quashed the impugned orders and allowed the writ petition, holding that the inclusion of the sales transaction of the cars in the turnover of the petitioner was unsustainable in law. There was no order as to costs.

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