9911796707
TMI Blog1976 (4) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... any registered under the Indian Companies Act, 1882, and has its registered office at Bara Hindu Road, Delhi. It runs the following factories at Delhi: (a) The Delhi Cloth Mills, (b) S.D. Mills, (c) D.C.M. Silk Mills, (d) D.C.M. Chemical Works and (e) D.C.M. Manufacturing Works. As required by section 46 of the Factories Act, 1948, read with rule 68 of the Delhi Factories Rules, 1950, the company set up canteens in its factories mentioned above on a non-profit basis. The company has been registered as a dealer under section 7 of the Sales Tax Act in respect of the business carried on by it in the aforesaid factories. As such, it has to submit quarterly returns of its turnover of the sales effected by the said factories. In the quarterly returns of its turnover of the sales for the assessment year 1958-59, the company did not include the receipts in respect of the sales effected in the canteens on the ground that the said canteens were being run in compliance with a statutory obligation without any profitmotive and, as such, the company could not be said to be carrying on business as a runner of canteens, that it was not, therefore, a dealer so far as the sales effected in the can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 6th June, 1964. The company filed Revision Petition No. R-218 of 1964-65 under section 20(3) of the Sales Tax Act before the Assistant Commissioner of Sales Tax. During the pendency of the revision petition for the assessment year 1958-59, which was subsequently decided by the Additional District Judge, the petitioner had also submitted returns for the turnover for the assessment years 1960-61, 1961-62, 1962-63 and 1963-64. In those returns also, it did not include the receipts from the sales in the canteens. The assessing authority assessed the sales tax on the aforesaid turnovers without including the receipts from the sales in the canteens by his order dated 30th December, 1967. The company then received a notice dated 4th March, 1968, from the Commissioner of Sales Tax under section 20(3) of the Sales Tax Act stating that he proposed to revise, of his own motion, the assessment order dated 30th December, 1967, passed by the assessing authority for the period from 1st April, 1963, to 30th March, 1964, on the ground that the said order of assessment was erroneous inasmuch as no tax had been levied on the sales effected in respect of the canteens run by the company. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... canteen in the taxable turnover of the company. The company thereupon filed Civil Writ Petition No. 251 of 1971 praying that the said assessment order be quashed, and that a direction be issued that the receipts from the sales in the canteen are not liable to be included in the taxable turnover of the company for the purposes of assessment to sales tax for the assessment year 1966-67 and for the future assessment years. Similarly, on the assessing authority passing an order dated 15th March, 1972, in respect of the assessment year 1969-70 and an assessment order dated 31st January, 1975, in respect of the assessment year 1970-71 including the receipts from the sales in the canteen in the taxable turnover of the company, the company has filed Civil Writ Petitions Nos. 350 of 1972 and 278 of 1975 respectively, praying that the said assessment orders may be quashed. In respect of the assessment years 1960-61 and 1962-63, on the assessing authority including the receipts from the sales in the canteen by its orders dated 16th February, 1965, and 18th October, 1966, respectively, the company preferred appeals Nos. 43 of 1965-66 and 1110 of 1966-67 to the Assistant Commissioner of Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax Act provides for the incidence of taxation under the Act as under: "With effect from such date as the Chief Commissioner may, by notification in the official Gazette, appoint, being not earlier than thirty days after the date of the said notification, every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the date so notified..........." It will be seen that an assessee has to be a "dealer" before the charging section 4(1) becomes applicable. The term "dealer" is defined in section 2(c) of the Sales Tax Act, as it stood at the relevant time, as meaning: "Any person who carries on the business of selling goods in the Union Territory of Delhi and includes the Government." The term "sale", with its grammatical variations and cognate expressions, is defined in section 2(g) of the said Act as meaning: "any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on hire-purchase or other system of payment by instalments, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st thereof against the wages, which it had to pay to them. The question arose as to whether the assessee-company was liable to pay sales tax on the value of the foodgrains