1966 (9) TMI 82 - SC - VAT and Sales Tax

Supreme Court clarifies sales tax liability on old machinery & sundry items, excluding coal sales.

The State of Gujarat Versus Raipur Manufacturing Co. Ltd.

The Supreme Court ruled that a company was not liable to pay sales tax on the sale of old machinery, stores, and other sundry articles, except for 'kolsi' ... Whether the turnover from the goods sold by the Company was taxable? Held that:- As already set out in dealing with 'kolsi', we are of the view that waste caustic liquor may be regarded as a by-product or a subsidiary product in the course of manufacture and the sale thereof is incidental to the business of the Company and the turnover in respect of both 'kolsi' and 'waste caustic liquor' would be liable to sales tax. The answer recorded by the High Court on the first question will be modified as follows: 'In the negative, except as to 'kolsi' and waste caustic liquor.' Issues Involved:1. Liability to pay sales tax on the sale of old machinery, stores, and other sundry articles.2. Liability to pay sales tax on the sale of 'kolsi' (cinders) and 'waste caustic liquor.'3. Liability to pay sales tax on the sale of coal.Detailed Analysis:1. Liability to Pay Sales Tax on the Sale of Old Machinery, Stores, and Other Sundry Articles:The Supreme Court examined whether the sale of old machinery, stores, and other sundry articles by the Company was liable to sales tax under the Bombay Sales Tax Act, 1953. The Sales Tax Authorities and the Tribunal had initially included the turnover from these sales in the taxable turnover, contending that these sales were part of the business of the textile mill due to their frequency and volume.However, the Supreme Court held that merely disposing of discarded, surplus, or unserviceable articles does not constitute carrying on the business of selling those articles. The Court emphasized that to attribute an intention to carry on business, there must be a profit-motive pervading the entire series of transactions. The Court stated, 'A person who sells goods which are unserviceable or unsuitable for his business does not on that account become a dealer in those goods, unless he has an intention to carry on the business of selling those goods.'The Court concluded that the Company was not carrying on the business of selling old machinery, stores, and other sundry articles. Therefore, the turnover from these sales was not liable to sales tax.2. Liability to Pay Sales Tax on the Sale of 'Kolsi' (Cinders) and 'Waste Caustic Liquor':The Supreme Court differentiated the sale of 'kolsi' and 'waste caustic liquor' from other discarded items. The Court noted that 'kolsi' and 'waste caustic liquor' were regularly and continuously produced as by-products in the manufacturing process. The Court stated, 'When such subsidiary product is turned out in the factory regularly and continuously and is being sold from time to time, an intention to carry on business in 'kolsi' may be reasonably attributed to the Company.'Similarly, 'waste caustic liquor' was also considered a by-product of the manufacturing process, regularly accumulated and sold. The Court held that the sale of these by-products was incidental to the business of the Company and, therefore, the turnover from the sale of 'kolsi' and 'waste caustic liquor' was liable to sales tax.3. Liability to Pay Sales Tax on the Sale of Coal:The Supreme Court examined the sale of coal by the Company, which was purchased for lighting furnaces and heating boilers. The Tribunal had included the turnover from the sale of coal in the taxable turnover based on the frequency and volume of sales.However, the Supreme Court held that the mere sale of a commodity required for the Company's business does not justify an inference that the Company intended to carry on the business of selling that commodity. The Court stated, 'Unless there is evidence to show that there was an intention to carry on business of selling coal, the mere fact that coal of the value exceeding Rs. 16,000 was sold will not by itself make the Company a dealer carrying on business in coal.'The Court emphasized that the burden of proving that the Company was carrying on the business of selling coal lay upon the Sales Tax Authorities. Since no investigation was made regarding the circumstances of the coal's sale, the Court concluded that the turnover from the sale of coal was not liable to sales tax.Separate Judgments Delivered:1. The State of Gujarat v. Ashok Mills Ltd. (Civil Appeal No. 604 of 1965):- The Court held that the sale of 53 items, including old machinery, was not liable to sales tax, except for waste caustic liquor.2. The State of Gujarat v. Arvind Mills Ltd. (Civil Appeals Nos. 605 and 608 of 1965):- The Court held that the sale of various items, including old containers, discarded stores, machinery, and miscellaneous discarded items, was not liable to sales tax, except for waste caustic liquor.3. The State of Gujarat v. Ambica Mills Ltd. (Civil Appeal No. 606 of 1965):- The Court held that the sale of discarded machinery, including looms and carding engines, was not liable to sales tax.Conclusion:The Supreme Court modified the High Court's answer to the first question, holding that the Company was not liable to pay sales tax on the sale of old machinery, stores, and other sundry articles, except for 'kolsi' and 'waste caustic liquor.' The Court emphasized the necessity of proving an intention to carry on the business of selling a particular commodity to include its turnover in the taxable turnover.