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TMI Blog1999 (3) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... e that there is any separate intention on the part of the Port Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of the Port Trust amounted to “carrying on business” and that these sales, even if they were incidental, fell within the meaning of the word “business”. The argument fails in view of our finding that the main activity is not one amounting to “carrying on business”. - Civil Appeal No. 1728 of 1999, W.A. No. 1015 of 1994 - - - Dated:- 26-3-1999 - JAGANNADHA RAO M. AND PHUKAN S.N. JJ. A.K. Ganguli, Senior Advocate (V. Krishnamurthy, V. Ramasubramanian and T. Harish Kumar, Advocates, with him), for the appellants. T.L. Viswanatha Iyer, S. Balakrishnan and Tapad Ray, Senior Advocates (S. Prasad, S.P. Mittal, Kumari Astha Tyagi, Ranjan Mukherjee, C.N. Sree Kumar and P. Sureshan, Advocates with them), for the appellants and intervenors. -------------------------------------------------- The judgment of the Court was delivered by M. JAGANNADHA RAO, J. -Leave granted. This appeal is preferred by the State of Tamil Nadu and the Commercial Tax Officer, Harbour-I, Assessment Circle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that a dealer would be any person who carried on the business of buying or selling goods. The definition did not say that it was not relevant whether the said person was carrying on business with or without profit-motive. In other words, profitmotive was treated, at that time, as an essential element of business. The High Court, therefore, held that inasmuch as the Port Trust was performing certain statutory functions and rendering duties without any intention to make profit, it was not a dealer within the definition of the said expression. 3.. The abovesaid statute of 1939 was replaced by the Tamil Nadu General Sales Tax Act, 1959. It contained a definition of business in section 2(d) and a definition of dealer in section 2(g). The definitions were amended from time to time. Section 2(d) which defined business did not initially state that the motive to gain or profit was not relevant. But the said sub-clause 2(d) was substituted by a new clause by the Madras Act No. 15 of 1964 which included within the said definition of business , the activity of carrying on business whether or not such business was carried on with a motive to make gain or profit. After the said am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Madras High Court in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135 would not come in his way, the second appellant namely, the Commercial Tax Officer issued a notice dated September 1, 1993 calling upon the Port Trust to register itself as a dealer under the Tamil Nadu General Sales Tax Act, 1959. The respondent then replied on October 26, 1993, relying upon the above judgment of the Madras High Court rendered in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135 and it contended that the amendment did not make any difference. Thereupon, the second appellant gave a further notice dated February 8, 1994 directing the respondent to furnish details of the auction sales conducted during the year 1993-94 up to April 1, 1993. In the said notice the respondent was asked to furnish the details of auction sales conducted during 1993-94 and the quantum of sales effected by way of auction commodity-wise, date-wise to the second appellant. It was at that stage that the Port Trust filed Writ Petition No. 5509 of 1994 contending that the Tamil Nadu General Sales Tax Act, 1959 did not apply to it and that the notices issued to them were without ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e refer to the auctions conducted by the Port Trust during 1993-94 and in the civil appeal it is stated in ground Nos. (i)(1) and (r) that the Port Trust is liable to pay sales tax in regard to the auctions of unclaimed or unserviceable goods including scrap. Therefore, the dispute was in relation to these items. 9.. Under the Tamil Nadu General Sales Tax Act, 1959, after the amendment by Madras Act No. 15 of 1964 and Tamil Nadu Act 31 of 1992, sub- clause (g) of section 2 defines dealer and in so far as it is material for the purpose of this case, reads as follows: Section 2(g): dealer means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, and includes- (i) a local authority.............which carries on such business; (ii).......................................... (iii) a factor,..........or an auctioneer, or any other mercantile agent by whatever name called, .............who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal, or through whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the definition of business in section 2(d) after the 1964 amendment, it does not matter whether the business is carried on without a motive to make profit or gain or whether profit has in fact accrued. 13.. Now the definition of business in section 2(d) and in most of the sales tax statutes is an inclusive definition and includes trade or business or manufacture, etc. . This itself shows that the Legislature has recognised that the word business is wider than the words trade, commerce or manufacture, etc. . The word business though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession -which occupies time, attention and labour of a person, normally with a profit- motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive and not for sport or pleasure (State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC); AIR 1965 SC 531). Even if such profit-motive is statutorily excluded from the definition of business yet the person could be doing business . 14.. The word carrying on business requires so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax statutes did not provide in the definition of business that profit-motive was irrelevant. Thus the profit-motive remained relevant. Nor did the statutes include in the definition of business sales in connection with or ancillary or incidental to the main business. 