supplied to the workmen. After referring to the definition of "dealer" in the Madras General Sales Tax Act (No. 9 of 1939), which was similar to the definition in the Bengal Finance (Sales Tax) Act, as extended to the Union Territory of Delhi, and after considering certain English decisions, a Division Bench of the High Court of Madras (Satyanarayana Rao and Rajagopalan, JJ.) held that the word "business" employed in the definition of "dealer" in the Madras General Sales Tax Act was used in the sense of buying or selling with a view to earn profit, that in the case before them the supply of foodgrains to the workmen by the assessee was not carried out with a view to earn profit, and that the assessee was not, therefore, a "dealer" within the meaning of the Act so far as the supply of foodgrains was concerned and was not liable to sales tax on the value of the foodgrains. In Sree Meenakshi Mills Ltd. v. State of Madras[1954] 5 S.T.C. 291., the assessee-company was running canteens for the benefit of its employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be assessed to sales tax." The learned Judges referred also to the decisions in the cases of Gannon Dunkerley Co.[1954] 5 S.T.C. 216. and Sree Meenakshi Mills Ltd.[1954] 5 S.T.C. 291. In Davanagere Cotton Mills Ltd. v. State of Mysore[1957] 8 S.T.C. 793., a Division Bench of the High Court of Mysore (Sreenivasa Rao and Hombe Gowda, JJ.) held that where the assessee-mills maintained a canteen on a "no-profit-no-loss basis" for the benefit of the employees in conformity with the requirements of the Factories Act, the turnover relating to the sales effected in the canteen was not liable to be taxed under the Mysore Sales Tax Act (No. 46 of 1948). Though a reference was made to the provision in section 46 of the Factories Act and the Rules thereunder, there was no discussion as regards the effect of the said provision in the Factories Act and the Rules. The conclusion of the learned Judges was based on the view that the Act did not seek to levy sales tax on all transactions but only on such transactions as are effected in the course of business, i.e., for commercial purposes with a view to earn profit, following the view taken by the Madras High Court in the three decisions, we ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court referred to the definition of "dealer" in section 2(6) of the Bombay Sales Tax Act (3 of 1953), as meaning "any person who carries on the business of selling goods in the State of Bombay, whether for commission, remuneration or otherwise..." and observed as follows: "As pointed out by this court in State of Andhra Pradesh v. Abdul Bakshi Bros.[1964] 15 S.T.C. 644 (S.C.)., a person to be a dealer must be engaged in the business of buying or selling or supplying goods. The expression 'business' though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, 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. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decision in State of Andhra Pradesh v. Abdul Bakshi Bros.[1964] 15 S.T.C. 644 (S.C.)., and held that the assessees in the case before it were registered dealers who consumed the materials otherwise than in the manufacture of goods for sale and for a profit-motive, and that on the plain words of the section in the Madhya Pradesh General Sales Tax Act (No. 2 of 1959), the purchase price was taxable. In Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal[1970] 26 S.T.C. 141., a Division Bench of the High Court of Calcutta (P.B. Mukharji, Aug. C.J., and T.K. Basu, J.) was dealing with section 2(1a) of the Bengal Finance (Sales Tax) Act (No. 6 of 1941), as amended by the West Bengal Taxation Laws (Amendment) Act (No. 25 of 1969), according to which, the term "business" would include business carried on without a profitmotive. The decision cannot, therefore, be of assistance in the case before us. In Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Men's Indian Association, Madras[1970] 26 S.T.C. 241 (S.C.)., the Supreme Court was not concerned with the question whether in the absence of a profit-motive the transactions of sale can be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich profit-motive was unnecessary to constitute "business". This decision also is, therefore, not of assistance in the case before us. State of Tamil Nadu v. Burmah-Shell Oil Storage and Distributing Co. of India Ltd.[1973] 31 S.T.C. 426 (S.C.)