9911796707
TMI Blog1982 (8) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... y was registered under the Bombay Co-operative Societies Act, 1925, inter alia, for the objects specified in clause 2 of its bye-laws all of which need not be referred to. The relevant objects material for purposes of this reference are as specified in clauses 2, 5 and 9. The said objects, when translated into English, read as under: "2. To purchase, sell, take on hire, or for use, for the society, raw-goods, ready-goods, tools and machinery for the objects of the society, and to make necessary arrangement for godowns and sale centres for the said purpose. 5.. To produce, multiply and sell Shanker-4 cotton-seeds for the use of the members of the society as well as non-members. 9.. To obtain loans for production, multiplication and sale of the seeds, and for achieving the objects of the society." The scheme of distribution and multiplication of seeds is wholly a Government controlled one as found by the Tribunal from the following facts and circumstances: (a) Only an agriculturist having a cotton producing agricultural land and desirous of producing Shanker-4 quality of cotton can be a member of the assessee-society. (b) A list of such members is to be furnished to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile supplying the seeds to each of its members, collected Rs. 5 per kilogram in the nature of transport and other miscellaneous charges. Similary, while selling cotton-seeds separated from the cotton produced by each member, the assessee-society recovered, besides the price of cotton-seeds, a sum of Rs. 5.90 per kilogram comprising of Rs. 2.90 per kilogram on account of expenses of grading, ginning and insurance, Rs. 2 per kilogram as supervision charges and Re. 1 per kilogram as administration and other expenses. In other words, the assessee-society, while distributing the seeds received from the Government, recovered Rs. 5 per kilogram from its members as transportation and other miscellaneous expenses, and similarly while selling the cotton-seeds separated from the cotton of each of the members, recovered Rs. 5.90 per kilogram as supervision and administrative charges and other expenses for ginning and grading. The aforesaid recovery by the society of Rs. 5 from its members at the time of distribution of cotton-seeds supplied by the Government and Re. 1 as administrative expenses while selling the cotton-seeds separated from the cotton of each of the members are shown in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quality of cotton by distribution and multiplication of hybrid cotton seeds popularly known as "Shanker-4 cotton", and if, in course of achieving that purpose, the society has undertaken certain activities of sales and purchases and recovered charges to meet with the administrative and other incidental expenses, it cannot be said to be carrying on business, and therefore, liable as a dealer to pay tax. This contention did not find favour with the Sales Tax Officer who assessed the assessee-society which assessment was confirmed by the Assistant Commissioner of Sales Tax while dismissing the appeal. The assessee-society, therefore, carried the matter in second appeal before the Gujarat Sales Tax Tribunal. It was urged before the Tribunal on behalf of the assessee-society that at no stage of sale and supply the cotton-seeds received from the Government or from the members belonged to the assessee-society, though all the transactions were routed through it. The assessee, therefore, could not have been treated as a dealer under the Gujarat Act. The Tribunal did not agree with this contention and confirmed the order of the sales tax authorities that the assessee-society was rightly h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defines the terms "dealer" as well as "business" has made a material departure from those obtainable under the Bombay Sales Tax Act, 1959. Section 2(10) of the Gujarat Act defines the term "dealer" in the following terms: "2. (10) 'dealer' means any person who buys or sells goods in connection with his business; and includes Central Government, a State Government or any local authority and also any society, club or other association of persons which buys goods from or sells goods to its members or to other persons. Exception I.-An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause; Exception II.-A charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions for achieving its avowed objects, shall not be deemed to be a dealer within the meaning of this clause; Exception III.-An individual who sells exclusively any fish or any sea-food caught by him personally or by any member of his family on account of or on behalf of such individual, shall not be deemed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case on the exclusion clause in the definition of the term "business " and exception I to the definition of the term "dealer" in the Gujarat Act. The neat points of law which, therefore, arise are: whether the activity of the assessee-society is in effect and substance of mere service, and assuming that the assessee-society is carrying on business, can it be held liable as a dealer since it is merely acting as an agent of its agriculturist-members, and therefore, its liability as an agent is coextensive to that of principal, who, as agriculturists, are not liable to be treated as "dealer" under exception I to the definition of the term "dealer" in section 2(10) of the Gujarat Act. We will first deal with the second point, namely, whether the assesseesociety cannot be held to be a dealer since it claims to sell the cotton produced by its agriculturist-members who sell exclusively agricultural produce grown on the land cultivated by them personally and are excluded by the deeming fiction provided in explanation to section 2(10) of the Gujarat Act from the definition of the term "dealer". It was urged on behalf of the assessee-society that it is well-settled on principle and on auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se provided to the effect that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea, grown within the State of Tamil Nadu by himself or on any land in which he has an interest shall be excluded from his turnover. In that context, the Division Bench of the Madras High Court held that where the turnover is that of the agent himself under the statutory definition of "dealer" given in the 1959 Act, exemption under the proviso to section 2(r) can be granted only if the agricultural produce is grown by the agent himself or grown on a land in which he has an interest and as long as the produce does not satisfy this condition, the benefit of the proviso will not be available to the agent. Another decision to which our attention was invited is of the Andhra Pradesh High Court in J. Moosa Sons v. Commercial Tax Officer, First Circle, Hyderabad [1969] 23 STC 133. The assessee