1963 (3) TMI 38 - HC - VAT and Sales Tax

Kanpur Development Board not liable for sales tax as not considered a 'dealer' under U.P. Sales Tax Act

Kanpur Development Board Versus Comissioner, Sales Tax, UP.

Kanpur Development Board Versus Comissioner, Sales Tax, UP. - [1963] 14 STC 493 (All) Issues Involved:1. Whether the Kanpur Development Board is a 'dealer' under section 2(c) of the U.P. Sales Tax Act.2. Whether the Board can be assessed to sales tax on the value of materials supplied to its contractors.Issue-wise Detailed Analysis:1. Whether the Kanpur Development Board is a 'dealer' under section 2(c) of the U.P. Sales Tax Act:The primary question was whether the Kanpur Development Board qualifies as a 'dealer' under the U.P. Sales Tax Act. The Board was constituted for specific purposes such as provision of water supply, public drains, development and maintenance of streets, regulation of traffic, town planning, and other civic functions. It supplied materials to contractors from its stores to ensure timely and quality construction.The definition of 'dealer' in the Act is 'an association of persons carrying on the business of selling goods.' The Court noted that the Board, constituted under the Kanpur Urban Area Development Act, is indeed an association of persons. However, the crux of the matter was whether the Board was engaged in the 'business' of selling goods.The term 'business' was analyzed in both its broad and narrow senses. The broad sense includes any activity that occupies one's time and attention, while the narrow sense refers to activities engaged in for livelihood or profit. The Court emphasized that in the context of the Sales Tax Act, 'business' is understood in its commercial sense, implying an activity pursued for profit or livelihood.The Court concluded that the Board did not carry on the business of selling goods. The materials were supplied to avoid construction delays and ensure proper quality, not for profit. The Board did not exhibit or sell goods to the general public, nor did it operate a regular shop. The conditions imposed on the contractors, such as restrictions on removing materials from the site and the right of repurchase by the Board, were inconsistent with a profit-making intention.2. Whether the Board can be assessed to sales tax on the value of materials supplied to its contractors:The Board supplied materials to contractors and realized their price through adjustments in the contractors' bills. The Sales Tax Officer assessed the Board to sales tax, considering it a dealer. However, the Judge (Appeals) set aside this assessment, stating that the Board did not carry on any business by selling materials and was not a dealer.The Judge (Revisions) reinstated the assessment, arguing that the transactions amounted to sales since the property in the materials was transferred to the contractors for deferred payment. The High Court, however, disagreed with this view. It held that although the transactions involved the transfer of property in goods, the Board did not engage in these transactions as a business activity aimed at making a profit.The Court noted that the materials were supplied at cost, including insurance, freight, cartage, octroi, sales tax, and other expenses, without any intention of making a profit. The repurchase clause did not indicate a profit motive but was a measure to ensure the availability of materials for other projects.Thus, the Court concluded that the Board did not sell goods as a dealer and was not liable to pay sales tax on the turnover of the sales to contractors. The answer to the referred question was given in the negative.Conclusion:The High Court held that the Kanpur Development Board is not a 'dealer' under section 2(c) of the U.P. Sales Tax Act and is not liable to be assessed to sales tax on the value of materials supplied to its contractors. The reference was answered in the negative, and the applicant was awarded costs.