., is again a case in which the Supreme Court of India held that under the Madras General Sales Tax Act, 1959, before its amendment in 1964, transactions in which there was no profit-motive were not liable to tax, while canteen sales after 31st August, 1964, in view of the amendment of the definition of "business" in 1964 in section 2(d) of the said Act, were liable to sales tax. In Union of India v. State of Punjab[1974] 34 S.T.C. 394. , a Division Bench of the High Court of Punjab and Haryana (D.K. Mahajan and Pritam Singh Pattar, JJ.) held that the Union of India owning the Northern Railway Departmental Catering was selling foodstuffs in the canteen on no-profit-no-loss basis, and was not, therefore, a "dealer" within the meaning of section 2(d) of the Punjab General Sales Tax Act (No. 46 of 1948). In Tata Iron Steel Co. Ltd. v. State of Orissa[1975] 35 S.T.C. 195., a Division Bench of the High Court of Orissa (G.K. Misra, C.J., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods by the railways is only incidental and ancillary and not as business of selling goods, and that when effecting sales of unclaimed goods under section 56 of the Railways Act, a railway is not a "dealer" within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act (No. 6 of 1941). In State of Andhra Pradesh v. Hotel Sri Lakshmi Bhavan, Visakhapatnam[1974] 33 S.T.C. 444; 1974 Tax. L.R. 1719., a Division Bench of the High Court of Andhra Pradesh (Kondaiah and Sriramulu, JJ.) held that the definition of "business" under section 2(bbb) of the Andhra Pradesh General Sales Tax Act (No. 6 of 1957), as amended in 1966, whereby the element of profit-motive or gain was made an unnecessary ingredient for a sale to be assessable to sales tax, being prospective, was not applicable to the facts of the case before them. In State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd., Madras[1974] 33 S.T.C. 506; 1974 Tax. L.R. 2289., a Division Bench of the High Court of Madras (Ramanujam and V. Ramaswami, JJ.) following the decision of the Supreme Court in State of Tamil Nadu v. Burmah-Shell Oil Storage[1973] 31 S.T.C. 426 (S.C.). held that after the amendment of the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new Act. Mr. Wazir Singh, the learned counsel for the sales tax authorities in some of the cases, sought to argue that even if profit-motive is essential for business, the profit need not be in the activity or transactions of sale in the canteens, if there is profit in the main activity of running the factory, as they are all integrated activities. In support of this argument, the learned counsel referred us to the decision in Tata Iron Steel Co. Ltd. v. State of Orissa[1975] 35 S.T.C. 195. In that case, the assessee-company was engaged in the business of mining limestone from a quarry. Under the Mines Rules, the company had to maintain a canteen for supplying articles of food to the employees engaged in the quarry. The food and drinks in the canteen were being sold only to the employees of the mine not only on no-profit basis but at a subsidised rate whereby the management incurred a loss in the relevant year. The question was whether the company was carrying on the business of selling food and drinks in the canteen, and the sales in the canteen were liable to sales tax. A Division Bench of the High Court of Orissa (G.K. Misra, C.J., and B.K. Ray, J.) held (1) that the runnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a dealer, and that the legislature had not made sale of the very article bought by a person a condition for treating him as a dealer, but the definition merely required that the buying of the commodity must be in the course of business, i.e., must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. The Supreme Court held that it could not be said in that case that tanning bark was bought by the assessee for the purpose unconnected with the business carried on by it, viz., manufacture and sale of the dressed hides and skins, and that consumption in the business and not sale of the commodity bought, therefore, did not exclude the assessee from the definition of dealer qua the tanning bark. Thus, the Supreme Court referred to the "integrated activity of buying and disposal" in the context of the inclusion of the price of the tanning bark bought by the assessee in the course of its business of tanning and selling tanned skins and hides, and observed that the price should be included in the turnover as the tanning bark was bought in the course of business "for sale or use with a view to make profit out of the integrated activity of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising in the course of, the manufacturing process. It was in that context that the Supreme Court observed as follows: "Whether a person carries on a business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression 'profit-motive', it is not intended that profit must, in fact, be earned nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive may be easily discernible in some transactions; in others it would have to be inferred from a review of the circumstances attendant upon the transaction ......But no test is decisive of the intention to carry on the business; in the light of all the circumstances, an inference that a person desires to carry on the business of selling goods may be raised." The Division Bench in the case of Tata Iron Steel Co. Ltd.[19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Iron Steel Co. Ltd.