1976 (7) TMI 135 - SC - VAT and Sales Tax

Supreme Court rules Central Govt liable for sales tax, clarifies profit motive requirement

The Supreme Court affirmed the orders of the Sales Tax Appellate Tribunal and High Court, dismissing the appeals. It held that the Central Government is ... Whether there is any necessary exclusion from exigibility or other provision of immunisation which can be spelt out of section 2 or section 9 of Central Act? Held that:- Appeal dismissed. Profit-making in the State Act, it was conceded by the counsel for the Union, was irrelevant in contrast to its pertinence in the Central Act. If this be the correct position in law, it follows that the State Sales Tax Officer is entitled to collect sales tax from the appellant in regard to intra-State sales even assuming that there is no profit-motive or profit-accrual. The reverse is the case so far as Central sales tax is concerned. Orders passed by the Sales Tax Appellate Tribunal in all the six appeals, affirmed as it were by the High Court, are correct and these appeals deserve to be dismissed. Issues:1. Whether the Central Government is liable to pay sales tax under the Central Sales Tax Act, 1956 and the State Act.2. Whether the Central Government can be considered a 'dealer' under the Central Act.3. Whether the Central Government's activities of distributing essential commodities constitute 'business' under the Central Act and the State Act.4. Whether profit motive is necessary for the Central Government to be considered a 'dealer' under the Central Act.Analysis:1. The judgment dealt with the question of whether the Central Government is liable to pay sales tax under the Central Sales Tax Act, 1956 and the State Act. The Court examined the definition of 'dealer' under the Central Act, which includes any person carrying on the business of buying or selling goods, and specifically includes a government engaging in such business activities. The Court held that the Central Government, being a government, falls within the definition of a 'dealer' under the Central Act. Additionally, the Court found that the proceeds of the tax collected under the Central Act are assigned to the States, indicating that the Central Government can levy tax on itself for the benefit of the States. Therefore, the Court concluded that the Central Government is liable to pay sales tax under the Central Act.2. The judgment addressed whether the Central Government can be considered a 'dealer' under the Central Act. The Court analyzed the definition of 'dealer' in the Central Act, which explicitly includes a government carrying on the business of buying or selling goods. The Court emphasized that the Central Government, as a government entity, is encompassed within the definition of a 'dealer' under the Central Act. The Court rejected the argument that the Central Government, as a taxing authority, cannot tax itself, highlighting that the law allows the government to collect tax due from itself as an assessee. Therefore, the Court held that the Central Government can be considered a 'dealer' under the Central Act.3. The judgment examined whether the Central Government's activities of distributing essential commodities constitute 'business' under the Central Act and the State Act. The Court acknowledged that the State has the power to engage in trade or business activities, including the distribution of essential commodities for the welfare of the community. The Court determined that the systematic buying and selling of foodgrains and fertilizers by the State, even for a beneficent national policy, qualifies as trade or business. The Court concluded that the Central Government, representing the State, is rightly considered a 'dealer' carrying on business activities under both the Central Act and the State Act.4. The judgment deliberated on whether profit motive is necessary for the Central Government to be considered a 'dealer' under the Central Act. The Court noted that the presence of profit motive is essential for an entity to be designated as a 'dealer' under the Central Act. While profit-making was found to be irrelevant under the State Act, it was deemed pertinent under the Central Act. The Court directed the Tax Tribunal to investigate the profit-motive aspect in cases concerning the Central Act. Consequently, the Court affirmed that the State Sales Tax Officer is entitled to collect sales tax from the Central Government for intra-State sales, even if there is no profit-motive involved. However, profit motive is crucial for determining liability under the Central Sales Tax Act.In conclusion, the Supreme Court dismissed the appeals, affirming the orders passed by the Sales Tax Appellate Tribunal and the High Court. The judgment emphasized the legal obligations of the Central Government to pay sales tax under the Central Act, clarified the government's status as a 'dealer,' and underscored the distinction between profit motive requirements under the Central Act and the State Act.