9911796707
TMI Blog1982 (10) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid sales of machinery? (3) Whether, on the facts and in the circumstances of this case, the Tribunal was right in law in holding that in any event the applicant was liable to pay tax on the aforesaid sale of machinery by virtue of the provisions contained in subsection (6) of section 29 of the Gujarat Sales Tax Act, 1969?" The assessee is a dealer registered under the Gujarat Sales Tax Act, 1969 (hereinafter referred to as "the local Act"), as also under the Central Sales Tax Act, 1956 (hereinafter referred to as "the Central Act"). The assessee runs a printing press in which the Ahmedabad edition of the Gujarati daily "Jai Hind", which is published from Rajkot, is printed on job-work basis for and on behalf of the owners and publishers of the said newspaper. According to the statement of the case, the assessee had purchased certain printing machinery for being used in its printing press during the course of the accounting period from Kartak Sud 1 to Aso Vad 30 of S.Y. 2028. It is an agreed position before us, however, that this is an apparent error because according to the material on record, the machinery in question was, in fact, purchased during the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f consideration the factum of such registration. The Tribunal held, in the first place, that the assessee could not avoid the legal consequence of its own admission and representation made before the sales tax authorities under the local Act as well as under the Central Act, when it had approached them for registration as a dealer, and that it could not be allowed to blow hot and cold or to approbate and reprobate. Having considered some of the consequences including the benefits which flow from the registration, the Tribunal observed that the assessee wanted to enjoy the benefit as a dealer and its registration as a dealer but did not want to discharge its corresponding legal obligations arising under the law out of those very circumstances. The Tribunal, in substance, held that the assessee was precluded from raising the contention that it was not a "dealer" or that it was wrongly registered as a dealer and that, therefore, it could not be permitted to contend that its activity did not constitute business. The Tribunal, however, still proceeded to consider on merits the question whether the assessee was, in fact, a "dealer" within the meaning of section 2(10) of the local Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance of that sub-section is that if any person has been registered as a dealer upon an application made by him and if thereafter, it was found that he ought not to have been registered either because he is not a dealer or because he is not liable to pay tax, he shall be liable to pay tax on his sales or purchases made during the period commencing on the date on which has registration certificate took effect and ending with its cancellation, notwithstanding that he may not be liable to pay tax under the provisions of this Act. 30.. Therefore, even if the appellant was not a 'dealer' within the meaning of section 2(10) of the local Act or was not doing 'business' within the meaning of section 2(4), as was strenuously urged on behalf of the appellant before us, the undisputed facts remain that the appellant had got itself registered as a dealer under section 29 of the local Act and therefore the appellant is bound to face the legal consequences of its own acts or representations as above made, while it sought to register itself as a dealer according to law. Therefore, we find that the appellant is now estopped from pleading that it was not a dealer or that it was not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms on the question whether the assessee was a dealer as also a registered dealer within the meaning of the relevant provisions of the local Act in respect of the activity of purchase and sale of the printing machinery. The reference was directed to be notified for hearing after the supplementary statement was received from the Tribunal. The Tribunal has now submitted a supplementary statement of the case after hearing the parties. In the course of the supplementary statement, the Tribunal has recorded a clear and s specific finding that since the activity of the assessee was confined to executing the job-work of printing of the Ahmedabad edition of the daily newspaper "Jai Hind" for and on behalf of the owners and publishers of the said newspaper on payment of charges, the activity was clearly in the nature of "mere service" and that it did not constitute "business" within the meaning of the relevant provisions of the local Act. The Tribunal has recorded a further finding that since, under the relevant provisions of the local Act, only those purchases and sales which are made by a person in connection with his "business" can have the effect of bringing such person within the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the supplementary statement, the matter was posted for hearing and it has reached hearing before us. In view of the fact that in the course of the supplementary statement the Tribunal has clearly found that the assessee was not a "dealer" within the meaning of the relevant provisions of the local Act, we have, at the joint request of the parties, reframed question No. (2) as follows: "Q. (2) Whether, on the facts and in the circumstances of this case, the Tribunal was right in law in holding that the applicant was not a 'dealer' within the meaning of section 2(10) of the Gujarat Sales Tax Act, 1969, in respect of the aforesaid sale of machinery?" Re: Question No. (1): The question need not detain us long because the answer is concluded by the decision in State of Gujarat v. Premier Auto Electric