State of Tamil Nadu Vs. M/S Burmah
Shell Oil Storage & Distributing Co. Of India Ltd.  INSC 250 (10
REDDY, P. JAGANMOHAN REDDY, P. JAGANMOHAN
KHANNA, HANS RAJ
CITATION: 1973 AIR 1045 1973 SCR (2) 636 1973
SCC (3) 511
CITATOR INFO :
RF 1980 SC2038 (3) RF 1989 SC 945 (12)
Madras General Sales Act 1959--The amendment
Act of 1961 and 1964--S.2 d(iii) whether before and after the amendment, the
assessee is liable to Sales Tax for the sale of scrap and for the sale of tea and
edibles in its canteen to its workmen.
The respondents in these two appeals are Oil
Companies and in C.A. No. 2119/69, the respondent under the Factories Act had
to supply tea and edibles to its workmen for the Canteen established by it. It
also supplied to its agents calendars, purses and key chains. Both the
respondents also sell periodically as scraps, unserviceable oil drums, rubber
hoses, jerry cans, rims etc.
In C.A. No. 2119/69, the respondent
challenged the Sales Tax, levied under the Madras General Sales Tax Act 1959,
in respect of advertisement materials, canteen sales, sale of scrap and the
penalty. Whereas in C.A. No. 2120/69 only the Sales Tax levied in respect of
sale of scrap and penalty had been challenged. In both these appeals, the
turnover of sales for the assessment year 1964-65 was divided into 2 parts-(1)
1st April to 31st August 1964 and (2) 1st September 1964 to 31st March, 1965.
The first part was governed by the Madras General Sales Tax Act, 1959, while
the second part was governed by the Act after its amendment in 1964.
It was contended before the High Court that
the Tribunal was wrong in holding that the Sales of publicity materials were
chargeable to sales tax on the ground that (a) there was no sale at all by the
assessee in the true sense-, and (b) even if there was, it was not as a dealer.
The High Court held in favour of the assessee on the ground that the assessee
does not engage itself in trade of publicity materials, and that sale of scraps
and canteen sales were not liable to tax following its earlier judgment in
Deputy Commissioner of Commercial Taxes, Coimbatore Division, Coimbatore, v.
Shri Thirumagal Mills Ltd., 20 S.T.C. 287.
Before this Court, as regards the 1st part of
the turnover, the appellant contended that even under the 1959 Act, before its
amendment, transactions which are incidental to trade or commerce, whether or
not profit has been made, are liable to tax. Secondly, after the amendments in
1964, the definition of 'business' and 'casual trader' has been changed to include
(i) any trade, commerce etc. whether or not such trade is carried on with a
motive to make profit or not. (ii) any transaction in connection with or
incidental to such trade, commerce etc., and 'casual traders' meant any person who
had occasional transactions of a business nature involving buying, selling etc.
whether for cash or otherwise.
Therefore, the assessment with respect to the
second part of the turnover is also a valid assessment under the amendment Act.
The respondent contended that under G.O. 2238 dt. 1st September 1964, canteen
sales are exempt from tax. These were nevertheless included for assessment.
Partly allowing the appeal,
HELD : (i) An attempt to realise price by
sale of surplus unserviceable ,or discarded goods may enter the accounts of a
trader and may on over all view, enhance his total profit;
but it does not necessarily lead to an 637
inference that business is intended to be carried on in those goods and the
fact that unserviceable goods are sold does not lead to an inference that
business is intended to be carried on in selling those goods. Therefor--, the
contention of the appellant, so far as the first part of turnover for 1964-65
is concerned, fails. [640G] The State of Gujarat v. Raipur Manufacturing Co.
Ltd. 19 S.T.C. 1, referred to.
(ii) After the Amendments of 1961 and 1964 of
the Madras General Sales Tax Act 1959, the definition of the word 'business'
and 'casual trader' has changed considerably.
Profit-motive is now immaterial and the
concept of business in respect of matters 'falling under Sec. 2 (d) (ii) in the
commercial sense put forward and accepted in earlier cases must be abandoned.
[642G] Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, 30
S.T.C. 26 referred to.
