Statutory factory canteen sales are not taxable turnover when run on a non-profit basis and outside commercial business

Factory canteen sales maintained under a statutory obligation and run on a non-profit basis were held not to constitute the business of selling goods in the commercial sense required for taxable turnover under sales tax law. The charging provision applied only to a dealer carrying on that business, and statutory compulsion to maintain the canteen with regulated prices did not convert the activity into taxable business. At the same time, the transactions remained sales because workers voluntarily purchased goods and statutory regulation did not negate mutual assent. Tax liability was therefore excluded, and inclusion of canteen receipts in turnover was not justified.

---

---

Issues: (i) Whether sales effected in factory canteens maintained under a statutory obligation and on a non-profit basis form part of the assessee's taxable turnover under the sales tax law; (ii) Whether such canteen transactions are sales at all, despite the statutory compulsion to maintain the canteen and regulate prices and management.

Issue (i): Whether sales effected in factory canteens maintained under a statutory obligation and on a non-profit basis form part of the assessee's taxable turnover under the sales tax law.

Analysis: The charging provision operated only upon a dealer, and the statutory definition of dealer required carrying on the business of selling goods. Business, for sales tax purposes, was understood in its commercial sense as an organised activity ordinarily carried on with a profit-motive, unless the statute expressly enlarged that meaning. The canteen sales were required by the factories legislation and the governing rules mandated that the food and drinks be sold on a non-profit basis. In that setting, the canteen activity could not be treated as carrying on the business of selling goods.

Conclusion: The canteen receipts did not form part of the taxable turnover and were not liable to sales tax.

Issue (ii): Whether such canteen transactions are sales at all, despite the statutory compulsion to maintain the canteen and regulate prices and management.

Analysis: A sale requires a contract of sale founded on mutual assent. Statutory regulation may restrict the terms of dealing, but it does not destroy the existence of a sale where the parties still voluntarily enter into the transaction. Here, the occupier maintained the canteen and the workers chose whether and what to purchase; the managing committee's role was limited to approval and consultation on prices, quality, menus and timings. The actual transactions were therefore consensual purchases and did not fail as sales merely because the canteen was statutorily required.

Conclusion: The canteen transactions were sales, but they were not sales made in the course of business so as to attract the tax.

Final Conclusion: The notices and assessment orders, to the extent they included canteen receipts in taxable turnover, were quashed and the matters were allowed.

Ratio Decidendi: Where a statute requires an employer to run a canteen on a non-profit basis, sales made in that canteen are not taxable unless the activity amounts to the business of selling goods in the commercial sense; statutory regulation alone does not negate sale, but it may prevent the activity from being business for sales tax purposes.

---