TaxTMI 
TaxTMI 
TaxTMI 
1999 (3) TMI 500
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.... (Mad.) (Board of Trustees of the Port of Madras v. State of Tamil Nadu).. By that judgment, the Division Bench allowed the appeal and set aside the judgment passed by the learned single Judge in Writ Petition No. 5509 of 1994 dated March 30, 1994. The learned single Judge had dismissed the Writ Petition No. 5509 of 1994 filed by the first respondent, the Board of Trustees of the Port Trust of Madras (hereinafter called "the Port Trust") and by the judgment under appeal, the writ petitions stood allowed and the notices issued by the second appellant, the Commercial Tax Officer on September 1, 1993 and February 8, 1994 stood quashed. 2.. The facts are as follows: The Madras Port Trust is now a major Port Trust governed by the provisions of the Major Port Trusts Act, 1963 (earlier it was governed by an Act of 1905). It provides services of landing, shipping or trans-shipping, receiving, shifting, transporting, storing or delivery of goods brought into the premises of the Port Trust. Goods are brought into the Port Trust and delivered to the importee/ consignee or their clearing agents, etc. Goods are also exported through the Port Trust by means of its services. In the case of unc....
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....ort of Madras [1974] 34 STC 135 (Mad.). The dispute in that case related to the sale of unclaimed and unserviceable goods by the Madras Port Trust through auctioneers. The question raised was whether the Port Trust was a department of the Central Government and whether the Port Trust was a "dealer" and its activity of selling the unclaimed and unserviceable goods could be subjected to sales tax. It was held by a Division Bench of the High Court of Madras in the above cited case in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135, that even though the sales in question related to the assessment years 1964-65 and 1965-66 and were effected after the amendment of the definition of "business" by Madras Act No. 15 of 1964, still the abovesaid transactions of sale were not liable to sales tax inasmuch as the Port Trust could not be treated as a "dealer" carrying on the business of selling, supplying or distributing goods as a commercial venture in the course of the exercise of its statutory duties. It was also held that the Port Trust was a statutory body constituted by the Madras Port Trust Act, 1905, and though it was subject to certain control by the Central Governme....
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....of "dealer" in section 2(g)(iii) as amended in 1991 was wide enough to cover the case of the respondent and that the judgment of the High Court in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135 (Mad.) rendered before the said 1991 amendment was not applicable. It was also observed that the proceeding being a show cause notice, the respondent could go before the Commercial Tax Officer and pursue further remedies under the Act. 5.. The Port Trust preferred an appeal to the division Bench of the High Court, which on a consideration of the provisions of the Major Port Trusts Act, 1963 and the amended provisions of the Tamil Nadu General Sales Tax Act, 1959, came to the conclusion that as there was no element of profit or gain in the duties discharged or in the services rendered by the Port Trust, the services were statutory and these services did not come within the definition of the word "business" in section 2(d) of the Act and, therefore, the respondent was not a "dealer" within section 2(g) of the Act notwithstanding the amendment to section 2(g)(iii) by the Tamil Nadu Act 31 of 1992. The writ appeal was allowed and the notices of the second appellant were qu....
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....planation (2).-The Central Government or any State Government which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act;" Section 2(d) defines 'business' as follows: "Section 2(d): 'business' includes,- (i) any trade, or commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern." 10.. Sub-clause (n) of section 2 defines "sale" as every transfer of the property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration. The inclusive part of the defin....
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.... regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive [Board of Revenue v. A.M. Ansari [1976] 38 STC 577 (SC); [1976] 3 SCC 512]. Such profit-motive may, however, be statutorily excluded from the definition of "business" but still the person may be "carrying on business". 15.. Counsel on both sides cited various rulings before us. Some relating to definition of "business" before the profit-motive was excluded and some thereafter. Some rulings related to cases where the main transaction was "business" with profit-motive while some were sales where it was not the motive. In some cases the sales were of subsidiary products. Cases where the main activities were not "business" were also cited. Cases where the transactions arose out of statutory duties were also cited and some were in connection with services rendered. Some were by Governments. These various types of cases cited could appear to be somewhat overlapping, but in our view, if the principles on which they are based are kept in view, it can be seen that there is no such overlapping. 16.. We would categorize the rulings cited before us by....
