Exemption notification for Government departments did not cover Railways engineering sales, as the branch was part of a commercial activity.

Sales to a Railways engineering branch were held outside the concessional rate because the exemption notification applied only to Government of India departments purchasing for official use and excluded departments engaged in commercial activity and carrying on business. The Railways were treated as carrying on business, and running railways was regarded as a commercial activity; the Engineering Department was merely a branch of the Railways and not an independent Government department for the notification. The concessional rate was therefore unavailable, and assessment at the normal rate was upheld.

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Issues: Whether sales of goods made to the Engineering Department of the Railways were entitled to the concessional rate under the exemption notification, or fell within the exception for sales to Government of India departments engaged in a commercial activity and carrying on business.

Analysis: The notification granted reduced tax only for sales to the Government of India or its departments for official use and expressly excluded sales to departments engaged in a commercial activity and carrying on business. The Railways were held to be engaged in business, and the running of railways was treated as a commercial activity. The Engineering Department was only a branch of the Railways department and did not have a separate existence as an independent Government department for purposes of the notification.

Conclusion: The sales to the Engineering Department of the Railways were treated as sales to a Government department engaged in a commercial activity and carrying on business, and the concessional rate was not available.

Final Conclusion: The reference was answered against the assessee and the assessment at the normal rate was upheld.

Ratio Decidendi: Where an exemption notification excludes sales to Government departments engaged in commercial activity and business, a branch office of the Railways is not a separate department and sales to it fall within the exclusion.

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