[1975] 35 S.T.C. 195. that the running of the canteen was an integral component part of the mining business must be taken to have been based on the facts of that case, and not as a general proposition that in all cases the running of a canteen is an integral component part of the main activity of the assessee. The said decision cannot, therefore, be of any assistance to the learned counsel. Mr. Chawla, the learned counsel for the sales tax authorities in some of the cases, sought to argue that section 4 of the Sales Tax Act is the charging section, that under that section "all sales" are to be taxed, that the term "business" does not occur in the section, and that all sales are, therefore, liable to tax whether there is profit-motive or not. The argument ignores that though the word "business" does not occur in section 4, the term "dealer" occurs in it, and the term "dealer" has been defined in the Act as one who carries on the "business of selling goods". The concept of "business" is thus brought in by the use of the term "dealer" and, consequently, the requirement of profit-motive is attracted. There is thus no force in the argument. The second reason u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5., the learned Judges referred to the contention that the assessee before them was obliged to establish and maintain a canteen by reason of the provisions in section 46 of the Factories Act and rule 68 of the U.P. Factories Rules, 1950, and that the transactions in the canteen were not "transactions of sale" as understood in the Sale of Goods Act, and hence not liable to sales tax. The learned Judges pointed out that in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.[1958] 9 S.T.C. 353 (S.C.)., the Supreme Court held that the power conferred by entry No. 48 of List II was restricted to enacting legislation imposing tax liability in respect of sale of goods as understood in the Sale of Goods Act, 1930, and that the Provincial Legislature under the Government of India Act, 1935, had no power to tax the transaction, which was not a sale of goods, as understood in the Sale of Goods Act. They also pointed out that in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar(1), the Supreme Court reiterated the above view and also held that "as observed by Benjamin in the 8th edition of his work on 'Sale' 'to constitute a valid sale there must be a concurrence of the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties never came in contact as contracting parties and the despatch of sugar did not result in any sale of goods. The learned Judges observed that while it was manifest in the case before the Supreme Court that individual transactions themselves were controlled and the parties had no volition or choice in making the transactions themselves, in the case before them, at the point of time when the transactions take place, namely, when a particular refreshment or drink is supplied in the canteen, there was no control by any outsider. The learned Judges further observed that the assessee-company displayed the goods in the canteen for the use of its workmen and thereby invited offers from the workmen, that the workmen were free to visit or not to visit the canteen and when they visit the canteen and took the goods, they voluntarily made an offer, that the canteen then accepted the offer and made the supply on payment of the price on the happening of which a contract resulted and the property in the goods passed, that at the point of time when the transactions took place, the parties came into contact and did enter into a contract of sale voluntarily and that, in their opinion, the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Controller forwarded the indent to the producer for delivery of the material in accordance with any general or special directions of the Iron and Steel Controller. But, in that case, there was no evidence regarding any general or special order issued by the Controller excepting that fixing the base price. The work-order issued by the producer provided that all orders booked were subject to the producer's terms of business and general understanding in force at the time of booking the orders and despatch of goods. It was left to the producer to supply the goods ordered at its convenience and the producer was willing to change by mutual agreement even the specifications of the goods to be supplied. It was also open to the producer to fix the time and mode of payment of the price of the goods supplied. The Supreme Court pointed out that as laid down by it in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.[1958] 9 S.T.C. 353 (S.C.)., to constitute a valid sale there has to be concurrence of the following elements, viz., (i) parties competent to contract, (ii) mutual assent, (iii) a thing, the absolute or general property in which was transferred from the seller to the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, in the cases of Indian Steel and Wire Products Ltd.