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

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

The Court upheld the constitutional validity of the explanation to Section 2(11) of the Bombay Sales Tax Act, deeming Port Trusts as 'dealers' for sales ... Constitutional validity of Section 2(11) of the Port Trust Act - tax on sale of goods - scope of the term 'Dealer' - Petitioner's main contention in the Writ Petition is that the sale of goods by the Petitioner is in pursuance of their statutory functions under the Port Trusts Act and these sales are not executed by the Petitioners as a matter of business for commercial enterprise but by way of administering and managing the port of Bombay. The Petitioner has accordingly submitted that they are not carrying on any business of buying or selling goods. The Petitioner has accordingly contended in the Petition that they are not entitled to pay tax on the sale of goods effected by them under the said Act. Held that: - This Court has in the case of Controller of Stores, Central Railway, Bombay Vs. The Commissioner of Sales Tax, Maharashtra State [1995 (2) TMI 374 - BOMBAY HIGH COURT] considered the challenge to the inclusion of entities in the definition of “dealer” both amended by Section 2(11) of the said Act and Section 2(8) of the MVAT which is pari materia. It was held in the case of Controller of Stores that the Explanation to Section 2(11) of the said Act which had included “Railway Administration” in “dealer” has been held to be clarificatory and that Indian Railways represented by the Controller of Stores is a dealer. - It is clear from the deeming fiction brought in by the explanation that all these entities are now within the definition of “dealer” irrespective of whether they carry on business. - the Port Trust falls within the definition of dealer and is liable to sales tax under the said Act. The judgment of the Supreme Court in M/s Cochin Port Trust Versus State of Kerala [2015 (4) TMI 936 - SUPREME COURT] holds the field, where it was held that the activities of the assessee in respect of buying, selling, supplying or distributing goods, executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration, whether in course of business or not, would fall within the purview of Section 2(viii) of the Act. Hence, the assessee-Port Trust would fall within the meaning of 'dealer' under Section 2(viii) of the Act and is consequently assessable to tax under the Act The legislature having greater latitude for classification in taxing statute was competent in amending Section 2(11) of the said Act and thus there is no merit in the challenge to the constitutional validity of Section 2(11) of the said Act. Petition dismissed - decided against petitioner. 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.