1999 (3) TMI 500 - SC - VAT and Sales Tax

Madras Port Trust not liable for sales tax under Tamil Nadu Sales Tax Act

State of Tamil Nadu and Another Versus Board of Trustees of the Port of Madras

The Supreme Court held that the Madras Port Trust was not considered a 'dealer' under the Tamil Nadu General Sales Tax Act, 1959, as its activities were ... Whether certain sales of commodities other than the goods relating to the main business could also be included in the turnover? Held that:- Appeal dismissed. Port Trust is not involved in any activity of “carrying on business” and that unclaimed and unserviceable goods are sold in discharge of various statutory charges, items, etc., and the sales of these items are also an infinitesimal part of the Port Trust’s main activities or services. No doubt, the sales of goods are in connection with, or incidental or ancillary to the main “non-business” activities, but they cannot be treated as “business” without any plea by the State of Tamil Nadu that the Port Trust had an independent intention to carry on business in the sale of unserviceable/unclaimed goods. That is not the case of the department in the show cause notice. Further from the counter-affidavits filed in the High Court it is clear that it is not the case of the State that there is any separate intention on the part of the Port Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of the Port Trust amounted to “carrying on business” and that these sales, even if they were incidental, fell within the meaning of the word “business”. The argument fails in view of our finding that the main activity is not one amounting to “carrying on business”. Issues Involved:1. Whether the Madras Port Trust is considered a 'dealer' under the Tamil Nadu General Sales Tax Act, 1959.2. Applicability of the Tamil Nadu General Sales Tax Act, 1959 to the activities of the Port Trust.3. Interpretation of 'business' and 'dealer' under the Tamil Nadu General Sales Tax Act, 1959.4. Validity of the notices issued by the Commercial Tax Officer to the Port Trust.5. Relevance of profit motive in determining the applicability of sales tax.Issue-wise Detailed Analysis:1. Whether the Madras Port Trust is considered a 'dealer' under the Tamil Nadu General Sales Tax Act, 1959:The primary question was whether the Port Trust could be classified as a 'dealer' under section 2(g) of the Tamil Nadu General Sales Tax Act, 1959. The definition of 'dealer' includes any person who carries on the business of buying, selling, supplying, or distributing goods. The court examined whether the activities of the Port Trust, particularly the sale of unclaimed and unserviceable goods, constituted 'carrying on business.'2. Applicability of the Tamil Nadu General Sales Tax Act, 1959 to the activities of the Port Trust:The court analyzed whether the statutory functions and services provided by the Port Trust, such as landing, shipping, trans-shipping, receiving, shifting, transporting, storing, or delivering goods, could be considered as business activities. The court referred to previous judgments, including Trustees of the Port of Madras v. State of Madras (1960) and State of Madras v. Trustees of the Port of Madras (1974), which held that the Port Trust's activities were not commercial ventures aimed at profit-making.3. Interpretation of 'business' and 'dealer' under the Tamil Nadu General Sales Tax Act, 1959:The court examined the definitions of 'business' and 'dealer' as amended by the Madras Act No. 15 of 1964 and Tamil Nadu Act 31 of 1992. The amendments included activities carried on without a profit motive within the definition of 'business.' The court discussed various rulings, including State of Gujarat v. Raipur Manufacturing Co. Ltd. (1967) and State of Tamil Nadu v. Binny Ltd. (1982), to interpret the scope of 'business' and 'dealer.' The court concluded that the Port Trust's activities, being statutory and not aimed at profit, did not fall within the ambit of 'business.'4. Validity of the notices issued by the Commercial Tax Officer to the Port Trust:The court scrutinized the notices issued by the Commercial Tax Officer in 1993 and 1994, directing the Port Trust to register as a dealer and furnish details of auction sales. The court found that the notices were based on an incorrect assumption that the Port Trust's activities constituted business. The Division Bench of the High Court had quashed these notices, and the Supreme Court upheld this decision, stating that the Port Trust's activities did not amount to carrying on business.5. Relevance of profit motive in determining the applicability of sales tax:The court considered whether the absence of a profit motive affected the applicability of sales tax. It referred to the amendment in the definition of 'business' which included activities carried on without a profit motive. However, the court emphasized that the primary purpose of the Port Trust was not to carry on business but to perform statutory duties. The court held that the sales of unclaimed and unserviceable goods were incidental to the Port Trust's statutory functions and did not constitute business activities.Conclusion:The Supreme Court concluded that the Madras Port Trust was not a 'dealer' under the Tamil Nadu General Sales Tax Act, 1959, as its primary activities were statutory and not aimed at profit-making. The court upheld the decision of the Division Bench of the High Court, which had quashed the notices issued by the Commercial Tax Officer. The appeal by the State of Tamil Nadu and the Commercial Tax Officer was dismissed without costs.