(5) and Andhra Sugars Ltd.(2), it was held that when the goods, supply of which is controlled by statutory orders, are delivered pursuant to a contract of sale, the principle of the case in New India Sugar Mills Ltd.(3) has no application. As regards the case before them, the Supreme Court held that there was an agreement of sale between the parties competent to contract, in pursuance of the agreement of sale, property in the goods supplied passed to the purchaser for the price agreed to be paid, and that the transaction was, therefore, one of sale of goods within the meaning of the Rajasthan Sales Tax Act. In Chittar Mal Narain Das v. Commissioner of Sales Tax, U.P.[1970] 26 S.T.C. 344 (S.C.)., under clause 3 of the U.P. Wheat Procurement (Levy) Order, 1959, every licensed dealer was directed to "sell" to the State Government at controlled prices (i) 50 per cent of wheat held in stock by him at the commencement of the Order and (ii) 50 per cent of wheat procured or purchased by him every day beginning with the date of commencement of the Order until such time as the State Government otherwise directed. The wheat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the said agreement, the factory agreed to buy and the grower agreed to sell, the quantity to be bought and sold was cultivated or to be cultivated by the grower, delivery was to be at the factory and in such lots, on such dates, and at such times as shall be agreed upon, the grower could ask for advance payments, the sugarcane was to be accepted after inspection and there was scope for rejection of goods. The Supreme Court held on those facts that the orders regulating the supply and distribution of goods did not absolutely impinge on the freedom to enter into contract, that delimiting areas for transactions or parties or denoting prices for transactions were all within the area of individual freedom of contract with limited choice, that in the cases before them the parties were certain and definite, the property in the goods was transferred from the grower to the factory and there was consideration for the transfer, that the statutory orders required the parties to enter into agreements and the agreements contained intrinsic evidence that the growers agreed to sell and the factories agreed to buy, that there was offer, inspection and appropriation of goods to the contract, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the committee. The learned Judges observed that it could thus be seen from the Act and the Rules that while the occupier of a factory is obliged to maintain a canteen and serve food and drink on a non-profit basis, there was a large amount of discretion in all other matters such as the choice of food and drink to be served, the prices at which they may be served, the time when they may be served, etc., that in those matters, the voice of the managing committee was of an advisor only, and that having regard to those circumstances they were of the opinion that the transactions of supply of food and drink to workmen in the canteen maintained by the company in pursuance of the Indian Factories Act and the Rules were "sales" for the purposes of the Andhra Pradesh General Sales Tax Act. In Food Corporation of India, Cochin v. State of Kerala[1974] 34 S.T.C. 189., a Division Bench of the High Court of Kerala (P. Govindan Nair, C.J., and V. Balakrishna Eradi, J.) held that under the Fertiliser (Control) Order, 1957, the procedure followed for the distribution of the fertilisers was that indents would be placed by the State Governments with the Food Corporation of India specifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same for the use of the workers, and supply food and drink, etc., to them by reason of the provisions in section 46 of the Factories Act and rule 65 of the Delhi Factories Rules, 1950. But, so far as the actual transactions in the canteens between the assessees and the workers are concerned, rule 68(1) prescribes that the food, drink and other items served in the canteen shall be sold on a non-profit basis and the prices charged shall be subject to the approval of the canteen managing committee. Rule 70 prescribes that the manager shall appoint a canteen managing committee, which shall be consulted from time to time as to (a) quality and quantity of the foodstuffs to be served in the canteen; (b) the arrangement of the menus; (c) times of meals in the canteen; and (d) any other matter as may be directed by the committee. It has to be noted that the canteen managing committee merely approves the prices to be charged for the various items served in the canteen, and it is again merely consulted as to the quality and quantity of the foodstuffs to be served, the arrangement of the menus, the times of meals, and such other matters. It is the manager of the factory of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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