State of Tamil Nadu v. Mis Burmah Shell Oil Storage & Distributing Co. of India Ltd. & Anr.

JAGANMOHAN REDDY, J.-These are two appeals by special leave against the judgment of the Madras High Court. In Appeal No. 2119/69 the chargeability ito sales tax ~nder the· Madras General Sales Tax Act 1959 (hereinafter called the 'Act') as amended by Acts of 1961 and 1964 in respect of ( 1) advertise­ ment maoterials ( 2) canteen sales ( 3) sale of scrap and ( 4) penalty have to be considered, while in Appeal No. 2120/1969 only the sales tax levied in respect of sale of scrap and penalty has i:>een challenged. The respondents are oil companies and it appears in the first of the appeals the respondent under the fa.:ll:ories Act had to supply tea and edibles to its workmen for the canteen es1ablished by it. It also supplies to its agents at cost price or less than the cost price advertisement materials such as calendars, purses and key chair:s. Both the respondents also sell as scrap periodically unserviceable oil drums, rubber hoses, jerry cans, rims, unserviceable pipe fittings and old furniture. The amount of turnover in respect of each if the items in the respective appeals is not relevant, but what is relevant is that in both the appeals the year 1964-1965 for which assessment is made on the turnover of sales is divided into two parts (i) 1st April to 31st 1August, 1964 and (ii) 1st September, 1964 to 31st March, 1965, die first p~rt being governed by the 1959 Act while the second part is chargeable under the Act a~er its amendment in 1964 The d.efinition of business, casual trader and dealer before and after the amendment is different and the questi01n is, whether under the amended definition of the said tern1s on and after 1964, Act, attracts sales tax on the above transactions. In the High Court it was contended that the Tribunal was wrong in holding that sales of publicity materials were chargeable to sales tax on the ground that (a) there was no sale M all by the assessee in the true sense and (b) even if there was, it was not as a dealer. The High Court dealt with the latter aspect holding that the object of the respon­ dent is not shown to be to ensrage itself in trade or commerce of publicity rr aterials, and though it may be that the distribution o4' the publicity mate~ials to the distributors is connected with the business of the assessee that will not be sufficient to make it a trade or an activity in a commercial sense. In this view it held that it was not a dealer nor is it its business carried on as a dealer. The High Court also held that the sale of scrap and canteen sales were not liable to tax following its earlier judgment in Deputy Cnmm•s­ sioner of Commercial Taxes, Coimbatore Division, Coimbatore v. Sri Thiromagal Mills Limlted(') It may be mentioned that in the ori<>inal Act viz. The Madras Sales Tax Act, 1939 'dealer' was defiied as meaning any person (I) 20 S. T. C. 287. TAMILNADU v. BURMAH SHELL co. (Jaganmohan Reddy, J.) 639 who carried. on the business of buying and selling goods. In that Act there was no definition of a casual dealer nor of business. The 1959 Act defined these terms for the first time and by the Amend­ ing Act of 1964 ~he definition of business was substi!uted so as to do away with motive for making profit or the making of profi~ as elements in determining what con~itutes a business. Even th~ definition of casual trader in the 1959 Act was substituted by th~ Amending Act in 1961. These definitions are given below one against ihe other for facility of comparison :- 1959 Act Section 2 (d) "business includes (i) any trade, ·commerce or manufacture or ·any adventure or concern in the nature­ Qf tr.ade,. coinmerce or manufacture, Whether or not ilny prOfit accrues from such trade, 'commerce,· manufe.cture, adventure or concern .. (e) "CasuM trader"·means a person whci . has, whethet' as principal, agent, or in any other capacity, occasionaJ tran­ sactions of a .business· nature involving cash ,or' for deferred payment, or for commi_ssion, remuneration, or other valuable consideration; (g) "dealer" means any -person who carries on the business of buying, selling, supplying or distribudng goods, directly or otherwise, whether for cash, or for deferred payment, or for. com­ mission, remuneratiQn or other valuable consideration; and includes (i) - "' (ii) a casual trader; 1 ------------- After the 1961•nd1964 Amendment Act: ----------- - Secticn 2(d) "tus1r.c$.S" irclt·Cc[­ . any trade, ccn:.me1'cc or rr.ar.ufacture or any adventure of ccince1n in tbi; nature of trtde, ccrr.rntrce