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....ntendent of Taxes, Gauhati [1985] 60 STC 296 (SC); [1985] 4 SCC 239, again cited for the respondent-Port Trust, it was held that, as per the unamended definition of "business", profit-motive was not excluded and, on the facts found, as there was no profit-motive established, the transactions of sales of medicines by the Medical Store Depot to various departments, did not amount to "carrying on business" in spite of the volume, frequency, continuity and regularity of the transactions. This was followed in Government Medical Stores Depot, Karnal v. State of Haryana [1986] 63 STC 198 (SC); [1986] 3 SCC 669. In State of Punjab v. Assessing Authority, Chandigarh [1991] 80 STC 396 (SC); [1991] Supp 1 SCC 153, the sales were by canteens run by the Hospitality Organisation, Punjab. In all these cases, it was held that sales tax was not leviable because of absence of profit-motive (which was not excluded by statute) in regard to the main activities. But these cases are not directly in point inasmuch they are based on a definition of "business" which did not exclude profit-motive and cannot help the respondent-Port Trust. 19.. Again, before the statutory exclusion of "profit-motive" from t....
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....C 12 (SC), the sales of 89 looms, 28 carding engines, 2 lathes, etc., were held not exigible to tax. In Hindustan Steels Ltd. v. State of Orissa [1970] 25 STC 211 (SC); AIR 1970 SC 253, the main activity was production of steel but there were sales of bricks to contractors at a fixed percentage over cost price. These sales were held not part of the main business activity and were held not liable to sales tax. All these cases being based on a definition of "business" which did not include connected, ancillary or incidental sales, cannot help the respondent-Port Trust. 20.After the amendment to the definition of "business" in 1964 or there-abouts in most sales tax statutes, profit-motive was statutorily treated as irrelevant. Further, by including sales made "in connection with" or "incidental" or "ancillary" to the main business as part of "business", the scope for taxation was widened and questions arose again whether, the incidental sales of certain commodities could be treated as amounting to "carrying on business". 21.. The words "in connection with" occurring in the definition of "business" fell for consideration in State of Tamil Nadu v. Burmah Shell Oil Storage and Distribu....
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....tate of Andhra Pradesh [1972] 30 STC 26 had correctly explained the position after a similar amendment. Adverting to that judgment, it was held (page 431 of STC; 516 of SCC): "In their view (Andhra Pradesh High Court), under both parts of the definition profit-motive is now immaterial and the concept of business in respect of matters falling under section 2(d)(ii) in the commercial sense put forward and accepted in the earlier cases must be abandoned. We think the view adopted by the Andhra Pradesh High Court is in consonance with our own reading of the section which we have indicated earlier." In other words, the "concept of business in the commercial sense" was, it was held, abandoned. That would mean that after the amendment, it was sufficient if these sales were made "in connection with" the trade and there was no need to prove in these sales any commercial element. The word "such" in sub-clause (ii) of section 2(d) defining "business" after amendment would mean the absence of profit-motive and it did not matter so far as these sales were concerned, if there was no profit-motive or commercial element. Such sales were also to be treated as part of "business" under the inclusiv....
