2017 (11) TMI 529 - HC - VAT and Sales Tax

Court affirms Port Trusts as 'dealers' for sales tax. Legislature's classification upheld.

The Board of Trustees of the Port of Bombay Versus The State of Maharashtra & The Commissioner of Sales Tax, Maharashtra

The Board of Trustees of the Port of Bombay Versus The State of Maharashtra & The Commissioner of Sales Tax, Maharashtra - 2018 (359) E.L.T. 345 (Bom.) Issues Involved:1. Constitutional validity of Section 2(11) of the Bombay Sales Tax Act, 1954.2. Whether the Petitioner, a Port Trust, is liable to pay sales tax on the sale of goods under Sections 61 and 62 of the Major Port Trust Act, 1963.Detailed Analysis:1. Constitutional Validity of Section 2(11) of the Bombay Sales Tax Act, 1954:The Petitioner challenged the constitutional validity of Section 2(11) of the Bombay Sales Tax Act, arguing that the explanation to Section 2(11) is unconstitutional, ultra vires, null, and void. The Petitioner contended that the sale of goods by the Port Trust is in pursuance of their statutory functions under the Major Port Trust Act and not as a business activity. Therefore, they should not be classified as a 'dealer' under the said Act and should not be liable to pay sales tax.The Court examined the explanation to Section 2(11), which includes Port Trusts within the definition of 'dealer' by a deeming fiction, irrespective of whether they carry on business as defined under Section 2(5A). The Court referred to the 46th Amendment of the Constitution, which added Article 366(29A), expanding the definition of 'tax on the sale or purchase of goods' to include transfers of property in goods for valuable consideration, even if not in pursuance of a contract. This amendment supports the inclusion of Port Trusts within the definition of 'dealer' for sales tax purposes.The Court also considered precedents, including the Supreme Court's judgment in *Cochin Port Trust vs. State of Kerala*, which upheld the inclusion of Port Trusts as dealers under similar statutory amendments. The Court concluded that the legislature has the competence to amend Section 2(11) to include Port Trusts within the definition of 'dealer,' and thus, the explanation to Section 2(11) is constitutionally valid.2. Liability of the Port Trust to Pay Sales Tax:The Petitioner argued that they are not engaged in any business activity and that the sale of goods under Sections 61 and 62 of the Major Port Trust Act is a statutory function, not a commercial transaction. They relied on the Supreme Court's judgment in *State of T.N. vs. Board of Trustees of the Port of Madras*, which held that Port Trusts are not involved in 'carrying on business.'However, the Court noted that the explanation to Section 2(11) of the Bombay Sales Tax Act includes Port Trusts within the definition of 'dealer' by a deeming fiction, regardless of whether they carry on business. The Court referred to the Supreme Court's judgment in *Cochin Port Trust vs. State of Kerala*, which upheld similar statutory amendments deeming Port Trusts as dealers.The Court also examined the provisions of Sections 61 and 62 of the Major Port Trust Act, which allow the Port Trust to sell goods that are not claimed or for which rates or rents are unpaid. These sales are considered transfers of property for valuable consideration, falling within the scope of Article 366(29A) of the Constitution. Therefore, such sales are subject to sales tax.The Court concluded that the Port Trust, by virtue of the explanation to Section 2(11), is deemed to be a dealer and is liable to pay sales tax on the sale of goods under Sections 61 and 62 of the Major Port Trust Act.Conclusion:The Court dismissed the Writ Petition, holding that the explanation to Section 2(11) of the Bombay Sales Tax Act, which includes Port Trusts within the definition of 'dealer,' is constitutionally valid. The Port Trust is liable to pay sales tax on the sale of goods under Sections 61 and 62 of the Major Port Trust Act. The Court emphasized that the legislature has greater latitude in taxation statutes and is competent to classify entities like Port Trusts as dealers for sales tax purposes.