or manu:­ facture whether or not such tit.de-, commerce• rr.anufr.ctu1e, tC:\< r. tl'J e er contern is carric.d o':'I with. a···rr.otive to make gain or ·profit and whether or not any profit accrtics from such 'trade", commerce, manufacture, adventure or concern, and (ii) any transaction in ·c.Q.Dnfction with, 'or incidental or ancilla1y to, -bUcl;i trade, commerce, manufz.cture, ad .. venture or concern f (e) ·"Casual trader" means a person who ... has, whether as principal, agent, ot ----'B'ny other capacity, cccasionat · tr&Cllctions of a business nature in· volvina the buying, se]lina, supply or distribvtion .of aoods in , tho State, whether for cash, or for deferred pay. ment, or for corp.mission, remuneration or other. valuable consideration •. and who does not reside or has no fixed place of business within the State; (g) udealer" means any person who carries -on the business of buying, selling, supplying or distritutini goods directly or otherwiSe, whether for cash, or for deferred payment; or for commi$sion; remuneration or other valuable consideration, and includes- (i)- (ii) a casual trader; .Pit the outset the learned advocate for the appellant did not press the contention in respect of the penalty having regard to the decision of this Court in State of Madras v. Javaraj; Nadar & 8-L499Sup. C. I. 173 • Sons('). In so far as the business turnover for the first part of the assessable year 1964-65 is concerned it is not denied that the Act of 1959 prior to its amendment in 1964 is applicable. The contention that the 1964 amendment has retrospective operation was negatived in State of Tamil Nadu v. Thirumagal Mills Ltd.(') but before this judgment was rendered the Sales Tax Tri­ bunal had held that that part of the assessment is also covered by the 1964 amenQme.nt. But the learned advocate for the appellant nonetheless submits that even under the 1959 Act before its amendment to transactions which are incidental or anciliary to trade or commerce whether or not profit has been made, are liable to tax. This contention was clearly negatived in State of Gujarat v. 'Raipur Manufacturing Co. Ltd. (8 ) In this case which was under the Bombay Sales Tax Act 1953 where the definrtion of a dealer under s. 2(6) is in pari materia withs. 2(g), the disposal by a company carrying on the business of manufacturing and selling cotton textiles of its miscellaneous old and discarded items such as cans, boxes, cotton ropes, rags etc., was held by this Court not to be carrying on the business of selling these items of goods. It further stated that from the fact that the sales of these items were frequer.t and their volume was large it cannot be presumed that when the goods were acquired there was an intention to carry on the business in those discarded materials, nor are the discarded goods, by-products or subsidiary products of or arising in the course of manufactur,ing process. Shah, J. who spoke. for the Court observed at pages 7-8 : "But the question is of intention to carry on busi­ ness of selling any particular ciass of goods. Un­ doubtedly from the frequency, volume, continuity and regularity of transactions carried on witl,l, a profit­ motive, an inference that it was intended to carry on business in the commodity may arise. But it does not arise merely because the price received by sale of dis­ carded goods enters the accounts of the trader and may on an ove~all view enhance his total profit, or indirectly reduce the cost of production of goods in the business of selling ill which he is engaged. An attempt to realize price by sale of surplus unseNiceable or discarded goods does not necessarily lead to an inference that business is intended _to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the as,es,ee also does not lead to inference that business is intended to be carried on in selling those goods." (1) 28 S.T.C. 700. l2) 29 S.T.C. 290. (3) 19 S.T.C. !. ( lB l> TAMILNADU v. BURMAH SHELL co. (Jaganmohan Reddy, J.) q I The contention on behalf of the Stute in respect of the first part of the turnover for 1964-65 therefore fails. With respect to the second part of the turnover the question whether the amendments in 1964 to the definition of "business" and "casual trader" are directly applicable has to be considered. It will be observed that under the definition of "business'' even commercial transactions carried on without a motive to make gain or profit, or whether or not any profit accrues from such activity are included in that definition. The amended sub clause (ii) also includes with that