Ltd. [1980] 45 STC 220. The assessee-company in that case was a dealer in automobile parts, and automobile batteries and accessories. The assessee purchased during the period from 1st July, 1965, to 30th September, 1966, scrap batteries from certain dealers within the State of Gujarat and sold them outside the State. At the time of its assessment, the assessee claimed under rule 43 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax v. Durga Prasad More [1971] 82 ITR 540 (SC) and Mathra Parshad and Sons v. State of Punjab [1962] 13 STC 180 (SC), the following observations were made in the course of the judgment: "These decisions clearly lay down the principle that the doctrine of estoppel has no place in assessment proceedings because equity is out of place in a tax law and that, therefore, a particular sale is either exigible to tax under the taxing statute at a certain rate or it is not and that the Sales Tax Officer has no power to impose tax on the transaction of sale at a rate different than that which appropriately applies to such transaction. On the facts and in the circumstances of the present case, therefore, the Tribunal could not have placed the bar of estoppel in the way of the revenue and, on that basis, it could not have refused to determine, independently of the facts of this case, as to what was the true rate of tax leviable on the sales of scrap batteries effected in favour of the assessee on the basis whether those scrap batteries were covered either by entry 42B of Schedule C or entry 22 of Schedule E." The settled legal position, therefore, is that the doctrine of estoppel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern is carried on with a motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) 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 of any of them which is ancillary or incidental to or resulting from such trade, commerce, manufacture, adventure or concern; but does not include any activity in the nature of mere service or profession." In Sales Tax Reference No. 17 of 1978 decided on 10th August, 1982 (Mehsana District Shanker-4 Seeds Produce and Sale Co-operative Society Ltd. v. State of Gujarat [1982] 51 STC 289), a Division Bench of this Court consisting of B.K. Mehta, J., and one of us (myself) had an occasion to consider the true meaning and effect of the term "business" as defined in sub-section (4) of section 2. The assessee in that case was a society registered under the Bombay Co-operative Societies Act, 1925, with the object, inter alia, of producing, multiplying and selling Shanker-4 cotton-seeds for the use of the members as well as non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the instance of the assessee, one of the questions which arose for consideration was whether the activity which the assessee had undertaken and was carrying on was in the nature of "mere service" rendered to its members so that it could not be held to be a "dealer" within the meaning of sub-section (10) of section 2 of the local Act. This Court considered, in the first place, the decisions of the Supreme Court in State of Gujarat v. Raipur Mfg. Co. Ltd. [1967] 19 STC 1 (SC), Director of Supplies and Disposals v. Member, Board of Revenue [1967] 20 STC 398 (SC), Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 STC 317 (SC) as well as the decision of the Bombay High Court in State of Bombay v. Ahmedabad Education Society [1956] 7 STC 497 and the decisions of this High Court in State of Gujarat v. Shri Surat Panjarapole [1969] 23 STC 57 and in Commissioner of Sales Tax, Gujarat v. Anil Co-operative Credit Society [1969] 24 STC 180 in order to ascertain the true legal position obtaining under the Bombay Sales Tax Act, 1959, as applied to the State of Gujarat, prior to the enactment of the local Act. It was found that the legal position as then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the definition of the term "business" as contained in clause 2(4) of the Bill was "rather too wide" and that it "requires to be restricted so that isolated transactions which are not closely connected with the business of a dealer are not made subject to payment of tax". It was further pointed out that the report showed that the committee had redrafted clause 2(4) so as to make it clear that "the institutions and organisations which carry on activities in the nature of mere service or profession, such as banking company, non-professional service associations should not also be brought within the scope of the definition". It was observed that the report of the Select Committee gave the perspective of the legislative intent though it could not be allowed to unduly influence the court in ascertaining the true meaning of the words "mere service". Viewing the provisions of section 2(4) against the aforesaid background, it was pointed out that the definition of the expression "business" therein contained indicated that the activity in order to be business must be a commercial activity of buying and selling with or without motive to earn profit. The following pertinent observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on with an objective of rendering service exclusively? Such objects or purposes which may render an activity to be service can be, amongst others, helping, aiding or assisting the member, client, customer or a beneficiary, as the case may be. Such activity must be with a view only to serve the client, customer or the beneficiary. Even if the object or the purpose includes, inter alia, the authority to sell or buy articles, it would not detract from its real nature which must be of service only. The fact that some profit is generated out of such activity would not render it a business." The question arising for our consideration in the present case requires to be answered by applying