moved the High Court of Andhra Pradesh for appropriate writs, orders and directions, challenging the order of assessment made by the Commercial Tax Officer holding the petitioner-firm to be liable to pay tax under the Andhra Pradesh General Sales Tax Act, 1957. The assessee ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant Commissioner. The Tribunal, after weighing the legal contentions, urged on behalf of the assessees, reached the conclusion that the assessees were not brokers but they were persons who were to be treated as dealers not only under the common law but also under the provisions of the Madras General Sales Tax Act. In that context, the Division Bench of the Madras High Court observed that the liability of an agent is no doubt coextensive with that of the principal and if the principal is not liable to tax, the agent may also not be liable thereto. The High Court, however, could not uphold the claim of the assessees since they had failed to place relevant material and evidence before the High Court to satisfy that they were merely brokers. It is in the light of the above settled legal position that the learned counsel for the assessee urged that if the liability of an agent is coextensive with the principal, which cannot be doubted on matter of principle or authority, he cannot be held liable if the principal is not liable himself. He, therefore, submitted that if these cotton-seeds were sold by the agriculturists themselves instead of selling through the assessee-society, they co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was put on the statute book wherein the legislature attempted to define the term "business". Three leading decisions of the Supreme Court on the subject are: (i) State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1 (SC), (ii) Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 STC 317 (SC) and (iii) Director of Supplies and Disposals v. Member, Board of Revenue [1967] 20 STC 398 (SC), which should be briefly referred to at this stage. In Raipur Mfg. Co.'s case [1967] 19 STC 1 (SC), which was a case under the Bombay Sales Tax Act, 1953, the Supreme Court was concerned with the question as to whether a company manufacturing cotton textiles can be said to be carrying on business of selling goods when it sold old discarded goods, coal, byproducts and subsidiary products. The Supreme Court referred in this connection to its earlier decision in State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC) that a person to be a dealer must be engaged in the business of buying or selling or supplying goods. Shah, J., speaking for the court in Raipur Mfg. Co.'s case [1967] 19 STC 1 (SC) considered the width and import of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the nature of adventure or concern in the nature of trade, even if the activity was not actuated by a profitmotive. In Director of Supplies and Disposals' case [1967] 20 STC 398 (SC), the Supreme Court was concerned with the Directorate of Disposals which was an organisation of the Government of India responsible for disposal of the surplus American war equipment which had been taken over by the Government of India. The surplus goods were sold to public in a series of transactions, and therefore, a question that arose was as to whether the Director of Supplies and Disposals carried on business of selling the goods in West Bengal within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act, 1941. The majority of the Court comprising of Sikri and Ramaswami, JJ., held, on consideration of the totality of circumstances, that the activity of disposal was merely realisation of the assets, and therefore, not sales liable to be taxed under the said Act, and the Director was not a dealer within the meaning of section 2(c) thereof. Ramaswami, J., in his concurring judgment in that case held as under: "The expression 'business' though extensively used in taxing statutes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his activity of selling which must be with a view to carry on business. The Division Bench, therefore, held as under in that case: "...The Bombay Sales Tax Act has a much narrow ambit and scope. Its object is not to tax income or to tax profits. Its object, which is a very narrow object, is to tax sales effected by persons carrying on the business of selling or supplying. Let us again emphasise that its object is not to tax sales; its object is to tax only those sales which are effected by persons who carry on the business of selling or supplying goods. In our opinion, if we construe the expression 'carrying on the business of selling or supplying goods, in a commercial sense, then it is clear that the object of the person who carried on that business must be to sell or to supply. A person may either produce goods or purchase goods with the object ultimately of selling them. Unless that object is present and unless that intention is clear, the mere activity of selling or supplying would not constitute the carrying on of business of selling or supplying. If the AdvocateGeneral's contention were to be accepted any continuous activity or any repeated activity seriously undertaken w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e institution is actuated entirely by charitable or religious or philanthropic motive of non-violence by preserving the lives of those voiceless animals. It is this essential activity whose stamp is born on all the sales which are in dispute before us, except probably the agricultural activity of growing cotton on the lands............. The mere sale of these items which would be merely an incidental activity can never amount to a business activity carried on with a profit-motive which would change the essential character of the philanthropic activity or charitable activity of this institution so as to convert it into a business activity........" Another decision of this Court is in Commissioner of Sales Tax, Gujarat v. Anil Co-operative Credit Society [1969] 24 STC 180. This Court was concerned with the question as to whether the society which was a co-operative society registered under the Bombay Co-operative Societies Act, 1925, running a canteen for the benefit of its members without any profit-motive could be held to be a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959, J.B. Mehta, J., as he then was, held that the assessee-society which managed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olume, frequency, continuity and system is not conclusive. The State Legislature has in the light of these principles, stepped in to define what is "business". The definition is merely an inclusive definition, and therefore, on the recognised principles of interpretation of statutes, the legislature has sought to enlarge the ordinary meaning of the term "business" so as to take within its sweep any activity partaking the nature of trade, commerce or manufacture, or even any single adventure