definition transaction in connection with or incidental or ancilliary to such trade, manufacture or adventure or concern. The question is, whethtr the word "such" in sub-cl. (ii) of cl. (d) of s. 2 refers to the trade etc. defined in sutccl. ( i). lt was contended before the Madras High Court that it is not so and that incidental or ancilliary acrivity must partake the nature of business in its generic sense. In Dy. Commr. of Commercial Taxes v. Thirumagal Mills Ltd. (supra) a Bench ot that Court had held that not­ withstanding the amendment the presence or ab!Sence of profit will not make any difference. According to it what has to be considered is that the activity should be of a com­ mercial character and in the course of trade or commerce and accordingly •the definition of 'business' in the second clause was still one invested with commercial character inasmuch as the reference was to "any transaction in connection with or inci­ dental or ancilliary to any trade, commerce, manufacture, adven­ ture or concern•. It was observed that unle~s the transaction is connected with trade that is to say, .it has something to do with trade or has the incidence or elements of trade or commerce it wtll not come within the definition. The Court observed : ·"The words 'in connection with or incidental or ancilliary to• in the second pa1-t c.f the definition of ·"business" in our opinion, still preserve or retain the requisite that the transaction should be in -the course of business understood in a commercial sense. The in­ tention o,f Madras Act 15 of 1964 does not appear to be to bftng into the tax: net a transaction of sale or purchase which is not of commercial character." In. th~s view; it held that 0e fair price shop which the assessee, a sp1l!nmg mil! manufactunng cotton yarn, had opened to make avatlable .to its workmen sale of commodities at fair prices could H ~ot be s~1d t? be carrying on the business of selling commodities 'm the fair prier. shop m a trade or commercial sense even if profit accrued to it and it was therefore wi1h reference to the fair price shop, not a dealer within the meaning of the Act. This decision does not take note of the. words "such" in the second sub-clause which in our view imports by reference the definition in sub-cl. ( i) into that of sub-cl. (ii). A similar question came up for consideration before the Andhra Pradesh High Court on the analagous provisions of the Andhra Pradesh General Sales Tax Act in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh(1). In that case the .assesee company main­ tained a canteen for the use of workers in compliance with the provi~ions of the Factories Act 1948 and the rules made \here­ under. The question was, whether the 1urnover relating to the supplies of food and drink to the workers at the canteen could lie charged to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. The assessee .contended that it was compelled by statute to provide and maintain a canteen for use of the work­ ers, tha:t the canteen was not run with a profit motive, as such it could not be said that there were any sales when food and drink were supplied to the workers at the canteen and that even if profit motive was not an ingredient of 'business' it mus•! be estab­ lished that the assessee intended to do business in food and drink before it could be subjected to the -levy of sales tax. The Court held that in view of the definition of "business' as amended by the Amendment Act of 1966, proof of profit motive is unnecessary to constitute business and that the transaction of supply of food and drink to the workmen in the canteen maintained by the asses­ see, in pursuance of the Factories Act and the Rules, were sales and constituted business for :he purpose of the Act. Dealing with ihe case of Dy. Commissioner of Commercial T IJXes v. Thirumagal Mills Limited (supra)· the .learned Judges said that they were unable to agree with that case as the Madras High Court had not paicl sufficient ·a('tention to the word "such" occur­ ring in the second part o.f the definition which according to them obviously referred to the "trade, commerce, manufacture, adven­ ture or concern" mentioned in the fi•st part of the definition, that is to say, "trade, comn1erce, manufacure, advenure or concern' of which a .motive to make gain or· profit is not an essential requisite, nor was it permissible to hold that there was no "busi­ ness in the commercial sense of 'business' with a motiv~ to make profit, when such motive has been expressly declared unnecessary by the Legislature. In thei~ view under both parts of the defini­ tion profit-motive is now immaterial arid the concept of business· in respect of matters falling under Sec. 2(d) (ii) in the commer­ cial sense ptit forward and accepted in the earFer cases must , . be ab,mdoned. We think the view adopted by the Andhra Pra­ desh High Court is in comonance with our own reading of the occ-tiou which w~ have indicated earlier. .. --------- '.') 