1963 (4) TMI 57 - HC - VAT and Sales Tax

Court Rules Sale of Old Machinery Not Business Activity under Sales Tax Act

The Court determined that the respondent-company was not considered a dealer under the Bombay Sales Tax Act, 1953, for the sale of old machinery, ... - Issues:Whether the respondent-company was a dealer within the meaning of the Bombay Sales Tax Act, 1953, regarding the sale of old machinery.Analysis:The case involved determining if the respondent-company qualified as a dealer under the Bombay Sales Tax Act, 1953, concerning the sale of old machinery from its mill. The company sold a Roto Coner and High Speed Warping Machine for Rs. 35,700 in 1956. The Deputy Commissioner initially deemed the company a dealer subject to tax, but the Sales Tax Tribunal disagreed. The Tribunal's reference to the High Court questioned whether the company was a dealer for this specific sale. The definition of a dealer under the Act includes any person engaged in buying or selling goods, and the key issue was whether the sale of machinery was part of the company's business activity.The Commissioner argued that the company's memorandum of association authorized the resale of machinery, indicating a business purpose. However, the Court highlighted that mere authorization to sell assets does not automatically make a company a dealer. Citing precedents, the Court emphasized that the sale must be connected to the normal business operations to be considered part of the business. The volume and frequency of transactions were also considered, with reference to similar cases, but emphasized that profit motive is crucial in determining business activity.The Tribunal found that the company sold old machinery to replace it with new machinery, not for profit, and such transactions were necessary but not part of the business. Despite a series of sales over the years, the Court concluded that the sale in question was not in the course of the company's business activity of cloth manufacturing. As a result, the Court answered the reference in the negative, stating that the respondent was not a dealer for the specific transaction. The Commissioner was directed to bear the respondent's costs, and the reference was resolved in favor of the respondent.