(iii) In the present appeals, the sale of
scrap consisted of spoiled drums, hose pipes etc., were all connected with the
business of the Company. The assessee being an Oil Company, had to use oil
drums, hose pipes etc., as part of its trading activity and any sale of
unserviceable goods as scrap is a transaction connected with its trade or
commerce and the turnover in respect of the sale of the assessee's
advertisement materials, such as, calendars, wallets etc., are all given by the
dealers to its customers for purposes of increase in sales etc., and therefore,
it is also connected with the business of the assessee. The respondents,
therefore, had been rightly assessed. [643E] A.P. State Road Transport
Corporation v. Commercial Tax Officer, 27 S.T.C. 42 and State of Gujarat v.
Raipur Manufacturing Co., 19 S.T.C. 1 discussed and distinguishes.
(iv) In view of the evidence that the
assessee had brought to the notice of the Sales Tax Officer its claim and was
willing to produce the accounts before him, the Sales Tax Officer will give an
opportunity to the assessee to produce its accounts to show that it subsidized
at least 25% of the total expenses and in running the canteen in order to get
relief under G.O. No. 2238 of the State Government. [645F]
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 2119 & 2120 of 1969.
Appeals by special leave from the judgment
and order dated August 2, 1967 of the Madras High Court in Tax Cases Nos.
108 and 110 of 1967.
P. Ram Reddy A. V. Rangam and A. Subhashini,
for the appellants. (in both the appeals).
T. A. Ramachandran, for respondent (in C.A.
S. T. Desai and A. K. Varma, for the
respondent (in C.A. No. 2120/69).
638 The Judgment of the Court was delivered
by JAGANMOHAN REDDY, J.-These are two appeals by special leave against the
judgment of the Madras High Court. In Appeal No. 2119/69 the chargeability to
sales tax under the Madras General Sales Tax Act 1959 (hereinafter called the
'Act') as amended by Acts of 1961 and 1964 in respect of (1) advertisement
materials (2) canteen sales (3) sale of scrap and (4) penalty have to be
considered, while in Appeal No.
2120/1969 only the sales tax levied in
respect of sale of scrap and penalty has been challenged. The respondents are
oil companies and it appears in the first of the appeals the respondent under
the factories Act had to supply tea and edibles to its workmen for the canteen
established by it.
It also supplies to its agents at cost price
or less than the cost price advertisement materials such as calendars, purses
and key chains. Both the respondents also sell as scrap periodically
unserviceable oil drums, rubber hoses, jerry cans, rims, unserviceable pipe
fittings and old furniture. The amount of turnover in respect of each if the
items in the respective appeals is not relevant, but what is relevant is that
in both the appeals the year 1964-1965 for which assessment is made on the
turnover of sales is divided into two parts (i) 1st April to 31st August, 1964
and (ii) 1st September, 1964 to 31st March, 1965, the first part being governed
by the 1959 Act while the second part is chargeable under the Act after its
amendment in 1964 The definition of business, casual trader and dealer before
and after the amendment is different and the question is, whether under the
amended definition of the said terms on and after 1964, Act, attracts sales tax
on the above transactions. In the High Court it was contended that the Tribunal
was wrong in holding that sales of publicity materials were chargeable to sales
tax on the ground that (a) there was no sale at all by the assessee in the true
sense and (b) even if there was, it was not as a dealer.
The High Court dealt with the latter aspect
holding that the object of the respondent is not shown to be to engage itself
in trade or commerce of publicity materials, and though it may be that the
distribution of the publicity materials to the distributors is connected with
the business of the assessee that will not be sufficient to make it a trade or
an activity in a commercial sense. In this view it held that it was not a
dealer nor is it its business carried on as a dealer. The High Court also held
that the sale of scrap and canteen sales were not liable to tax following its
earlier judgment in Deputy Commissioner of Commercial Taxes, Coimbatore
Division, Coimbatore v. Sri Thiromagal Mills Limited(1) It may be mentioned
that in the original Act viz. The Madras Sales Tax Act, 1939 'dealer' was
defined as meaning any person (1) 20 S. T. C. 287.