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.... to the purpose of the establishment. Adverting to the facts in the case before them [i.e., Binny case [1982] 49 STC 17 (SC); [1980] Supp. SCC 686], this Court held that if a canteen maintained by a cinema-owner for the benefit of cinegoers could be regarded as "incidental" to the purpose of the cinema theatre, namely, the business of exhibiting films in the theatre, it was difficult to see how a store run by the owner of a textile undertaking for sale of provisions to workmen employed in the factory could be said to be not "incidental" to the business of manufacture of textiles. [This case stands in contrast with State of Tamil Nadu v. Thirumagal Mills Ltd. [1972] 29 STC 290 (SC), where, before amendment of definition of "business" in the Tamil Nadu Act, sales made during the running of a fair price shop by a spinning mill for benefit of employees without profit- motive were held not liable to sales tax.] On the same parity of reasoning, it was held in State of Tamil Nadu v. Shakti Estates [1989] 73 STC 209 (SC); [1989] 1 SCC 636, that where a reserve-forest was purchased or taken on lease by a firm for raising coffee and cardamom plantation thereon and a portion of the forest pro....
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....4. It was pointed out that there was no fallacy in thinking that the Railway, since it was concerned in the activity of transportation, was engaged in commerce. Similarly in Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway, Calcutta [1989] 74 STC 5 (SC), it was held in a batch of cases that sale of unclaimed goods made the Railway a "dealer" under section 2(g) of the Bengal Finance (Sales Tax) Act, 1941. The South Eastern Railway was a carrier of goods and its activity of selling goods which remained unclaimed was adjunctive to its principal activity as carrier of goods. It was "incidental" or "ancillary" to its business as carrier of goods. On that basis, in the same batch, in a case arising from Andhra Pradesh, the Central Government was held to be a "dealer" within section 2(b) of the Andhra Pradesh General Sales Tax Act, 1957. There the Central Government sold, through the Joint Director of Food, foodgrains and fertilizers to the A.P. State and other States, for a price fixed by the Government. Though the tax was levied on the Government of India, it was stated that this was for the benefit of the State Governments and through a machinery of the ....
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....he services were governed by statute. In that case purchase of foodgrains by the Food Corporation of India pursuant to levy orders issued under section 3 of the Essential Commodities Act were held liable to sales tax under the U.P. Sales Tax Act, 1948. The facts of the case showed that the FCI had reserved the right to accept or reject the offer of the State. Several earlier judgments relating to sales which were governed by control orders were approved by the three-Judge Bench. But this ruling cannot help the appellants because the Food Corporation, as seen from the preamble of the Food Corporation of India Act, 1964 was established for purpose of trading in foodgrains and other food-stuffs. Hence the appellants must establish that the Port Trust was established for carrying on business. 26.. It will thus be noticed that in all these cases the main activity of the person or body was undoubtedly "business" even though the motive of profit was excluded by statute and even though the connected, incidental or ancillary sales were statutorily included in the definition of business. The question in issue before us is whether the Port Trust was established by statute to "carry on busine....
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....be said to be "carrying on business" merely because for the above purposes, it established a brick kiln and sold surplus brick and scrap at cost price without intending to make profit or gain. Having regard to its principal activities and its objects, it was held that the educational society was not established to "carry on business" and the sales of bricks were held not exigible to sales tax. Chagla, C.J., pointed out that it was not merely the act of selling or buying, etc., that constituted a person a "dealer", but that the "object" of the person who carried on the activities was important. The learned Chief Justice said that it was not every activity or any repeated activity seriously undertaken which resulted in sale or supply of goods that could attract sales tax. If it was the intention of the Legislature to tax every sale or purchase-irrespective of the object of the activities out of which the transactions arose-then it was unnecessary to state that the person must "carry on the business" of selling, buying, etc. No doubt, when this case was decided, the statute did not include the connected, incidental and ancillary activities in the definition of "business". But, even so....
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....minor part of the overall activity of the university. Education was more a mission and avocation rather than a profession or trade or business. The aim of education was the creation of a well-educated, healthy, young generation imbued with a rational and progressive outlook of life. On this reasoning, it was held that the Aligarh University was not "carrying on business" and the sale of food at the dining halls was not liable to tax. Likewise after the amendment of the definition of "business" the question arose in Indian Institute of Technology v. State of U.P. [1976] 38 STC 428 (All.), with respect to the visitor's hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the institute in connection with education and the academic activities of the institute. It was observed that, the statutory obligation of maintenance of hostel which involved supply and sale of food was an integral part of the objects of the institute. Nor could the running of the hostel be treated as the principal activity of the institute. The institute could not be held to be doing business. Similarly, in the case of a research or....
