1970 (4) TMI 151 - HC - VAT and Sales Tax

Court includes canteen sales in turnover for sales tax assessment, profit motive irrelevant

The court upheld the inclusion of canteen sales in the turnover for sales tax assessment, emphasizing that the profit motive was irrelevant under the ... Definition of 'business' not requiring profit-motive - supply at factory canteen constituting sale and business - compulsion by statute does not negate voluntary assent or contract - commercial character test displaced by legislative amendmentDefinition of 'business' not requiring profit-motive - commercial character test displaced by legislative amendment - Whether supply of food and drink in a factory canteen constitutes 'business' under the Andhra Pradesh General Sales Tax Act after the 1966 amendment to the definition of 'business'. - HELD THAT: - The Court held that the 1966 amendment to the definition of 'business' in the Andhra Pradesh General Sales Tax Act removed profit-motive as an essential ingredient. Consequently earlier authorities which construed 'business' to require a profit-motive (decisions of the Madras High Court) no longer represent the correct legal test. The amended definition treats activities that are trade, commerce, manufacture or concerns in the nature thereof as 'business' whether or not carried on with a motive to make gain or profit, and transactions incidental or ancillary to such activities fall within the concept. Applying this statutory definition to the facts, the sales of food and drink at the canteen, though required by the Factories Act to be run on a non-profit basis, involve transactions in goods and thus constitute 'business' within the Sales Tax Act.Sales of food and drink supplied in the factory canteen constitute 'business' for the purposes of the Andhra Pradesh General Sales Tax Act in view of the amended definition.Compulsion by statute does not negate voluntary assent or contract - Whether the fact that the occupier is obliged by the Factories Act to provide and maintain a canteen, and that canteen sales are governed by Rules (including non-profit requirement), prevents those supplies from being sales or showing intention to carry on business. - HELD THAT: - The Court rejected the submission that statutory compulsion to provide a canteen means there can be no intention to supply goods or no privity of contract with workmen. Relying on principle that obedience to law does not preclude intention and on authorities distinguishing cases where mutual assent is entirely excluded, the Court found that the canteen transactions were not wholly controlled by statute. The Factories Act and Rules leave substantial discretion as to menu, timings and prices (subject to committee or inspector approval) and there is direct privity and recurring dealings with workmen when articles are supplied for consideration. Hence statutory obligation to provide the amenity does not vitiate the existence of contractual sales or preclude treating the supplies as taxable turnover.Compulsion under the Factories Act does not prevent canteen supplies from being sales or from indicating an intention to carry on the relevant activity; such supplies may be included in taxable turnover.Final Conclusion: Writ petitions dismissed. The High Court held that, in view of the amended definition of 'business', the supply of food and drink in a factory canteen maintained under the Factories Act constitutes business/sales liable to be included in taxable turnover; statutory compulsion to provide a canteen does not negate contractual assent or the character of those supplies as taxable sales. Issues Involved:1. Inclusion of canteen sales in turnover for sales tax assessment.2. Definition and interpretation of 'business' under the Andhra Pradesh General Sales Tax Act.3. Compulsion to provide canteen services under the Factories Act and its impact on the characterization of sales.Issue-Wise Detailed Analysis:1. Inclusion of Canteen Sales in Turnover for Sales Tax Assessment:The petitioner, Hyderabad Allwyn Metal Works Limited, argued that sales at the canteen should not be included in their turnover for sales tax purposes, as these sales were not part of their 'business' but were made to comply with statutory requirements under the Factories Act. The Commercial Tax Officer disagreed and included the canteen sales in the turnover, a decision upheld by the Assistant Commissioner of Commercial Taxes and the Sales Tax Appellate Tribunal. The petitioner sought a writ of certiorari to quash this inclusion.2. Definition and Interpretation of 'Business' under the Andhra Pradesh General Sales Tax Act:The court traced the legislative history and judicial precedents to understand the definition of 'business.' Initially, under the Madras General Sales Tax Act of 1939 and the Hyderabad General Sales Tax Act of 1950, 'business' was not defined, but 'sale' and 'dealer' were defined in a way that implied a profit motive. Judicial precedents, such as Gannon Dunkerley and Co. v. The State of Madras and Sree Meenakshi Mills Ltd. v. State of Madras, held that 'business' involved an activity to earn profit. However, the definition was amended in 1966 to include activities 'whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit.' The court held that the amended definition made the profit motive immaterial, and thus, the supply of food and drink at the canteen constituted 'business' under the Andhra Pradesh General Sales Tax Act.3. Compulsion to Provide Canteen Services under the Factories Act and Its Impact on the Characterization of Sales:The petitioner contended that the sales were 'compulsory' due to statutory obligations and could not be considered as voluntary business activities. The court rejected this argument, stating that compliance with the law does not negate the intention to conduct the activity. The court referred to various Supreme Court decisions, including New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, and Andhra Sugars Ltd. v. State of Andhra Pradesh, which clarified that statutory compulsion does not preclude the existence of a contract of sale. The court noted that the transactions between the company and its workers involved mutual assent and privity of contract, fulfilling the requirements of a sale under the Sale of Goods Act.The court also examined the Factories Act and the relevant Rules, which mandated the provision of a canteen but allowed discretion in the choice of food, pricing, and management. The court concluded that the transactions in the canteen were sales and constituted business for the purposes of the Andhra Pradesh General Sales Tax Act.Conclusion:The writ petitions were dismissed, and the court upheld the inclusion of canteen sales in the turnover for sales tax assessment. The court emphasized that the amended definition of 'business' under the Andhra Pradesh General Sales Tax Act made the profit motive irrelevant, and statutory compulsion to provide canteen services did not negate the characterization of these transactions as sales. The petitioner was ordered to pay costs, including an advocate's fee of Rs. 100 in each case.