1986 (1) TMI 378 - HC - VAT and Sales Tax

High Court: Surplus machinery sale taxable under Kerala Sales Tax Act.

The High Court of Kerala ruled in favor of the State, holding that the turnover from the sale of surplus machinery by the assessee, a public limited ... Business - transaction incidental or ancillary to business - taxable turnover - dealer - casual traderTransaction incidental or ancillary to business - taxable turnover - dealer - Whether sale proceeds of surplus machinery form part of the assessee's taxable turnover under the Kerala General Sales Tax Act, 1963 for the year 1975-76. - HELD THAT: - The Court held that the machinery was purchased for use in the assessee's manufacturing business and, though subsequently found surplus and sold at cost, the sale constituted a transaction 'incidental or ancillary' to the assessee's trade within the meaning of the definition of 'business' in section 2(vi) of the Act. The Court relied on the statutory definitions of 'dealer' and 'casual trader' to emphasise the breadth of taxable business activities and accepted precedents treating sales of materials connected with business (including advertising material and scrap) as exigible to tax, citing State of Tamil Nadu v. Burmah Shell Co. Ltd. and noting Division Bench authorities to similar effect. On this basis the Tribunal's deletion of the machinery sale turnover from taxable turnover was found to be erroneous and the appellate authority's inclusion was restored.The sale proceeds of surplus machinery for 1975-76 are part of the assessee's taxable turnover and exigible to tax; the Tribunal's deletion was set aside and the appellate order restored.Final Conclusion: Revision allowed: the sale of surplus machinery by the assessee for the year 1975-76 is taxable as turnover incidental to the assessee's business; the Tribunal's order deleting that turnover is set aside and the appellate order reinstated. Issues:1. Whether the sales turnover of machinery amounting to Rs. 9,51,689.69 is taxable under the Kerala General Sales Tax Act, 1963.2. Whether the assessee, a public limited company engaged in the manufacture and sale of cycle tyres, tubes, and rubber goods, is liable to pay tax on the sale of surplus machinery.3. Interpretation of the term 'business' and 'dealer' as per the Act.4. Application of precedents regarding the taxability of sales of surplus machinery and incidental transactions.Analysis:The High Court of Kerala heard a revision filed by the State against the decision of the Kerala Sales Tax Appellate Tribunal, which directed the deletion of the sales turnover of machinery from the taxable turnover of the assessee for the year 1975-76. The assessee contended that the sale of machinery was not taxable as it was surplus and not part of their regular business dealings. However, the assessing authority and Deputy Commissioner of Sales Tax brought this turnover to tax, albeit at a reduced quantum. The Tribunal held that the assessee was not a dealer in machinery and the sale of surplus machinery was not part of their business, leading to the deletion of the turnover from taxable turnover. The State challenged this decision in revision.The Tribunal considered the contention of the assessee that the machinery sold was surplus and not part of their regular business dealings. The Court analyzed the definition of 'business' and 'dealer' under the Act, emphasizing that the machinery was purchased for use in the factory for manufacturing goods in which the assessee dealt. The Court referred to precedents where sales of advertising materials, scrap, motor cars, and unserviceable vehicles were held to be connected with the business of the assessee and thus taxable. Based on these precedents, the Court concluded that the turnover from the sale of surplus machinery was exigible to tax and set aside the Tribunal's order, restoring that of the Deputy Commissioner of Sales Tax.In conclusion, the Court allowed the petition, ruling in favor of the State and holding that the turnover from the sale of surplus machinery by the assessee was taxable under the Kerala General Sales Tax Act, 1963.