1976 (3) TMI 221 - HC - VAT and Sales Tax

Court Rules All Sales by Dealer Taxable Regardless of Profit Motive or Product Taxation

The State of Tamil Nadu Versus Thermo Electrics (and another case)

The State of Tamil Nadu Versus Thermo Electrics (and another case) - [1977] 39 STC 317 (Mad) Issues Involved:1. Taxability of the sale of raw materials, semi-finished products, and finished products.2. Taxability of the sale of discredited or redundant capital assets.3. Interpretation of the amended definition of 'business' u/s 2(d) of the Tamil Nadu General Sales Tax Act.4. Applicability of rule 6(d) regarding the sale of business as a whole.5. Tax implications of first and second sales in the context of single-point taxation.Summary:1. Taxability of the sale of raw materials, semi-finished products, and finished products:The assessee, a dealer in heating mantles and standard cells, sold raw materials, semi-finished products, and finished products to TEMM under an agreement. The assessing officer included the sale value in the taxable turnover, which was contested by the assessee on the grounds that these were realizations from the sale of the business as a whole and not in the course of business. The Tribunal held that these sales were of sterilized assets and not liable to be taxed. However, the High Court disagreed, stating that the assessee was still a dealer and the sales were part of the business, thus liable to be included in the gross turnover.2. Taxability of the sale of discredited or redundant capital assets:In the second case, the assessee sold tanks, pumps, and other items due to business shrinkage or obsolescence. The Tribunal included these sales in the gross turnover, considering them incidental to the business. The High Court upheld this view, referencing the Supreme Court's decision in State of Tamil Nadu v. Burmah Shell Co. Ltd., which included sales of capital assets in the gross turnover.3. Interpretation of the amended definition of 'business' u/s 2(d) of the Tamil Nadu General Sales Tax Act:The High Court emphasized that the amended definition of 'business' includes transactions incidental or ancillary to the business, regardless of profit motive. The Court rejected the argument that sales of capital assets should not be taxed, citing the Supreme Court's interpretation that every sale by a dealer is liable to be included in the gross turnover.4. Applicability of rule 6(d) regarding the sale of business as a whole:The assessee argued that the sales were part of winding up the business and should be exempt u/r 6(d). The High Court found no factual basis for this argument, noting that the assessee retained the right to manufacture and sell in areas other than the four States given to TEMM. The Court clarified that rule 6(d) applies only to the transfer of the business as a going concern, not to the sale of some assets.5. Tax implications of first and second sales in the context of single-point taxation:The assessee contended that since TEMM was taxed on the sale of the products, the initial sale should not be taxed. The High Court rejected this, stating that the first sale by the assessee is liable to be taxed, and it is not a valid defense to claim exemption based on the subsequent taxation of the second sale.Conclusion:The High Court allowed T.C. No. 287 of 1974, holding that the sales in question were liable to be included in the gross turnover and dismissed T.C. No. 439 of 1974, upholding the taxability of the sales of discredited capital assets. The revenue was entitled to costs in both cases.