Taxable turnover includes sales of unserviceable scrap linked to business, but penalty requires culpable intent and was deleted.

Sales of unserviceable, obsolete, discarded or scrap goods connected with a dealer's business were treated as incidental to trading activity and therefore formed part of taxable turnover. On that basis, such sales were exigible to sales tax. However, penalty under section 43(1) for non-inclusion of those sales and related canteen purchases was not sustained because the taxability was debatable and the surrounding facts did not support an inference of culpable intent. The disputed sales were therefore taxable, but the penalty was deleted on the facts.

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Issues: (i) Whether the sale of unserviceable items formed part of the assessee's business turnover and was exigible to sales tax; (ii) Whether penalty could be sustained under section 43(1) for non-inclusion of such sales and related canteen purchases in the returns.

Issue (i): Whether the sale of unserviceable items formed part of the assessee's business turnover and was exigible to sales tax.

Analysis: The expanded definition of business under section 2(bb) included transactions of sale or purchase incidental or ancillary to the trade, commerce or manufacture of the dealer, including unserviceable, obsolete, discarded or scrap goods. Applying the consistent line of authority that sales incidental to trading activity are part of turnover, the Court held that disposal of unserviceable assets and scrap connected with the assessee's business was not outside the tax net.

Conclusion: The sale of unserviceable items was includible in the taxable turnover and was exigible to sales tax, in favour of Revenue and against the assessee.

Issue (ii): Whether penalty could be sustained under section 43(1) for non-inclusion of such sales and related canteen purchases in the returns.

Analysis: Penalty under section 43(1) required more than a merely inaccurate return; the surrounding circumstances had to justify an inference of guilty mind. As the taxability of the disputed items was debatable and the assessee was a public sector undertaking, the Court held that mens rea could not be inferred on the facts. The penalty provision was therefore not attracted in the peculiar circumstances of the case.

Conclusion: The penalty was not justified and was deleted, in favour of the assessee.

Final Conclusion: The reference was answered by holding the disputed sales taxable, but the penalty component unsustainable on the facts, resulting in a mixed outcome.

Ratio Decidendi: Sales of unserviceable or discarded goods connected with or incidental to the business of a dealer form part of taxable turnover, but penalty for non-disclosure is not warranted unless the return is shown to be filed with a culpable state of mind.

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