18.. In a large number of cases belonging to this first category the person was held not to be carrying on business if he was not doing business for profit, an element which, not being excluded, was to be treated as a basic component of business and, therefore, implied under various sales tax statutes. It was held in these cases that though trading activities were no doubt proved, there being no profit-motive involved in the relevant activity, the sales were not liable to sales tax, and the person could not be held to be carrying on business . To this line belonged Director of Supplies and Disposals, Calcutta v. Member, Board of Revenue, West Bengal, Calcutta [1967] 20 STC 398 (SC); AIR 1967 SC 1826 cited for the respondent-Port Trust, which related to disposal of war equipment taken over from the American forces in the second world war. The Directorate of Disposals which carried on the disposals was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h) the main business, even if they were of considerable volume and frequency. There was no proof that the mills intended to carry on business in unserviceable and discarded goods. However, in the same case, kolsi and waste caustic liquor which were sold regularly and continuously were held to be part of the business being subsidiary products of the main business of the textile mill and sales of these items were held liable to sales tax inasmuch as an intention to trade in these items could be presumed. Likewise in State of Gujarat v. Vivekanand Mills [1967] 19 STC 103 (SC), cited for the respondent-Port Trust, the mills purchased cotton locally believing that shipment from California would take six months time to arrive but the Californian cotton arrived suddenly and therefore the local cotton had to be sold to avoid blocking up of a large sum of money. It was held that it could not be inferred that the mills intended to carry on business in selling cotton. The sales were not liable to tax. Position was similar in State of Gujarat v. Arvind Mills Ltd. [1967] 19 STC 12 (SC) where sales of old containers such as cans, boxes, discarded stores, machinery and iron scrap, discarded h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as sales in connection with the main business for such a contingency was not part of the then definition of business . But in respect of the period after September 1, 1964 it was held that the addition of the words in section 2(d)(ii) of transactions in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern and the exclusion of profit-motive made the definition of business wider. It was, therefore, held that the scrap that was sold after September 1, 1964 was connected with the business of the company. The court distinguished Raipur Manufacturing Co. Ltd. case [1967] 19 STC 1 (SC); AIR 1967 SC 1066 on this ground. An argument was advanced for the assessee in that case that the word such in the inclusive part of the definition of business in section 2(d)(ii), viz., any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, etc. , governed the word trade , etc., and that a commercial element was intended to be part of the subsidiary sale transaction. But this contention was rejected by this Court holding that the word such referred to the concept of absence of profit-motive, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... workmen were on no profit basis. The company contended that it was only running a facility for its workmen and its main business was certainly not that of selling provisions. The issue related to 1967-68 after amendment of section 2(d) of the Madras Act. The argument that there should be a direct connection between the main business and these sales of provisions was rejected by this Court and it was held that these sales were incidental to the main business and covered by the amended definition of business in section 2(d). Bhagwati, J., (as he then was) adverted to the observations of Krishna Iyer, J., in Royal Talkies, Hyderabad v. Employees State Insurance Corporation [1978] 4 SCC 204, a decision under the ESI Act to the following effect: a thing is incidental to another, if it merely appertains to something else as primary. Surely, such work should not be extraneous or contrary to the purpose of the establishment but need not be integral to it either . It was pointed out that in the case relating to Royal Talkies [1978] 4 SCC 204, it was held that it was impossible to hold that a canteen or cycle stand or cinema magazine booth was not incidental to the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld newspapers, print waste and cut waste and these sales were treated as incidental or ancillary to the main business of printing and publishing of newspaper and liable to sales tax. These cases would be of help to the appellant, State of Tamil Nadu, if the main activity of the Port Trust amounted to business . 23.. Learned Senior Counsel for the appellant, State of Tamil Nadu contended that merely because the Port Trust was performing statutory functions or duties, it could not be contended that there was no business in the eye of the law. It was pointed out that even the Central Government and State Governments had been brought within the purview of the definition of dealer in section 2(g) by way of an explanation. Similarly, compulsory sales under control orders had also been brought within the tax net. 24.. It is true that in Explanation (2) to section 2(g) which defines dealer , the Central Government and State Governments have been brought within the definition of dealer in certain respects. In District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC), relied upon for the appellant, State of Tamil Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of cement by a distributor to a permit holder in terms of the West Bengal Cement Control Act and Control Order to find out if they amounted to sale within section 2(g) of the Bengal Finance (Sales Tax) Act, 1941. The case was also concerned with the compulsory sales of paddy by paddy growers to licensed agents appointed by the State Government under the A.P. Paddy Procurement (Levy) Orders. The issue related to the absence of a consensual option as between the parties to the bargain. It was held that a transaction effected in compliance with the obligations imposed by statute might nevertheless be a sale in the eye of the law, so long as mutual assent, express or implied, was not excluded. There was no obligation for a trader to deal with business in these controlled goods. But once a dealer opted, he was bound to trade strictly within the terms of the control orders. Further though the terms were mostly pre-determined by statute, it could not be said that there was no area or scope for parties to bargain. Thus, these sales were held liable to sales tax. These decisions could help the appellant, State of Tamil Nadu, if the main activity of the Port Trust amounted to busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to business unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the Revenue. It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not business and the onus of proof of an independent intention to do business in these connected, incidental and ancillary sales will rest on the department. If, for example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course the case would fall under the first category referred to earlier. 