30 S. T. C. ~6. ( \ TAM!Ll';ADU v. BURMAH SHELL co. (Jaganmohan Reddy, J.) '643_ The learned advocate for the respondent in the second of the· app-eals contended that the very itwo learried Judges of the Andhra Pradesh High Court had earlier rendered a decision in A .P. State Road Transport Corpn. v. Commercial Tax Officer('} which is in conflict. with the Hyderabad Asbestos Cement Products Ltd. case,· and in the latter case. the fonner case was neither 'referred to nor distinguished by them. We tllink that this comm!lnt is the result of an insufficient appreciation of what was d.:cided in · the former case because itherein the assessee was not a dealer and consequently a seller of scrapped vehicles and other scrap was· not liable to be assessed. It was pointed out at the very outset that in view of the pronouncements of the Supreme Court, the A.P. State Road Transport Corporation which is primarily con­ stituted to provide an efficient, adequate, economical and proper- ly co-ordinate system of road transport service could not be held to be a dealer carrying on the business in old and scrapped vehicles and other scrap and it could not be assessed to sales tax. The Commercial Tax Officer was not, therefore, right in. holding that the assessee Corporation was a dealer. The chargeable sec­ tion, viz., S3, makes every dealer liable to pay tax in respect' of the turnover for .the year .and consequently the assessee .not being a dealer cannot be assessed to tax under the Act. The sale of scrap in these appeals ·which as we have said earlier, ·consisted of spoiled drums, hose pipes etc. were all held to be connected witn t.he business of the company. This finding is a finding-of fact E. but even otherwise the very nature ot the particular sc1ap prima facie would j!]dj~ate that they are connected with the business of the company. ·The assessee .being an oil company has to use oil drums, hose pipes, jorry cans etc. as part of its trading activity and any sale of these unserviceable goods as scrap is a transac- tion connected with its trade or commerce. It is a contended bv the respondent that in State of Gujarat v. Raipur Manufacturing Co. (supra) this Court. had observed a1 p. 9 that the miscellane- ous, old and discarded items such as stores, machinery, iron . scrap, cans, boxes, cotton ropes, rags etc, were held to be nor part of or incidental to the main business of selling textiles. This contention in our view does not take into account. the context in which that finding had bi~en given. In that case, as already pointed out, what was held under analogous Bombay Sales Tax Act which was similar to that under the Madras Sales T~.x Act pri?r to its amendment in 1964, the sale of scrap does not neces­ sarily lead lo an inference that business which was an element in determining the liability of the dealer for the turnover in such goods was intended to be carried on in those goods. This Court had­ observed, it cannot be presumed, that when the goods we~ acquired (1) 27 S. T. C. 42. there was an intention tO carry on business in those discarded mate­ rial nor are the discarded goods by-products or subsidiary products or are produced in the course of manufacturing process; that they are either fixed assets of the company or are goods which are incidental to the acquisition or use of stores or commodities con­ sumed in the faotory and that when these go into the profit and loss account of the business and may indirectly be said to reduce the cost of production of the principal item, the disposal of those goc ... ls on that account cannot ~ said tci be part of or incidental •o the main business of selling textiles. As the scrap in that case wa;, not held to be incidental to the acquisition or use of stores or commodities consumed in the factory, the turnover was not in­ cluded but iri the case of caustic liquor which is regularly and continuously accumulated in that tanks in the process of merci­ risatioo of cloth, this Court held that dlat being a waste material it has still a market amongst other manufacturers or launderers as 1'~-products or subsidiary products in the course of manufac­ ture. and the sale thereof