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....and also because of the fact that the canteen subserves the main object and purpose of the assessee, and is an integral and inseparable part of it, it would be unrealistic to separate the said activity and treat it as a business." We are in entire agreement with the above elucidation of the law and the conclusion and these observations support the case of the respondent-Port Trust. 33.. Learned Senior Counsel for the appellant, State of Tamil Nadu, however, relied upon certain other observations in the above case. The observations relied upon are as follows: "Sub-clause (ii) is in the nature of an explanation. It says that any transaction in connection with or incidental or ancillary to, the trade, commerce, manufacture, adventure or concern, referred to in sub-clause (i), shall equally be a business. The contention of Mr. Venkatarama Reddy is that, on the same parity of reasoning, inasmuch as the main activity of the petitioner does not amount to trade, commerce or manufacture, the ancillary or incidental activity of running a canteen cannot equally amount to business. It is not possible to agree with this submission." Thereafter, the High Court observed: "According to the de....
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....hich is ancillary or incidental to the main activity, and an activity which is an integral part of the main activity. In the first case, the incidental or ancillary activity is a distinct activity, though it is incidental or ancillary to the main activity." On the facts of the case before the Andhra Pradesh High Court, the canteen activity was treated as a requirement of statute and also as an integral part of the main activity and was, therefore, not business. If the Andhra Pradesh High Court meant that incidental or ancillary sales or sales made in connection with a main activity (which main activity was not in itself business), in order to escape liability should always be proved by the assessee to be an integral part of the main "non-business" activity, we are not inclined to agree. In our view, that would erase the distinction between sales which were integral with the main "non- business" activity and those which were incidental or ancillary or connected. In the first place, if these sales were an integral part of the main "non-business" activity, they were not incidental or ancillary and would present no difficulty in leading to the conclusion that they were not taxable. Bu....
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....gers and goods. The Port is required to provide appliances for carrying passengers and for conveying, receiving and storing goods, landed or to be shipped, etc.; section 35(c) requires the port to provide moorings and cranes, scales and all other necessary means; appliances for loading and unloading vessels; section 35(d) requires the Port to take up work for reclamation, excavation, enclosing and raising any part of the foreshore of the port or port approaches which may be necessary for the execution of the works authorised by the Act, or otherwise for the purposes of the Act; section 35(e) requires the port to provide such breakwaters and other works as may be expedient for the protection of the port; section 35(f) requires it to provide dredges and other machines for clearing, deepening and improving any portion of the port or port approaches or of the foreshore of the port or port approaches; section 35(g) requires to provide light hours, lightships, beacons, buoys, pilot boats, etc.; section 35(h) requires it to provide vessels, tugs or other boards for use or for towing vessels or for protecting life or property and for purposes of landing, shipping or trans-shipping passenge....
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....ms are also an infinitesimal part of the Port Trust's main activities or services. No doubt, the sales of goods are in connection with, or incidental or ancillary to the main "non-business" activities, but they cannot be treated as "business" without any plea by the State of Tamil Nadu that the Port Trust had an independent intention to carry on business in the sale of unserviceable/unclaimed goods. That is not the case of the department in the show cause notice. Further from the counter-affidavits filed in the High Court it is clear that it is not the case of the State that there is any separate intention on the part of the Port Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of the Port Trust amounted to "carrying on business" and that these sales, even if they were incidental, fell within the meaning of the word "business". The argument fails in view of our finding that the main activity is not one amounting to "carrying on business". 43.. In our view, the conclusions arrived at by the Madras High Court in State of Madras v. Trustees of the Port of Madras [1974] 34 STC 135 which ruling was followed by the An....