carried on whether or not with a set purpose of making profit and would amount to business irrespective of the fact whether such activity results in profit. It also seeks to include any transaction of buying, selling or supplying plant, machinery, raw materials, processing materials, packing materials, empties, consumable stores, waste products or such other goods, or waste or scrap which is ancillary or incidental to or resulting from such activity. The definition specifically excludes any activity in the nature of mere service or profession. The effect of this inclusive definition is to set at rest the doubt or the possible contention that if an activity partakes the nature of manufacturing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplying some general demand, or the supply of needs, or provision, organisation or apparatus for conducting some public utility, as gas, railway, telephone or water service: vide Corpus Juris Secundum, Vol. 79, page 1141. As a verb it is defined as meaning to perform services of maintenance, supply, repair, installation, distribution, etc., for or upon, as to service a car, a radio set, a ship, a territory: vide Corpus Juris Secundum, Vol. 79, page 1143. At page 1143 of Vol. 79 of Corpus Juris Secundum, the following passage is instructive: "SERVICES: In ordinary usage, the term 'services' has a rather broad and general meaning, and it includes generally any act performed for the benefit of another under some arrangement or agreement whereby such act was to have been performed, and in its broadest sense it may mean a service performed in furnishing materials as much as a service performed in furnishing labor. In the plural, the term involves more than mere labor, and signifies much more than merely the act of performing labor, and may include, as well, expenditure materials, and things furnished." The discussion as to the application of sales tax statutes to transactions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly incidental thereto, the transaction should generally be regarded as sale; but, if the service involved is the dominant and most important factor and the value of the materials used is only incidental thereto and constitutes only a minor part of the gross charge, the transaction should be classified as service.": vide Corpus juris Secundum, Vol. 53, pages 576-577. It is equally well-settled that "the classification of a business as one of making sales or of selling service cannot be determined solely by the ratio of the sales made to the services rendered...........": vide Corpus juris Secundum, Vol. 53, page 577. Since the word "service" has multiple and variety of meanings and different significations it is necessary to refer to the Report of the Select Committee on the Gujarat Sales Tax Bill which was ultimately placed on the statute book as the Gujarat Act. It is axiomatic that the construction of a given statute must be based on the meaning of the words used which has to be gathered according to ordinary rules of interpretation and therefore it is generally not permissible to refer to the Report of the Law Commission or the Select Committee Report as they cannot furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing thereof we bear in mind the context in which it is found and the sense in which it is used. The sense of the term must be determined from the context. The context is of section 2(4) of the Gujarat Act which gives an inclusive definition of the term "business" as any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not carried on with a motive to earn profit. In other words, the activity in order to be business must be a commercial activity of buying and selling with or without motive to earn profit. If the commercial element is lacking in a given activity and if such activity is in the nature of mere service or profession it would be beyond the sweep of the term "business". The word "mere" qualifies the word "service". The legislature has therefore taken precaution that even if the activity is governed by the main provision but is in the nature of any services it will be out of the purview of the term "business". In a sense, the element of service is implicit in any business or trading activity but that element does not detract from the commercial nature of such activity. It is the commercial overtone of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or buys goods for sale or exports, imports or manufactures goods for sale, he indulges in commercial activity avowedly for profit-motive, and therefore, can be said to carry on business or trade as a dealer. If, however, on the other hand, he incidentally buys or sells goods in the course of activity which is undertaken solely or exclusively by way of service, such as banking service, religious or charitable service, Government extension service, etc., he cannot be decreed to to be a dealer carrying on business. It is not possible, nor is it desirable to provide a strait-jacket formula so as to conclude what activities are in the nature of mere service and what activities are in the nature of business. In the ultimate analysis as the Supreme Court said in Director of Supplies and Disposals' case [1967] 20 STC 398 (SC), it is a matter of intention and no single test or group of tests is decisive of the intention to carry on the business, and it must be decided in the circumstances of each particular case whether an inference could be raised that the assessee is carrying on the business of purchasing or selling of goods within the meaning of the statute. What is the precise natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plementation of the Governments's scheme of betterment of the quality of cotton. In the second place, the scheme of distribution and multiplication of seeds implemented by the assessee-society is wholly Government controlled one as found by the Tribunal on the facts and in the circumstances as set out above in the opening part of this order. Thirdly, the whole arrangement of the formation of this co-operative society is for providing pure and simple service by encouraging self-help amongst members inter se and not to indulge in any commercial activity, or any activity in the nature of business, or trade, or in any adventure in the nature of business or trade. The facts found by the Tribunal which have been extracted and set out above constitute the modus operandi of the Government's scheme of distribution and multiplication of hybrid quality of cotton-seeds, popularly known as "Shanker-4" cotton with a view to achieve the betterment of the quality of cotton and bring more land under cultivation of "Shanker-4" cotton though the instrumentation of such service society of the cotton-producers. The essential purpose of the activity of the society is not commercial in nature but is de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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