9911796707
TMI Blog1998 (10) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... with sections 2(h) and 2(s) for charging the same to tax under section 5 of the Andhra Pradesh General Sales Tax Act." 2.. After referring to the definitions of "goods", "sale" and "turnover " and the charging section of the Act, the learned Judges observed as follows: "A conjoint reading of the above three provisions leads to the prima facie conclusion that in respect of sale of a going concern with all its assets and liabilities comprising movables and immovables including stock in trade and other goods, no sales tax could be levied on the value of the stock in trade and other goods as if the transaction was one of sale of goods, especially when the sale deed does not mention separate price for these items. Further, what was intended to be sold was not goods or other stock in trade but the concern in its entirety. In other words, the transaction is one of winding up of business. After the sale of the business, the assessee would no longer be continuing its business transactions." 3.. The learned Judges referred to the decision of the Supreme Court in Commissioner of Income-tax v. Mugneeram Bangur and Company [1965] 57 ITR 299. The relevant facts leading to the filing T.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 105.30 crores excluding the sum equivalent to the value of the net current assets as determined in the manner set forth. The said consideration was payable in certain stages. Rupees 5.27 crores is the advance amount paid at the time of execution of the agreement. Balance amount of Rs. 100.03 crores as reduced by the amount of secured loans outstanding as on the transfer date was payable by the specified date. It is the case of the petitioner that a total sum of Rs. 35 crores was received after deducting the amount due towards secured loans and no break-up price or value was fixed for the individual items, or for various items of movable properties. However, a deed of sale and transfer was executed on November 29, 1990 in respect of the immovable properties, viz., lands and buildings and the consideration mentioned in the said deed is a sum of Rs. 27.07 crores. The said sale deed was got registered as it was necessary to convey the title. 5.. While filing a return for the month of November, 1990 the petitioner annexed a "note" thereto disclosing the factum of transfer of the cement undertaking on "as is and where is" basis and the consideration therefor. It was pointed out in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole for a lump sum consideration. The Tribunal observed that "there were no separate agreements for sale of the individual items of movable properties". It was however, observed that the parties must have separately evaluated the individual items. Relying upon rule 6(1)(h) of the Andhra Pradesh General Sales Tax Rules, 1957 and the Division Bench decision of this Court in Coromandel Lubricants [1996] 102 STC 274, it recorded the conclusion that "the sale proceeds of the cement division of Coromandel Fertilisers Ltd. (so far as they relate to movable properties) fall within the definition of 'turnover' being sale of movable property". 7.. So holding, the order of the Deputy Commissioner was set aside and the assessing authority was directed to make a fresh assessment after examining "which of the movable properties sold by the appellant are liable to be taxed and at what rate". The assessing authority was directed to evaluate the movable properties sold, taking into account the evaluation that might have been made by the vendor and the vendee. It is this order of the Tribunal that has been questioned in the tax revision case filed by the assessee. The assessee has also filed a sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two petitions have also been placed before the Full Bench. Both the parties have invited a decision on merits obviously because substantially similar issues are in any case pending consideration by the Frill Bench and the decision on which the assessing authority placed reliance in the instant case has been doubted by the Division Bench which made the order of reference to the Full Bench. 10.. The petitioner in Writ Petition No. 9490 of 1998 (hereinafter referred to as "the petitioner") is a public limited company owning a plant at Secunderabad to bottle and distribute non-alcoholic beverages under a licence from the Coca-Cola Company based in U.S.A. On September 19, 1997, a business sale agreement was entered into between the petitioner and M/s. Bharat Coca-Cola Bottling South East Private Limited (petitioner in Writ Petition No. 9506 of 1998) which is described as buyer in the said agreement. The buyer's company was promoted by Bharat Coca-Cola Holdings which is also a party to the agreement in order to take over the undertaking owned by the petitioner. The agreement refers to a memorandum of agreement dated September 23, 1997 whereunder the seller agreed to transfer the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. Clause 2.4 says: "Subject to the terms and conditions of this agreement, spectra will make a capital contribution to Bharat Bottling and as a credit sale shall convey, transfer and assign the acquired business to Bharat Bottling as set forth in article III in this agreement. The consideration for such capital contribution and credit sale is" as set forth in article III of this agreement. The credit shall be set off and adjusted upon final issue and allotment of shares in accordance with article III." 12.. The agreement sets out two stages for the fulfilment of mutual obligations. What is required to be done at the first stage and at the closing stage by the seller and the buyer are set out in articles III and IV. 13.. Clause 3.7 envisages the sale, assignment transfer and delivery of the seller's right, title and interest in the acquired business so that the acquired business in its entirety and the employees are transferred to the buyer at the closing, subject to the satisfaction of the conditions set forth in article IV. In clause 5.6, it is stipulated that the seller will convey to the buyer all of its right, title and interest in all the acquired business movable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat CocaCola South East Private Ltd., and these transfer turnovers are liable to be taxed at different rates under the A.P.G.S.T. Act." 17.. It may be mentioned that finished goods (soft drinks) were not included in the turnover. Placing reliance on rule 6(1)(h) and the decision of this Court in Coromandel Lubricants [1996] 102 STC 274, assessment was made subjecting to tax various items of equipment, stores and spares, vehicles, raw material and even goodwill at different rates and a demand was raised for Rs. 6.30 crores. The value of each item of movable assets was fixed on the basis of closing stock value as on December 25, 1997. Goodwill was also taxed probably because it was not separately specified in terms of rule 6(1)(b). It is interesting to note that the value of immovable properties was taken as Rs. 1,87,51,417 though as per conveyance deed relied, upon by the department itself, the consideration is Rs. 15 crores. 