1972 (10) TMI 95 - SC - VAT / Sales Tax

Scope of business definition over promotional items and scrap sales as taxable turnover; canteen exemption remanded, penalties dismissed

Whether amended 1964 definition of 'business' and 'casual trader' renders certain disposals part of taxable turnover: the Court held the amended ... Definition of 'business' - casual trader - dealer - incidental or ancillary transactions - connection with trade or commerce - exemption under G. O. 2238 dated 1st September, 1964Definition of 'business' - connection with trade or commerce - dealer - Liability to sales tax of turnover from supply/sale of advertisement materials by the assessee for the two parts of the assessable year 1964-65. - HELD THAT: - For the period 1st April to 31st August, 1964 the unamended 1959 Act applies and the State's contention fails in view of precedents holding that incidental disposals not intended as a business are not taxable under the earlier definition. For the period 1st September, 1964 to 31st March, 1965 the amended definition of 'business' brings within its scope transactions even if profit-motive is absent; the Court construes the sub clause (ii) as importing by reference the wide meaning of sub clause (i) so that transactions 'in connection with, or incidental or ancillary to' the trade are included. The supply of calendars, wallets and key chains to dealers is held to be connected with and in furtherance of the assessee's trade in oil products (facilitating dealers and promoting sales) and therefore falls within the amended definition of business and must be included in turnover for the latter period.Advertisement materials turnover not liable to tax for 1st April-31st August, 1964; liable to tax for 1st September, 1964-31st March, 1965.Definition of 'business' - incidental or ancillary transactions - connection with trade or commerce - Liability to sales tax of turnover from sale of scrap (unserviceable drums, hoses, jerry cans, fittings, furniture) for the two parts of the assessable year 1964-65. - HELD THAT: - The Court applies precedent under the unamended Act to hold that the State's contention in respect of the first period fails. As to the second period after amendment, the Court finds that the scrap in question is intrinsically connected with the assessee's trading activity (use of drums, hoses, etc.) and thus is a transaction 'connected with' the business within the amended definition. Distinguishing the Raipur Manufacturing precedent on its facts, the Court emphasizes that where the scrap arises from or is connected with the trading activity, disposal is within business turnover under the amended section.Sale of scrap not liable to tax for 1st April-31st August, 1964; liable to tax for 1st September, 1964-31st March, 1965.Casual trader - definition of 'business' - exemption under G. O. 2238 dated 1st September, 1964 - Liability to sales tax of turnover from canteen sales for the two parts of the assessable year 1964-65 and the claim for exemption under G.O. 2238 for the period from 1st September, 1964. - HELD THAT: - For the first period (1st April-31st August, 1964) the unamended Act governs and the canteen sales are not held to attract tax. For the second period (1st September, 1964-31st March, 1965) the amended definition of 'business' can cover canteen supplies; however the assessee relied on G.O. 2238 (effective 1st September, 1964) which exempts sales by employer-run canteens meeting specified subsidisation and statutory obligation conditions. The Tribunal and Appellate Assistant Commissioner did not consider or permit production of evidence to establish the requisite subsidy and other conditions. The Court directs that the Sales Tax Tribunal give the assessee an opportunity to produce accounts and evidence to establish entitlement to the exemption under G.O. 2238.Canteen sales not liable for 1st April-31st August, 1964; for 1st September, 1964-31st March, 1965 the claim for exemption under G.O. 2238 is remanded for the assessee to be allowed to produce evidence and for fresh consideration by the Tribunal.Penalty - Validity of penalty imposed under the Act in both appeals. - HELD THAT: - The appellant did not press the contention on penalty in view of preceding Supreme Court authority. The appeals as to penalty are dismissed.Penalty challenge dismissed; no relief on penalty.Final Conclusion: The appeals are partly allowed: turnover from advertisement materials and scrap is held taxable for the period 1st September, 1964 to 31st March, 1965 but not for 1st April to 31st August, 1964; canteen sales for the later period are remanded to the Tribunal for verification of entitlement to exemption under G.O. 2238 upon allowing the assessee to produce accounts; challenges to penalty are dismissed. Issues Involved:1. Chargeability to sales tax on advertisement materials.2. Chargeability to sales tax on canteen sales.3. Chargeability to sales tax on the sale of scrap.4. Imposition of penalty.Detailed Analysis:1. Chargeability to Sales Tax on Advertisement Materials:The respondents, oil companies, supplied advertisement materials such as calendars, purses, and key chains to their agents at cost price or less. The High Court held that these sales were not chargeable to sales tax as the respondents were not engaged in the trade or commerce of publicity materials. The Supreme Court, however, found that the supply of these materials was connected with the business of the respondents, as they facilitated the dealers to acquire uniform advertising materials approved by the company. Consequently, the turnover of these materials was liable to be included in the assessee's turnover and subject to sales tax for the period from 1st September 1964 to 31st March 1965.2. Chargeability to Sales Tax on Canteen Sales:The respondents provided tea and edibles to their workmen in compliance with the Factories Act. The High Court ruled that canteen sales were not liable to tax. However, the Supreme Court examined G.O. 2238, which exempts canteen sales from tax if the employer subsidizes at least 25% of the total expenses. The Sales Tax Officer had disallowed this exemption due to lack of accounts. The Supreme Court directed the Sales Tax Tribunal to allow the assessee to produce evidence to claim exemption under G.O. 2238 for the period from 1st September 1964 to 31st March 1965.3. Chargeability to Sales Tax on Sale of Scrap:Both respondents periodically sold unserviceable items such as oil drums, rubber hoses, and old furniture as scrap. The High Court held that these sales were not liable to tax. The Supreme Court, however, found that the sale of these items was connected with the business of the respondents, as they were part of the trading activity. The turnover from these sales was therefore liable to tax for the period from 1st September 1964 to 31st March 1965.4. Imposition of Penalty:The appellant did not press the contention regarding the penalty, citing the decision in State of Madras v. Jayaraj Nadar & Sons [1971] 28 S.T.C. 700 (S.C.). Consequently, the Supreme Court dismissed the appeals concerning the imposition of penalties.Conclusion:The appeals were partly allowed and partly dismissed. The Supreme Court held that the sales tax was applicable on the sale of scrap and advertisement materials for the period from 1st September 1964 to 31st March 1965. The case regarding canteen sales was remanded to the Sales Tax Tribunal to allow the assessee to produce evidence for exemption under G.O. 2238. The imposition of penalties was dismissed. There was no order as to costs in both appeals.