1985 (1) TMI 287 - HC - VAT and Sales Tax

Court rules canteen services not subject to sales tax under Bihar law

The court held that the services rendered at the petitioner's canteen did involve an element of sale, ruling in favor of the Revenue. However, the ... Compulsory sale may constitute a 'sale' for sales-tax purposes - definition of 'dealer' and requirement of carrying on a business with profit motive - statutory canteens run on non profit basis not constituting carrying on of business - running of a canteen not an integral part of principal business unless so characterised by statute - overruling earlier authority insofar as it treated compulsory canteen sales as taxable under the unamended definition of 'dealer'Compulsory sale may constitute a 'sale' for sales-tax purposes - Vishnu Agencies principle - Services rendered at the petitioner's statutory canteens involved the element of sale. - HELD THAT: - Having regard to the binding seven-judge decision in Vishnu Agencies (Private) Limited v. Commercial Tax Officer, transactions effected in compliance with statutory obligation can nevertheless be sales within the meaning of sales tax law. The Court accordingly held that the supplies at the canteens, though mandatory under the Factories and Mines Acts, possess the element of sale for the purposes of the Act. [Paras 6, 7]Answered in the affirmative in favour of the Revenue and against the assessee.Definition of 'dealer' and requirement of carrying on a business with profit motive - statutory canteens run on non profit basis not constituting carrying on of business - running of a canteen not an integral part of principal business unless so characterised by statute - overruling earlier authority insofar as it treated compulsory canteen sales as taxable under the unamended definition of 'dealer' - Whether the petitioner was a 'dealer' in respect of canteen sales and liable to sales tax under section 2(f) of the Act (as in force for 1962-63). - HELD THAT: - The Court analysed the unamended definition of 'dealer' and established that, absent a statutory fiction, a person becomes a dealer only if engaged in a course of business or sustained commercial activity, ordinarily with a profit motive. The canteens were compulsorily maintained under the Factories Act and Mines Act, operated on a non profit/subsidised basis and were not authorised by the company's Memorandum and Articles. Compliance with a statutory mandate, undertaken without profit motive and beyond the scope of corporate objects, does not convert the activity into a business of the company. The Court further held that running a canteen is not an integral part of mining or steel manufacture merely because statute may require it in specified circumstances. Consequently, the petitioner was not a 'dealer' under section 2(f) as then worded and not exigible to sales tax. For the same reasons the Court held that the Division Bench decision in Burn and Company Limited, if construed to lay down that compulsory canteen sales are taxable under the unamended law, is not good law and is overruled. [Paras 20, 24, 26, 27, 28]Answered in the negative in favour of the assessee and against the Revenue; petitioner not a dealer in respect of canteen sales and not liable to sales tax for the period in question; Burn and Company (to the extent indicated) overruled.Final Conclusion: The Full Bench held that while compulsory supply at statutory canteens carries the element of 'sale', under the unamended definition of 'dealer' (as applicable to assessment year 1962-63) the petitioner was not a dealer because the canteens were maintained compulsorily, run on a non profit/subsidised basis and not authorised as part of the company's business; accordingly the petitioner was not liable to sales tax for the canteen sales and earlier contrary Patna precedent is overruled to the extent indicated. Issues Involved:1. Whether the services rendered at the petitioner's canteen, in compliance with the provisions of the Factories Act and the Mines Act, involved any element of saleRs.2. Whether, on the facts and in the circumstances of the case, the petitioner was a dealer in respect of the canteen sale and liable to sales taxRs.Issue-wise Detailed Analysis:Issue I: Whether the services rendered at the petitioner's canteen, in compliance with the provisions of the Factories Act and the Mines Act, involved any element of saleRs.The court addressed this issue by referencing the settled law in Vishnu Agencies (Private) Limited v. Commercial Tax Officer [1978] 42 STC 31 (SC); AIR 1978 SC 449, which concluded that 'a transaction which is effected in compliance with the obligatory terms of a statute may nevertheless be a sale in the eye of the law.' Therefore, the court affirmed that the services rendered at the petitioner's canteen did involve an element of sale. The answer to question No. I was rendered in the affirmative, i.e., in favor of the Revenue and against the assessee.Issue II: Whether, on the facts and in the circumstances of the case, the petitioner was a dealer in respect of the canteen sale and liable to sales taxRs.The court delved into whether the petitioner could be considered a 'dealer' under section 2(f) of the Bihar Sales Tax Act, 1959, as it stood unamended in the year 1962-63. The petitioner argued that to be classified as a dealer, there must be a business with a profit motive or at least an element of commercial character, which was absent in this case since the canteens were run on a no-profit-no-loss basis due to statutory obligations.The court noted that the statutory definitions required a person to be engaged in a business or sustained commercial activity to be deemed a dealer. The court cited precedents such as Director of Supplies and Disposals, Calcutta v. Member, Board of Revenue, West Bengal [1967] 20 STC 398 (SC) and State of Gujarat v. Raipur Manufacturing Company Ltd. [1967] 19 STC 1 (SC), which emphasized that a business must have a profit motive, even if no profit is actually made.The court highlighted three key premises:1. The statutory obligation under the Factories Act and Mines Act mandated the maintenance of canteens, eliminating voluntary engagement in the business of selling foodstuffs.2. The canteens were run without any profit motive, as required by law.3. The Memorandum and Articles of Association of the company did not authorize it to run canteens as a business.The court concluded that merely complying with statutory obligations does not constitute engaging in a business. The petitioner-company was not carrying on the business of running canteens and, therefore, could not be considered a dealer under section 2(f) of the Act.The court also referred to binding precedents from the Supreme Court, such as State of Tamil Nadu v. Thirumagal Mills Limited [1972] 29 STC 290 (SC) and State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Company of India Limited [1973] 31 STC 426 (SC), which supported the view that running canteens under statutory obligations did not make the company a dealer liable for sales tax.The court overruled the Division Bench judgment in Commissioner of Commercial Taxes, Bihar v. Burn and Company Limited (Tax Case No. 58 of 1966) and expressed dissent from the Orissa High Court's judgment in Tata Iron and Steel Company Limited v. State of Orissa [1975] 35 STC 195, which had taken a contrary view.Finally, the court held that the petitioner was not a dealer under section 2(f) of the Act in respect of the canteen sales and was consequently not liable to sales tax. The answer to question No. II was rendered in the negative, i.e., in favor of the assessee and against the Revenue.Separate Judgments:UDAY SINHA, J. - I agree.NAZIR AHMAD, J. - I agree.