18.. The contentions advanced by the learned Senior Counsel Mr. C. Natarajan in the first case and Mr. P. Chidambaram in the second case are substantially the same and are overlapping. The contentions common in both the sets of cases are summarised below: I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts [1996] 102 STC 274 is distinguishable. 19.. The learned Government Pleader Mr. M. Ramaiah has refuted the above contentions. He argued: Although the transfer is of an entire undertaking in one case and one of the divisions in another case, all the ingredients necessary to give rise to a contract of sale of goods are present in the instant case. Mere fact that price is not fixed is not decisive. As the Tribunal observed, the parties would have as prudent persons valued the movable assets before striking the bargain. The fact that a separate conveyance deed is executed for immovable properties and the details of movable properties in which the property passed are set out separately in the agreement makes it clear that there was an agreement in respect of movable properties as well pursuant to which the property therein passed for consideration. In the case of Spectra Bottling Ltd., the agreement contemplates valuation of all assets by the buyer's auditor before the closing date (vide clause 7.14). The non-specification of price may be only a colourable device to avoid the tax. The agreement throughout speaks of "purchase and sale". The agreement can be split up. On the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The expression "sale of goods" in entry 48 was described as "nomen juris", its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. It was held in that case that in a building contract which is entire and indivisible, there is no sale of goods as there could be no agreement to sell materials as such and moreover, the property does not pass as movables. In order to enlarge the concept of sale and to arm the State Legislatures and Parliament with power to tax the transactions simulating sales but not conforming to the concept of sale obtaining under the Sale of Goods Act, clause (29A) was inserted in article 366 by the 46th Constitutional Amendment. The Andhra Pradesh State Legislature fell in line with this amendment and changed the definition of "sale" so as to bring within the tax net the transactions which are not stricto sensu sales as per the law laid down in Cannon Dunkerley case [1958] 9 STC 353 (SC); AIR 1958 SC 560. However, as far as the present cases are concerned, it is nobody's case that the disputed transaction of the sale of entire business falls within the scope of expanded definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raipur Manufacturing Co. Ltd. [1967] 19 STC 1; AIR 1967 SC 1066 was holding the field and "business" was being understood in its generic sense. The intention to carry on business was inferred from the nature of transaction, that is to say, whether it had a commercial thrust in it backed up by profitmotive. In Raipur case [1967] 19 STC 1 (SC); AIR 1967 SC 1066, the question arose whether the assessee engaged in the business of manufacturing and selling cotton textiles can be said to be carrying on business of selling discarded and unserviceable materials such as old iron scrap, rags, etc. The Supreme Court answered the question in the negative. What constitutes business was explained in the following terms by Shah, J., speaking for the Supreme Court: "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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at business is intended to be carried on in selling those goods." 25.. As regards the subsidiary or by-products, viz., kolsi and waste caustic liquor turned out in the factory regularly and continuously and sold from time to time, an intention to carry on business was inferred and the assessee-company was held liable to pay sales tax. 26.. The first and foremost test applied in Raipur case [1967] 19 STC 1 (SC); AIR 1967 SC 1066, is the test of profit-motive which has been dispensed with by the definition of "business" introduced in the year 1966. The second test is whether the transactions were carried on with frequency, continuity and regularity, thereby excluding from the net of taxation, isolated transactions which are not integral or incidental to the usual business activity. The ultimate test was held to be whether there was intention to carry on business of selling the goods sought to be sold. 27.. We may mention that the test of frequency, continuity had its origin in the vintage decision of Commissioner of Income-tax v. Shaw Wallace and Company [1932] 59 IA 206 (PC). It was observed by the Privy Council while construing the definition of 'business' in section 2(4) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to outline the historical development of the law. These decisions have lost much of their relevance after the inclusive definitions have been introduced in the APGST Act and similar other Sales Tax Acts of other States. But, even now, they do have some bearing in a limited sphere and the first principles of business laid down therein may very well cover certain grey areas. 