the tests evolved in the aforesaid decision to the facts herein found by the Tribunal. The Tribunal, as earlier pointed out, has found that the assessee was admittedly carrying on the activity of printing the Ahmedabad edition of the Gujarati daily "Jai Hind" on a job-work basis for and on behalf of the owners and publishers of the said newspaper. The assessee, in other words, carried out the printing work on payment of charges. The entire turnover of sales of the assessee for the assessment pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a trading or commercial activity within the meaning of the said section. It is not possible to accede to this submission. In the first place, as earlier pointed out, we do not think that the expression "mere service" excludes service having an incidental element of commerce, that is, interchange of merchandise, embedded therein. If the activity is carried on with the set purpose and object of rendering only service, the mere fact that it involves as a necessary and inevitable consequence sale and purchase of goods would not render the activity any the less "mere service". The Tribunal, while dealing with the same submission, correctly pointed out that the mere fact that the assessee had to purchase some articles in order to enable it to carry on its activity of rendering service would not deprive its overall activity of the hue of "mere service" and impress it with the colour of "business". Does not the activity of a banking institution which renders diverse services to its customers have an element of commerce in that sense? Do not the sales and purchases effected by nonprofessional service associations or service organisations in the course of services rendered in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature therein described, which is ancillary or incidental to or results from the trade, etc., falling within sub-clause (i), although the transaction by itself may not have the characteristics of business as understood in ordinary parlance. That this is the true interpretation of subclause (ii) is borne out by the decisions of the Supreme Court in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. [1973] 31 STC 426 (SC) and State of Tamil Nadu v. Binny Ltd. [1982] 49 STC 17 (SC). Therefore, before sub-clause (ii) can be invoked, it will have to be established that the assessee was carrying on an activity which fell within the ambit of sub-clause (i), that is to say, which amounted to "trade, etc." and that sub-clause (ii) was attracted because the transaction in question was ancillary or incidental to or resulted from such trade, etc. If the main activity carried on by the assessee itself could not be brought within the net of sub-clause (i), it would be impermissible to invoke sub-clause (ii) in relation to any transaction of buying, selling, etc., which is ancillary or incidental to or results from such main activity. The sale of printing machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the character of the transaction. What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eleminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable? What were the incidents associated with the purchase and resale? Were they similar to the operations usually associated with trade or business? Are the transactions of purchase and sale repeated? In regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture?......... Was the purchase made with the intention to resell it at a profit? It is often said that a transaction of purchase followed by resale can either be an investment or an adventure in the nature of trade. There is no middle course and no half-way house. This statement may be broadly true; and so some judicial decisions app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction was adopted; (4) The transaction of sale was in respect of an item which was connected with or used in or for carrying out of the usual activity of the assessee; and (5) The sale was in favour of a total stranger. Mr. R.D. Pathak, the learned Advocate appearing on behalf of the assessee, contended, on the other hand, that the following factors emerging from the record clearly point in the direction that the transaction was not an adventure in the nature of trade: (1) The unequivocal terms in which the declarations was made in form C showed that the initial intention at the time of the purchase of the machinery was not to resell it; (2) In the penalty proceedings initiated under section 10(b) read with section 10A of the Central Act, no penalty was ultimately levied because it was held that the failure to make use of the machinery for declared purposes was not without reasonable excuse; (3) The machinery was sold without doing anything to the same, that is to say, without improving the quality and without making it readily reasaleable; (4) The transaction was not similar to the operations usually associated with the printing line and it is not shown that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to operations associated with trade or business. These factors far out weigh the circumstances upon which the learned Government Pleader has relied. The fact that after purchase the machinery was not used in the process of printing and that it was sold away without being so used or even without being unpacked cannot be regarded as of any significance in view of the explanation offered and found to be acceptable by the department itself in the penalty proceedings. Under the circumstances, it is not possible to accept the submission made on behalf of the revenue that the transaction in question was an adventure in the nature of trade. The foregoing discussion would show that the second question as refrained by us will have to be answered in the affirmative. Re: Question No. (3): The answer