2012 (12) TMI 826 - HC - VAT and Sales Tax

Court rules in favor of pharmaceutical company, excludes car sales from turnover for tax assessment

The court ruled in favor of the petitioner, a pharmaceutical company, in a case concerning the inclusion of sales of cars in their total turnover for the ... Turnover - business - ancillary or incidental transactions - double taxation of previously taxed goods - strict construction of taxing statutesTurnover - business - ancillary or incidental transactions - double taxation of previously taxed goods - strict construction of taxing statutes - Whether proceeds from sale of used company cars form part of the petitioner's taxable turnover and are liable to sales tax for the assessment year 2004-05 - HELD THAT: - The Court held that although the petitioner's main business is manufacture and sale of pharmaceutical products and the vehicles were used in the course of that business, the subsequent sale of used motor cars could not be characterised as sales 'incidental or ancillary' to the core pharmaceutical business. The vehicles were held for use by employees and not as stock-in-trade or as part of a business of selling such cars; their disposal was an attempt to realise value of unserviceable items and to free accommodation rather than an intention to carry on business in that commodity. The Court applied the principle that taxing statutes must be strictly construed and noted the anomaly of permitting a second taxation of goods which had already borne tax at the time of original purchase under the first-point regime. On these bases the impugned view that the sales proceeds should be included in the petitioner's turnover was found unsustainable and contrary to the statutory and precedential tests distinguishing incidental commercial transactions from disposals of used assets. [Paras 12, 13, 14]The inclusion of the sales proceeds of the cars in the petitioner's turnover for tax purposes was rejected; the impugned orders were quashed and the writ petition allowed.Final Conclusion: The High Court concluded that the sale of used company cars by the petitioner did not constitute turnover taxable as part of its business for the assessment year 2004-05; the impugned assessment and revision orders were quashed and the writ petition allowed, with no order as to costs. Issues Involved:1. Inclusion of the sale of cars in the total turnover for the relevant assessment year.2. Applicability of previous Appellate Tribunal orders to the current case.3. Interpretation of the definition of 'business' and 'turnover' under the Delhi Sales Tax Act, 1975.4. Taxability of sales of used motor cars by a dealer engaged in a different primary business.5. Impact of first-point tax regime on subsequent sales of already taxed vehicles.Detailed Analysis:Issue 1: Inclusion of the Sale of Cars in Total TurnoverThe primary issue revolves around whether the consideration received from the sale of cars should be included in the total turnover of the petitioner, a pharmaceutical company, for the assessment year 2004-05. The Sales Tax Officer demanded tax on the sale of cars, asserting that these vehicles were used in connection with running the business and were sold after depreciation. The petitioner contended that these sales should not be included in the turnover as they were not part of its primary business activity.Issue 2: Applicability of Previous Appellate Tribunal OrdersThe petitioner argued that the impugned assessment order ignored previous Appellate Tribunal orders in similar cases, such as Powertron Products (2001-02) and L & T Finance Ltd (2003-04), where it was held that the tax paid on the purchase of cars in Delhi could not be taxed again upon their sale. The petitioner claimed that the respondent authorities did not provide reasons for disregarding these precedents.Issue 3: Interpretation of 'Business' and 'Turnover'The court examined the definitions under the Delhi Sales Tax Act, 1975, particularly Section 2 (c) for 'business' and Section 2 (o) for 'turnover.' The definition of 'business' includes any trade, commerce, or manufacture, and any transaction incidental or ancillary to such activities. The court cited the Supreme Court's judgment in State of Gujarat v. Raipur Manufacturing Co. Ltd, which clarified that the sale of unserviceable or discarded goods does not necessarily imply an intention to carry on business in those goods.Issue 4: Taxability of Sales of Used Motor CarsThe petitioner relied on judgments like Morarji Bros. (I&E) Pvt. Ltd v. State of Maharashtra, where it was held that the sale of used motor cars by a dealer engaged in a different primary business did not amount to a sale by a dealer within the meaning of the Sales Tax Act. The court also referred to Base Repair Organisation (Naval Dockyard) v. State of A.P., where sales in a canteen run on a no-profit no-loss basis were not liable to sales tax, emphasizing that incidental activities not integral to the main business should not be taxed.Issue 5: Impact of First-Point Tax RegimeThe petitioner argued that the vehicles were purchased under a first-point tax regime, where tax was paid at the time of purchase. The court noted that the sale of these vehicles, which were not held for sale but for use, should not be taxed again. The court highlighted that the vehicles were sold after being used and were not part of the business of manufacturing and selling pharmaceutical products.Conclusion:The court concluded that the sale of used cars by the petitioner could not be considered 'ancillary' or 'incidental' to its primary business of manufacturing and selling pharmaceutical products. The cars were used for company purposes and sold after their utility had diminished. The court also noted that the vehicles had already been taxed once under the first-point tax regime, and taxing them again would create an anomaly. Consequently, the court quashed the impugned orders and allowed the writ petition, holding that the inclusion of the sales transaction of the cars in the turnover of the petitioner was unsustainable in law. There was no order as to costs.