29.. We shall now refer to a few decided cases where such questions have arisen and which have been cited for the respondent, Port Trust. 30.. One of the earliest of the cases where the object or purpose of the main activities fell for consideration was the case decided by the Chagla, C.J., in the Bombay High Court in State of Bombay v. Ahmedabad Education Society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oil-seeds and groundnuts . He was having agriculture for the purpose of earning income from the fields but there was nothing to show that he acquired the lands with the primary intention of doing business of selling or buying agricultural produce. This decision was approved by this Court in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Travancore Rubber Tea Co. [1967] 20 STC 520, and it was held that where the only facts established were that the assessee converted latex tapped from rubber trees into sheets and effected a sale of those sheets to its customers, the conversion of latex into sheets being a process essential for transport and marketing of the produce, the department had failed to prove that the assessee was formed with a commercial purpose. The Allahabad High Court in Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer [1964] 15 STC 505 was dealing with a batch of cases where different bodies were running canteens. One of the cases concerned the Aligarh Muslim University which was maintaining dining halls where it was serving food and refreshments to its residents-students. It was held, referring to observations of this Court in University of Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am v. State of Madras [1972] 29 STC 266 (Mad.), the dispute arose with regard to the sales of silverware, etc., which are customarily deposited in the hundis by devotees. It was held by the Madras High Court that the Devasthanam s main activities were religious in nature and these sales were not liable to tax. (No doubt, the case related to a period where the profit-motive was not excluded by statute). We are of the view that all these decisions involve the general principle that the main activity must be business and these rulings do support the case of the respondent-Port Trust. 32.. Finally, we come to the Naval Dock Yard case in Base Repair Organisation (Now Naval Dockyard), Visakhapatnam v. State of A.P. [1983] 53 STC 223 (AP). Here the Naval Dock Yard was established for repairing and servicing ships of the Navy. It was obliged by section 46 of the Factories Act to run a canteen to cater to the needs of its employees and the canteen was run on no-profit no-loss basis. It was held that the sales in the canteen were not liable to sales tax. It was held as follows: It should be noticed that the canteen is not only being run in discharge of a statutory obligation, but that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude such sales in the main business. The second part of the last extract starting with the words but the converse is not true , is to be modified to mean that if the main activity falling under sub-clause (i) did not amount to business, normally these sales made in connection with or were incidental or ancillary to the main activity would not be business but there could still be an exception where the sales so connected or incidental or ancillary to the main non-business activity were proved to have been made with an independent intention to do business and the burden of proof to prove the exception would fall on the Revenue. In our view, the Andhra Pradesh High Court did not, in the above passage, imply that even where the main activities were not business, the assessee must prove want of an intention to carry on business in the connected, incidental or ancillary activity which involved sales. It is possible, in exceptional cases that such latter sales could per se be business having been proved by the revenue to have been carried on with such an explicit intention. The burden, as already stated, would here lie on the Revenue. 35.. Then the learned Senior Counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case Chandrachud, J. (as he then was) observed (at page 735) as follows: Port Trusts do not do the business of warehousing goods and the rates which the Board charges for storage of goods are not levied as a means of collecting revenue. The Board is under a statutory obligation to render services of various kinds and those services have to be rendered not for the personal benefit of this or that importer but in the larger national interests. The above observations clearly show that Port Trusts are not established for carrying on business. 38.. Coming to the Major Port Trusts Act, 1963 (before amendment by Act 15 of 1997), Chapter V refers to Works and Services to be Provided by Ports (sections 35 to 47), while Chapter VI deals with Imposition and Recovery of Rates at Ports (sections 48 to 65). Section 35(a) refers to various works and appliances to be provided by the ports, namely, wharves, quays, docks, stage, jetties, piers, etc., within the port or port approaches or on the foreshore of the port or port approaches, with all convenient articles, drains, landing places, stains, fences, roads, railways, bridges, tunnels and approaches and buildings required for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirements of sections 37, 39 and 42 ships come to the ports and carry goods outside or bring goods inside our country. Under section 43, the Board is liable for the loss, destruction or deterioration of goods of which it has taken charge in the manner provided in the sections. Under section 44, accommodation is to be provided for customs officers in the wharves, etc. Chapter VI deals with imposition and recovery of rates at ports. Sections 48 to 57 deal with the rates. 41.. The more important provisions for the present purpose are those in sections 58 to 65 in Chapter VI. They deal with the Board s lien for rates on the goods which, in enforcement of the lien could be seized and detained till such rates and rents are fully paid. Section 61 refers to sale of goods after 2 months if rates or rent are not paid or lien for freight is not discharged. Section 62 refers to disposal of goods not removed from premises of Board. Section 63 mentions how the sale proceeds are to be dealt with-in payment of liens, claims, other charges, demurrages, penalties, etc. 42.. From the above provisions, in our opinion, it is clear that the Port Trust is not involved in any activity of carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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