to the question depends upon the true construction of sub-section (6) of section 29 of the local Act. The relevant portion of section 29, as in force at the relevant time, read as follows: "(1) No dealer shall, while being liable to pay tax under section 3 or under sub-section (6) of section 26, carry on business as a dealer, unless he possesses a valid certificate of registration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application of the dealer or otherwise, shall not affect the liability of the dealer to pay the tax (including any penalty) due for any period prior to the date of cancellation whether such tax (including any penalty) is assessed before the date of cancellation but remains unpaid, or is assessed thereafter or his liability to pay tax as provided in section 20." Before we take up for consideration the question of construction of sub-section (6), it would be pertinent to point out that the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the Bombay Act"), which was in force before the enactment of the local Act, contained analogous, though not identical, provisions in section 22. Sub-sections (1), (2) and (3) of section 22 of the Bombay Act were in pari material with sub-sections (1), (2) and (3) of section 29 of the local Act. Section 22 was amended and sub-section (5A) was introduced therein on and with effect from 12th August, 1962, by Gujarat Act 25 of 1962. The said subsection read as follows: "(5A) If any person upon an application made by him has been registered as a dealer under this section, and thereafter it is found that he ought not to have been so register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that its only function was to clarify that even a society, club or other association of persons, which buys goods from or sells goods to its members in the course of business, would be within the ambit of the main part of the definition. Since the profit-motive was absent in the activity of the assesseesociety, however, it could not be regarded as a dealer within the meaning of section 2(11) by invoking the second inclusive clause in the said sub-section. Under these circumstances, the first question was answered in the negative. As regards the second question, the view of Divan, J., was that the said question was liable to be answered in favour of the revenue since the conditions specified in sub-section (5A) of section 22 were satisfied. In this connection, Divan, J., expressed his view in the following words at page 201: "The reason for making this provision is clear, viz., that a registered dealer under the scheme of the Sales Tax Act has not to pay tax on his sales or his purchases during the period for which the registration is in existence. Cancellation has been provided for under section 22(6) and until the cancellation takes effect by virtue of the registration as a deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a person was not liable to pay tax under section 3 either by reason of the fact that he was not a dealer or his turnover did not exceed the relevant limit and was therefore not liable to be registered and yet was registered at his own instance on an application made by him. In such a case, when it is found that he was not liable to pay tax and ought not therefore to have been registered, he cannot contend that he was not liable to pay. Since the registration certificate was issued to him on his own application, he must be held liable to pay tax during the period that the registration certificate was operative. No such situation obtains in the present case. No authority has found that the assessee ought not to have been registered or that his registration should be cancelled. Here the question is entirely different. The assessee is admittedly a dealer in respect of other transactions carried on by it and it is properly registered as a dealer in respect of those transactions. The only question is in regard to sales effected by the assessee to its members in the canteen and so far as this activity is concerned, the assessee contends that it is not carrying on business and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy that the law has now provided and the reason of the remedy have all to be borne in mind, and in case of doubt, as far as possible. the construction has to be adopted which suppresses the mischief and advances the remedy. At this stage, it would be convenient to highlight the difference in the language of sub-section (5A) of the Bombay Act and sub-section (6) of the local Act and to take note of the change in law. For this purpose, the substance of the two sub-sections is set out side by side hereinbelow: Sub-section (5A) Sub-section (6) (A) Conditionsfor applicability: (A) Conditions for applicability: (i) A person must have been (i) A person must have been registered as a dealer registered as a dealer under section 22 upon an under section 29 upon an application made by him. application made by him. (ii) It is found thereafter (ii) It is found thereafter that such person ought that such person ought not to have been so not to have been so registered under the registered under the proprovisions of the said visions of the said section. section; (a) either because he is not a dealer or (b) because he is not liable to pay tax. (B) Consequences: (B) Consequences: Notwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those words were read into the said sub-section by a process of interpretation having regard to the context and collocation. It would not be unreasonable to proceed on the assumption, therefore, that the words "either because he is not a dealer" are inserted in sub-section (6) ex abundanti cautela. Even in the absence of those words, they would have been required to be read into sub-section (6) at the appropriate place. It would be