639 who carried on the business of buying and
selling goods. In that Act-there was no definition of a casual dealer nor of
business. The 1959 Act, defined these terms for the first time and by the
Amending Act of 1964 the definition of business was substituted so as to do
away with motive for making profit or the making of profit as elements in
determining what constitutes a business. Even the definition of casual trader
in the 1959 Act was substituted by the Amending Act in 1961. These definitions
are given below one against the other for facility of comparison:1959 Act
Section 2 (d) "business includes (i) any trade, commerce or manufacture or
any adventure or concern in the nature of trade, commerce or manufacture,
whether or not any Profit accrues from such. trade, commerce, manufacture,
adventure or concern.
(e) "casuai trader" means a person
who has, whether as principal, agent, or in any other capacity, occasional trancash
or for deferred payment, or for commission, remuneration, or other valuable
(g)"dealer" means any person who
carries on the business of buying, selling, supplying or distributing goods,
directly or otherwise, whether for cash, or for deferred payment, or for
commission, remuneration or other valuable consideration, and includes (i)-----(ii)
a casual trader;
After the 1961 and 1964 Amendment Act.
Section 2(d) "business" includes
any trade, commerce or manufacture or any adventure of 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 or incidental or ancillary to, such
trade, commerce, manufacture, adventure or concern, and (ii) any transaction in
connection with, or incidental or anciallary to, such trade, commerce,
manufacture, adventure or concern;
(e) "Casual trader" means a person
who has, whether as principal, agent, or in any other capacity, occasional
transactions of a business nature involving the buying, selling, supply or
distribution of goods in the State, whether for cash, or for deferred payment,
or for commission, remuneration or other valuable consideration.
and who does not reside or has no fixed place
of business within the State;
(g) "dealer". means any person who
carries on the business of buying, selling, supplying or distributing goods
directly or otherwise, whether for cash, or for deferred payment, or for
commission, remuneration or other valuable consideration, and includes-----(i)---(ii)
a casual trader;
At the outset the learned advocate for the
appellant did not press the contention in respect of the penalty having regard
to the decision of this Court in State of Madras v. Javaraj, Nadar & 640
Sons(1). In so far as the business turnover for the first part of the
assessable year 1964-65 is concerned it is not denied that the Act of 1959
prior to its amendment in 1964 is applicable. The contention that the 1964
amendment has retrospective operation was negatived in State of Tamil Nadu v.
Thirumagal Mills Ltd.(2) but before this judgment was rendered the Sales Tax
Tribunal had held that that part of the assessment is also covered by the 1964
amendment. But the learned advocate for the appellant nonetheless submits that
even under the 1959 Act before its amendment to transactions which are
incidental or ancillary to trade or commerce whether or not profit has been
made, are liable to tax. This contention was clearly negatived in State of
Gujarat v. Raipur Manufacturing Co. Ltd.(3) In this case which was under the
Bombay Sales Tax Act 1953 where the definition of a dealer under s. 2(6) is in
pari materia with s. 2(g), the disposal by a company carrying on the business
of manufacturing and selling cotton textiles of its miscellaneous old and
discarded items such as cans, boxes, cot-ton ropes, rags etc., was held by this
Court not to be carrying on the business of selling these items of goods.
It further stated that from the fact that the
sales of these items were frequent and their volume was large it cannot be
presumed that when the goods were acquired there was an intention to carry on
the business in those discarded materials, nor are the discarded goods,
by-products or subsidiary products of or arising in the course of manufacturing
process. Shah, J. who spoke, for the Court observed at pages 7-8 :
"But the question is of intention to
carry on business of selling any particular class of goods. Undoubtedly from
the frequency, volume, continuity and regularity of transactions carried on
with a profit motive, an inference that it was intended to carry on business in
the commodity may arise. But it does not arise merely because the price
received by sale of discarded goods enters the accounts of the trader and may
on an overall view enhance his total profit, or indirectly reduce the cost of
production of goods in the business of selling in which he is engaged.
An attempt to realize price by sale of
surplus unserviceable or discarded goods does not necessarily lead to an
inference that business is intended to be carried on in those goods, and the
fact that unserviceable goods are sold and not stored so that badly needed
space is available for the business of the assessee also does not lead to
inference that business is intended to be carried on in selling those goods.
(1) 28 S.T.C. 700. (3) 19 S.T.C. 1.
(2) 29 S.T.C. 290.
641 The contention on behalf of the State in
respect of the first part of the turnover for 1964-65 therefore fails.