is incidental to the business of the com­ pany. In the view we hold the scrap sold is certainly connected wit!: <he business of the company and the turnover in respect of this ,;:ommodity is liable to tax. It cannot also be said that the turnover in respect of the sale of the assessees advertisement material at cost price or less than cost price is not connected with the business of. the assessee. Calenders, wallets and key chains are all given by the dealers to i1s customers for purposes· of maintaining and increasing the sales of the products of the assessee and is therefore connected .. :wllh the business. What the assessee is doing is to facilitate the dealers to acquire at their cost such advertising materials of a uniform type approved bb' the a;sessee company which instead of allowing each of them to have these separately printed or manufactured, itself qndertook to do so and supplied them to its dealers. The suppfy of such ·material is in our view being connected with the ~siness is liable. to be included in the turnover of the assessee. It is pointed out by the learned advocate for the respondent in the first of the appeals that under G.O. 2238 dated 1st Sep­ tember 1964 the canteen sales are exempt and notwithstanding the fact that the assesee in that appeal has complied with the' terms and conditions of that G.O. the canteen sales have not been excludf".!. The G.0. to which reference is made is in the: following terms :- "III No. 336 of 1964.-In exercise of the powers ~onferred by section 17 of the Madras General Sales Tax Act, 1959 (Madras Act I of 1959), the Governor of Madras hereby exempts, with effect on and from the 1st September, 1964, the tax payable under the said c: I! ,_ TAMILNADU v. BURMAH SHELL co. (Jaganmohan Reddy, J.) 645 A Act on the sales by all canteens run by an employer or by the employers on Co-operative basis on behalf of the employer, under a statutory obligation v.1thout profit motive, provided that the employer subsides at least twenty-five per cent of the total expenses incurred in running the canteen. · B Under this G.O. what has to be established is that the a.;sessee has subsidised at least ~5 % of the total expenses in running the canteen. The Sales Tax Officer disallowed this amount because the assessee had not produced the accounts. In the memorandum of appeal to the Appellate Assistant Commissioner the assessee characti;.rised this statement as unfair as the Commercial Tax c Officer was invited to state what other records he required but he did not raise this point during the checkini: of the accounts. In support ol this grievance a letter of the assessee's advocate to the officer was referred. In that letter it was stated that out of the turnover of Rs. 35,974-96 in respect of the canteen sales, the assessee had supplied free tea to the staff of the value of 0 Rs. 13,740-37. It was further mentioned in that letter that the assessee bears the expenses towards salaries and amenities pro­ vided for the employees in the canteen as also the electric charges and oorporation taxes. It also provides free of charge all equip­ ment including furniture and fittings and a rent free building for this canteen. It therefore prayed that the turnover be exempted under the aforesaid G.O. Neither the Appellate Assistant Com- E missiciner nor the Sales Tax Tribunal considered this aspect nor did the assessee pray for producing any evidence before them. We think as the assssee had sufficiently brought to the notice of the Sales Tax Officer its claim and was willing to produce accounts it should be permitted to do so. The Sales Tax Tribunal will gh·e an opportunity to the assessee to produce evidence to F ·show under the tenns of G.O. 2238 it is entitled to exemption from the turnover in respect of the canteen sales. In the result both the appeals are dismissed in respect of levy of penalty. They are partly allowed so far as they are related to scrap in respect of the second period, 1-9-64 to 31-3..65 and G dismissed in respect of the 1st period, 1-4-6'4 to 31-8-64. In so far as appeal 2119 of 1969 is concerned it is also partly allo.,ved in respect of the advertisement materials for the period 1-9-64 to 31-3-65 and dismissed in respect of the 1st period, 1-4-64 to 31-8-64 and with respect to canteen sales the appeal dismissed in respect of the !st period, 1-4-64 to 31-8-64 and allowed in H respect of the second period 1-9-64 to 31-3-65 and the matter remanded with the directions given above. There will be no order as to costs in both t1'ese appeals. S.C. Appeals partly allowed.