pertinent to recall in this connection that it was the view of Mehta, J., in Anil's case [1969] 24 STC 180 that the assessee-society in that case could not be regarded as a dealer qua the sales effected to its members, that the certificate of registration issued on the basis of such sales was non est, that such certificate did not require any cancellation and that, therefore, no question could arise of that person being liable to pay tax on the strength of such registration certificate by resorting to sub-section (M). Bhagwati. C.J., although he concurred with Mehta, J., in the ultimate conclusion, has not adopted the same line of reasoning. The words "either because he is not a dealer" thus appear to have been introduced in sub-section (6) by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a change or modification brought about in the legal position which obtained at the time of the enactment of sub-section (6) and it will have to be given effect to. So far as the expression in the concluding portion of sub-section (6), namely, "notwithstanding that he may not be liable to pay tax under the provisions of this Act" is concerned, there is a clear departure from the corresponding provision found in sub-section (5A) which had used the expression "notwithstanding that he may not be liable of pay tax under section 3". It would be seen at once that the concluding portion of sub-section (6) is cast in wider terms than that of sub-section (5A). We have already dealt with this aspect in the immediately preceding paragraph and what we have there said in the context of the words "or because he is not liable to pay tax" occurring in the earlier part of subsection (6) applies with equal force to the non obstante clause in the concluding portion of the said sub-section. In other words, the effect of the non-obstante clause in the concluding portion of sub-section (6) is to set aside as no longer valid anything contained in any other provisions of the local Act whereunder ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under the provisions of the local Act. Against the aforesaid background, let us consider whether the conditions laid down in sub-section (6) are satisfied in the instant case so as to attract the said sub-section. It is not in dispute that the assessee has been registered as a dealer under section 29 upon its own application. Be it noted in this connection that though the Tribunal appears to have found that the registration was under section 30, the parties are agreed that the registration was, in fact, pursuant to the provisions of sub-sections (1), (2) and (3) of section 29. In the course of the present assessment proceedings, it has been found by the Tribunal that the activity of the assessee, which consisted of the printing of the Ahmedabad edition of the daily newspaper in question for and on behalf of its owners and publishers, amounted to rendering "mere service" and that the assessee was, therefore, not carrying on "business" within the meaning of sub-section (4) of section 2 and that it was not a "dealer" within the meaning of sub-section (10) of of section 2 of the local Act, although it was registered as such. As a logical corollary or consequence of the said finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and before its cancellation. It was strenuously contended on behalf of the assessee that since, in the instant case, no authority has found that the assessee ought not to have been registered and that its registration should be cancelled, a very material ingredient of sub-section (6) is not satisfied. Alternatively, it was contended that subsection (7), which confers the power of cancellation of registration, does not authorise cancellation in a case where a person, who was not liable to be registered at all, has been registered upon his own application made under a mistaken belief or otherwise, and that, therefore, sub-section (6), which imposes a liability to pay tax on sales or purchases, made during the period commencing on the date on which the registration certificate took effect and ending with its cancellation, is not applicable. We are unable to agree. As regards the first limb of the submission, we are constrained to observe that it has been stated merely to be rejected. Herein we have found in terms that the assessee ought not to have been registered as a "dealer " for the reasons already mentioned. As a consequence of the said finding, the registration will have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying "business" within the meaning of sub-section (4) of section 2 and since the assessee could not, therefore, be regarded as a dealer within the meaning of subsection (10) of section 2, the assessee ought not to have been registered as a dealer and its registration, which pertains only to such activity, will require to be cancelled. In our opinion, therefore, the assessee cannot draw any sustenance from the decision of Bhagwati, C.J., in Anil's case [1969] 24 STC 180. The next submission, which was vehemently urged on behalf of the assessee, was that if it was not liable to pay tax under the relevant provisions of the local Act on the sale of the printing machinery in question, no such liability could ever arise out of and be fastended upon it under sub-section (6). This submission, in other words, was that if there was no liability to pay tax on a transaction of sale, which was not effected in the course of business and in respect of which the assessee could not be regarded as a dealer under the Act, such liability cannot legitimately be read as having been created by sub-section (6). This submission too is stated merely to be rejected. It conveniently overlooks the very ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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