With respect to the second part of the
turnover the question whether the amendments in 1964 to the definition of
"business" and "casual trader" are directly applicable has
to be considered. It will be observed that under the definition of
"business" even commercial transactions carried on without a motive
to make gain or profit, or whether or not any profit accrues from such activity
are included in that definition. The amended sub clause (ii) also includes with
that definition transaction in connection with or incidental or ancillary to
such trade, manufacture or adventure or concern. The question is, whether the
word "such" in sub-cl. (ii) of cl. (d) of s. 2 refers to the trade
etc. defined in sub-cl. (i). It was contended before the Madras High Court that
it is not so and that incidental or ancillary activity must partake the nature
of 'business in its generic sense. In Dy. Commr. of Commercial Taxes v.
Thirumagal Mills Ltd. (supra) a Bench of that
Court had held that notwithstanding the amendment the presence or absence of
profit will not make any difference. According to it what has to be considered
is that the activity should be of a commercial character and in the course of
trade or commerce and accordingly the definition of 'business' in the second
clause was still one invested with commercial character inasmuch as the
reference was to "any transaction in connection with or incidental or
ancillary to any trade, commerce, manufacture, adventure or concern'. It was
observed that unless the transaction is connected with trade that is to say, it
has something to do with trade or has the incidence or elements of trade or
commerce it will not come within the definition. The Court observed :
"The words 'in connection with or
incidental or ancillary to' in the second part of the definition of
"business" in our opinion, still preserve or retain the requisite
that the transaction should be, in the course of business understood in a
The intention of Madras Act 15 of 1964 does
not appear to be to bring into the tax net a transaction of sale or purchase
which is not of commercial character." In this view it held that the fair
price shop which the, assessee, a spinning mill manufacturing cotton yam, had
opened to make available to its workmen sale of commodities at fair prices
could not be said to be carrying on the business of selling commodities in the
fair price shop in a trade or commercial sense even if profit accrued to it and
it was therefore with reference to the fair price shop, not a dealer within the
meaning of the Act. This decision 642 does not take note of the words
"such" in the second subclause which in our view imports by reference
the definition in sub-cl. (i) into that of sub-cl. (ii). A similar question
came up for consideration before the Andhra Pradesh High Court on the analogous
provisions of the Andhra Pradesh General Sales Tax' Act in Hyderabad Asbestos
Cement Products Ltd. v. State of Andhra Pradesh(1). In that case the assesee
company maintained a canteen for the use of workers in compliance with the
provisions of the Factories Act 1948 and the rules made there under. The
question was, whether the turnover relating to the supplies of food and drink
to the workers at the canteen could be, charged to sales tax under the Andhra
Pradesh General Sales Tax Act, 1957. The assessee contended that it was
compelled by statute to provide and maintain a canteen for use of the workers,
that the canteen was not run with a profit motive, as such it could not be said
that there were any sales when food and drink were supplied to the workers at
the canteen and that even if profit motive was not an ingredient of 'business'
it must be established that the assessee intended to do business in food and
drink before it could be subjected to the levy of sales tax. The Court held
that in, view of the definition of "business' as amended 'by the Amendment
Act of 1966, proof of profit motive is unnecessary to constitute business and
that the transaction of supply of food and drink to the workmen in the canteen
maintained by the assessee, in pursuance of the Factories Act and the Rules,
were sales and constituted business for the purpose of the Act.
Dealing with the case of Dy. Commissioner of
Commercial Taxes v. Thirumagal Mills Limited (supra) the learned Judges said
that they were unable to agree with that case as the Madras High Court had not
paid sufficient attention to the word "such" occurring in the second
part of the definition which according to them obviously referred to the
"trade, commerce, manufacture, adventure or concern" mentioned in the
first part of the definition, that is to say, "trade, commerce,
manufacture, adventure or concern" of which a motive to make gain of
profit is not an essential requisite, nor was it permissible to hold that there
was no "business in the commercial sense of 'business' with a motive to
make profit, when such motive has been expressly declared unnecessary by the
Legislature. In their view under both parts of the definition profit-motive is
now immaterial and the concept of business in respect of matters falling under
See. 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
(1) 30 S. T. C. 26.
