1985 (8) TMI 324 - SC - VAT and Sales Tax

Supreme Court quashes assessments, emphasizes profit motive for business activities. Revenue can reevaluate for subsequent periods.

Government Medical Store Depot, Gauhati Versus Superintendent of Taxes, Gauhati and Others

The Supreme Court allowed the appeals, quashing the assessments for the specified periods, as it emphasized the necessity of a profit motive for an ... Whether the assessee-appellant is liable to be taxed under the Assam Finance (Sales Tax) Act, 1956 and the Central Sales Tax Act, 1956? Held that:- Appeal allowed. In the instant case, as already shown, the appellant had from the very beginning taken the stand that its transactions were without any profit-motive. The High Court, in our view, on the materials placed before it, went wrong in dismissing the writ petitions. The legal position being settled as indicated by several decisions of this Court, the writ petitions should have been allowed and the assessments should have been quashed Issues:Whether the assessee-appellant is liable to be taxed under the Assam Finance (Sales Tax) Act, 1956 and the Central Sales Tax Act, 1956.Detailed Analysis:The case involved a dispute regarding the liability of the appellant to be taxed under the Assam Finance (Sales Tax) Act, 1956 and the Central Sales Tax Act, 1956. The appellant, a Medical Store Depot set up by the Central Government, contended that it was not a dealer and therefore not liable to tax. The appellant supplied medical stores to government institutions on a 'no profit-no loss' basis, adding 10% departmental charges for administrative costs only. The appellant argued that its transactions were not for profit-making and did not constitute business. Despite the appellant's resistance, it was registered under the State Act and treated as a dealer under the Central Act, leading to assessments under both Acts.The appellant maintained that without a profit motive, the transactions did not constitute business, citing relevant decisions emphasizing the importance of profit motive in determining business activities. The High Court, however, held that the 'no profit-no loss' formula indicated an intention to earn some profit, thereby classifying the appellant as a dealer. The High Court dismissed the writ petitions, upholding the assessments and registration of the appellant as a dealer under both Acts.The Supreme Court analyzed various precedents on the definition of 'business' and 'dealer', emphasizing the requirement of profit motive for an activity to be considered business. The Court noted that in the absence of profit motive, transactions, even if regular and systematic, would not amount to business. The Court highlighted the burden on the Revenue to prove profit motive in transactions, which was not adequately addressed in this case. The Court criticized the lack of investigation by the Revenue into the profit motive aspect and the High Court's dismissal of the writ petitions based on incomplete assessment.Ultimately, the Supreme Court allowed the appeals, quashing the assessments for the specified periods. The Court clarified that the quashing of assessments did not prevent the Revenue from reevaluating the matter for subsequent periods. The judgment was limited to the facts of the case for the period in question, with each party bearing their respective costs.