1995 (12) TMI 362 - HC - VAT and Sales Tax

Canteen sales for welfare not taxable; not business, but service.

Commissioner of Sales Tax, Madhya Pradesh Versus Hukumchand Mills Ltd.

The court held that canteen sales, operated as a welfare measure under legal obligation, are not subject to tax as the dominant purpose is service, not ... - Issues Involved:1. Taxability of canteen sales under the Madhya Pradesh General Sales Tax Act, 1958.2. Interpretation and application of section 2(bb) defining 'business'.3. Impact of section 46 of the Factories Act, 1948 on canteen sales.4. Definition of 'dealer' and 'taxable turnover' under the Act.5. Dominant object of running the canteen.6. Relevance of previous conflicting judgments.Detailed Analysis:1. Taxability of Canteen Sales:The central issue was whether canteen sales within a factory, mandated under section 46 of the Factories Act, 1948, are subject to sales tax. The Tribunal had previously ruled that these sales were not exigible to tax, which was contested by the Commissioner of Sales Tax.2. Interpretation and Application of Section 2(bb) Defining 'Business':Section 2(bb) of the Madhya Pradesh General Sales Tax Act, 1958, defines 'business' to include activities with or without a profit motive. This section was introduced with effect from April 15, 1965. The court noted that this provision was not considered in earlier decisions ([1988] 68 STC 378 and [1989] 3 TLD 106). The court emphasized that the motive for profit is irrelevant under this section, thus canteen sales could be considered 'business' and subject to tax.3. Impact of Section 46 of the Factories Act, 1948 on Canteen Sales:The court examined whether the canteen sales, conducted under a legal obligation for employee welfare, constituted 'business.' It was noted that the dominant object of these sales was to provide a welfare service, not to conduct business. The price of food was fixed on a non-profit basis under rule 80 of the M.P. Factories Rules, 1962.4. Definition of 'Dealer' and 'Taxable Turnover' under the Act:Section 2(d) defines 'dealer' as any person engaged in the business of selling goods. Section 2(r) speaks of 'taxable turnover' as the dealer's turnover. The court questioned whether a company running a canteen under legal obligation could be considered a 'dealer' and whether such sales could be deemed 'taxable turnover.' The court concluded that if the dominant object is service, the company cannot be considered a dealer for these sales.5. Dominant Object of Running the Canteen:The court reiterated that the dominant object of running the canteen was to serve food as a welfare measure, not to sell it as a business. This was consistent with the Supreme Court's guidelines in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, where the dominant object of the transaction determined its taxability.6. Relevance of Previous Conflicting Judgments:The court noted the conflict between previous decisions ([1988] 68 STC 378 and [1989] 3 TLD 106) regarding the taxability of canteen sales. The earlier decision did not consider section 2(bb), while the later decision did. The court concluded that the later decision did not lay down the correct law and overruled it, holding that the dominant object of service exempted canteen sales from tax.Conclusion:The court held that canteen sales, conducted as a welfare measure under legal obligation, are not exigible to tax. The dominant object of these sales is service, not business. Therefore, the assessee cannot be considered a dealer for these transactions, and such sales do not constitute taxable turnover. The reference was answered in the affirmative, favoring the assessee and against the Revenue. The court also suggested that the State Government consider invoking sections 10 and 12 of the Act to avoid such litigation in similar cases.