32. Now, the decisions which interpreted and applied section 2(1)(bbb) of the APGST Act and analogous provisions in other State Acts deserve notice. In Hyderabad Asbestos Cement Products Limited v. State of Andhra Pradesh [1972] 30 STC 26 (AP), the question arose whether sales of foodstuffs in the workers' canteen can be said to be in the course of business. The division Bench speaking through Chinnappa Reddy, J., repelled the contention that even if profitmotive was not an ingredient of business, it must still be established that the assessee intended to do business in food and beverages before it could be subjected to levy of sales tax. The learned Judges stressed the word "such" occurring in the second clause of the definition and observed that it obviously referred to the trade, commerce, manufacture, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll case [1973] 31 STC 426 (SC); AIR 1973 SC 1045 in the following words: "This Court observed in the Burmah Shell case [1973] 31 STC 426 (SC); AIR 1973 SC 1045, that for the purpose of attracting the applicability of clause (ii) of section 2(d), it was not necessary that the transaction in question must partake of the characteristics of business but it was sufficient if it was 'in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern'. The word 'such' in clause (ii) was in the opinion of the court, referable to trade, commerce, manufacture, adventure or concern referred to in clause (i) and if there was in existence some trade, commerce, manufacture, adventure or concern falling within clause (i), any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern, would constitute 'business' within the meaning of clause (ii) even though the transaction by itself may not have the characteristics of business as understood in ordinary parlance." 36.. The next decision which merits mention is that of District Controller of Stores, Northern Railway v. Assistant Commercial Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease of the forest for starting a plantation they also knowingly let themselves in for engaging in a trade in the forest produce." 38.. There is one more important case which we would like to refer to. It is the decision of the Supreme Court in Board of Revenue v. AM. Ansari [1976] 38 STC 577. There, one of the questions that arose was whether the Government can be said to have been carrying on business of selling the forest produce derived from its own forests. After referring to the observations in Raipur case [1967] 19 STC 1 (SC); AIR 1967 SC 1066, the learned Judges held that even according to the amended definition of "business", the Government was not a dealer carrying on the business of selling forest produce. The reasoning of their Lordships is this: "As the consideration of profit-motive cannot be regarded as an essential constituent of the term 'business' in view of the amendment introduced in the definition of the term 'dealer' in 1966, what we are left to consider is whether the other ingredients of the term 'business', viz., volume, frequency, continuity and regularity of transactions of sale and purchase are satisfied in the instant cases. The auctions of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement is not "in the course of business" for the obvious reason that the assessee-Spectra Bottling Co., wants to put an end to its entire business and cease to do the trade or manufacture. 42.. The phrase that precedes the expression "business" in section 2(n) is "in the course of". In the context of article 286(1)(b) of the Constitution, the Supreme Court in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205; AIR 1953 SC 333 had an occasion to consider the meaning of the expression "in the course of". It was pointed out that the word "course" denoted movement from one point to another and the expression "in the course of" implied not only a period of time during which movement was in progress but also postulated a connected relation. "A sale in the course of export out of the territory of India should be understood as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities." 43.. In Commissioner of Gift Tax. Kerala v. P. Gheevarghese [1972] 83 ITR 403; AIR 1972 SC 23, the Supreme Court construed the expression "in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its assets in the process of gradual winding up of its business which eventually culminated in the voluntary liquidation of the company." 46. The above reasoning applies with equal force to the case on hand and clears the possible doubt on the meaning to be ascribed to the words "carries on business" occurring in section 2(e) of the APGST Act. Unless a person carries on a business, he is not a dealer. If he is not a dealer, the liability to pay sales tax cannot be fastened on him. 47.. Applying the above test, we cannot possibly say that by entering into a business sale agreement and delivering the properties to the buyer pursuant to such agreement, M/s. Spectra Bottling Co., did it with a view to keep the business alive or for the purpose of promoting the business. With the sale fructifying as per the terms of the agreement, the transferor-company goes out of business. The sale cannot, therefore, be regarded as a sale by a person carrying on business nor can it be regarded as a sale in the course of business. The definition of "business" contained in section 2(1)(bbb) does not, in our view, affect the applicability of the test formulated by the Supreme Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity which the assessee was carrying on. Hence, in our considered view, the second part of section 2(1)(bbb) does not come into play at all. The second part of definition has an inextricable link with the first part. The transaction contemplated by second part should be something which takes place in the process and in the context of continued business activity and having the effect of aiding or promoting such business. That is not the case here. The second part has definitely no application to the case of Spectra Bottling Co. 50.. Coming to the case law, the Madras High Court in more than one case and the Madhya Pradesh High Court have taken the view that sale of the business as a whole or a branch or unit is not a sale in the course of business. In all these cases, a rule providing for deduction of the amounts realised by a dealer by the "sale of business" as a whole primarily fell for consideration. However, a view was expressed that mere was no sale in the course of business under the substantive provisions of the Act as well. 51.. In Deputy Commissioner (C.T.) v. Behanan Thomas [1977] 39 STC 325 (Mad.), the entire branch business of the assessee-company at Ooty was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desh High Court. After referring to the amended definition of "business", which is similar to section 2(1)(bbb) of the Andhra Pradesh Act, the learned Judges observed: "As held by the Board of Revenue the printing machine sold by the assessee was a fixed asset of the assessee and it was sold on account of the closure of the printing business by the assessee. The printing, machine was not purchased with the intention of carrying on business by selling the said machine whether with profit or without profit. In order that a particular transaction of sale may be termed as forming part of the business activity of an assessee it must be found that it was made in the course of trade, commerce, or adventure in the nature of trade or commerce by the assessee. This is not so in the present case.......... In the present case the assessee sold his fixed assets on the closure of his business and it cannot be said that this transaction was in the course of trade, commerce or adventure in the nature of trade and commerce and so it cannot be included in the term 'business'. 54.. Although the conclusion reached in the decisions of the Full Bench of Kerala High Court in Deputy Commissioner of Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts are executed, assets of the firm are sold and final accounts are settled it cannot be said that on the date of dissolution of the firm the business would come to an end. Since the plant, machinery, finished goods were sold during the winding up of the firm and before actual closure of business, the sales would be treated as sale of goods, before the business was said to be, finally closed down and in the course of business. The proceeds are, therefore, liable for levy of sales tax". 58.. In the course of discussion, the learned Judges observed that "there is no factual basis to assume that there was sale of business as a whole to the company". Again, it was posited out: "for the purpose of finalisation of affairs of the firm, the plant and machinery was sold and there was no transfer of business". The question was answered in the affirmative and against the assessee. 59.. The ratio of that decision rests, in our view, on the finding that there was no transfer of business as such and secondly on the provisions of the Partnership Act. Rule 6(h) of the APGST Rules also swayed the conclusion reached by the learned Judges. If is in this background, the said judgment has to be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, finished goods, etc., the disputed turnover, even assuming that there is sale of business as a whole, is liable to be taxed. This Rule, in our view, is an answer, in a way to the question whether the proceeds of sale of business is a taxable turnover." 62.. The rule was framed on the assumption that in a case of sale of business as a whole, the proceeds of sale may be taxable. It is axiomatic that the rule cannot go counter to the charging provision and other provisions of the Act. If there is no sale within, the meaning of section 2(1)(n) of the Act read with the definitions of "business" and "dealer", the liability to tax cannot arise from the operation of this rule, nor has it got the effect of bringing within the sweep of taxation transactions which are otherwise not exigible to tax. The rule cannot be so construed as to derogate from the scheme of the Act. But, it is only intended to provide a limited relief to those who are otherwise liable to pay tax. If the tax is not liable to be paid under the main provisions of the Act, the question of resort to the rule does not arise. Nor does the understanding of the rule-making authority control the meaning to be assigned to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion and the business activity that is still being pursued by the petitioner. The argument advanced by the learned Government Pleader though plausible, cannot be accepted. 65.. The scope and amplitude of the second clause of the definition "business" cannot be unduly sketched so as to encompass within its scope a transaction entered into by the petitioner-company to close down an undertaking to generate funds for improving some other business. The transaction in order to be incidental or connected with the trading/manufacturing activity must have a regular and direct link to the trading or manufacturing activity being carried on by the company. It is not an indirect or remote connection or link that is contemplated. True, such transaction or activity need not be integral to the process of manufacture and sale of fertilisers. But, it should be something appurtenant or adjunct to the fertiliser business that is being run by the company. 66.. In the case of Binny Ltd. [1982] 49 STC 17 (SC), the Supreme Court referred to the decision in Royal Talkies v. Employees' State Insurance Corporation AIR 1978 SC 1478; [1978] 53 FJR 319 where the question was whether the canteen maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So is the case with the phraseology "in connection with". Either the phrase "in connection with" or the phrase "incidental" excludes an indirect and a remote link or nexus. It is too much to say that the disposal of entire business unit or a division of a company which is operationally and functionally independent for all practical purposes, could be treated as a transaction in connection with or incidental to the running of another independent unit of the company merely because the sale proceeds will be ultimately utilised for the overall improvement of the business unit retained by the company. An insight into the purpose for which the second clause was introduced in the definition of "business" and a close look at the setting of the two clauses embedded in section 2(1)(bbb), would reveal that complete cessation of the business activity in relation to one line of manufacture for whatever reason it be, does not give rise to the requisite link or nexus to the business that is still being carried on. 69.. Broadly speaking, a transaction appurtenant to or connected with the running business must be an on-going activity which goes along with such business as an adjunct or incident ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