643 The learned advocate for the respondent
in the second of the appeals contended that the very two learned Judges of the
Andhra Pradesh High Court had earlier rendered a decision in A.P. State Road
Transport Corpn. v. Commercial Tax Officer(1) which is in conflict with the
Hyderabad Asbestos Cement Products Ltd. case, and in the latter case the former
case was neither referred to nor distinguished by them. We think that this
comment is the result of an insufficient appreciation of what was decided in
the former case because there in the assessee was not a dealer and consequently
a seller of scrapped vehicles and other scrap was not liable to be assessed. It
was pointed out at the very outset that in view of the pronouncements of the
Supreme Court, the A.P.
State Road Transport Corporation which is
primarily constituted to provide an efficient, adequate, economical and
properly co-ordinate system of road transport service could not be held to be a
dealer carrying on the business in old and scrapped vehicles and other scrap
and it could not be assessed to sales tax. The Commercial Tax Officer was not,
therefore, right in holding that the assessee Corporation was a dealer. The
chargeable section, viz., s3, makes every dealer liable to pay tax in respect
of the turnover for the year and consequently the assessee not being a dealer
cannot be assessed to tax under the Act. The sale of scrap in these appeals
which as we have said earlier, consisted of spoiled drums, hose pipes etc. were
all held to be connected with the business of the company. This finding is a
finding of fact but even otherwise the very nature of the particular scrap
prima facie would indicate that they are connected with the business of the
company. The assessee being an oil company has to use oil drums, hose pipes,
jorry cans etc. as part of its trading activity and any sale of these unserviceable
goods as scrap is a transaction connected with its trade or commerce. It is a
contended by the respondent that in State of Gujarat v. Raipur Manufacturing
Co. (supra) this Court had observed at p. 9 that the miscellaneous, old and
discarded items such as stores, machinery iron scrap, cans, boxes, cotton
ropes, rags etc, were held to be not part of or incidental to the main business
of selling textiles. This contention in our view does not take into account the
context in which that finding had been given.
In that case, as already pointed out, what
was held under analogous Bombay Sales Tax Act which was similar to that under
the Madras Sales Tax Act prior to its amendment in 1964, the sale of scrap does
not necessarily lead to an inference that business which was an element in
determining the liability of the dealer for the turnover in such goods was
intended to be carried on in those goods. This Court had observed, it cannot be
presumed, that when the goods were acquired (1) 27 S. T. C. 42.
644 there was an intention to carry on
business in those discarded material nor are the discarded goods by-products or
subsidiary products or are produced in the course of manufacturing process;
that they are either fixed assets of the company or are goods which are incidental
to the acquisition or use of stores or commodities consumed in the factory and
that when these go into the profit and loss account of the business and may
indirectly be said to reduce the cost of production of the principal item, the
disposal of those goods on that account cannot be said to be part of or
incidental to the main business of selling textiles. As the scrap in that case
was not held to be incidental to the acquisition or use of stores, or
commodities consumed in the factory, the turnover was not included but in the
case of caustic liquor which is regularly and continuously accumulated in that
tanks in the process of mercirisation of cloth, this Court held that that being
a waste material it has still a market amongst other manufacturers or
launderers as by products or subsidiary products in the course of manufacture,
and the sale thereof is incidental to the business of the company In the view
we hold the scrap sold is certainly connected with die business of the company
and the turnover in respect of this commodity is liable to tax. It cannot also
be said that the turnover in respect of the sale of the assessees advertisement
material at cost price or less than cost price is not connected with the
business of the assessee. Calenders, wallets and key chains are all given by
the dealers to its customers for purposes of maintaining and increasing the
sales of the products of the assessee and is therefore connected with the
What the, assessee is doing is to facilitate
the dealers to acquire at their cost such advertising materials of a uniform
type approved by the assessee company which instead of allowing each of them to
have these separately printed or manufactured, itself undertook to do so and
supplied them to its dealers. The supply of such material is in our view being
connected with the business is liable to be included in the turnover of the
It is pointed out by the learned advocate for
the respondent in the first of the appeals that under G.O. 2238 dated 1st
September 1964 the canteen sales are exempt and notwithstanding the fact that
the assesee in that appeal has complied with the terms and conditions of that
G.O. the canteen sales have not been excluded. The G.O. to which reference is
made is in, the following terms:"III No. 336 of 1964.--In exercise of the
powers conferred by section 17 of the Madras General Sales Tax Act, 1959
(Madras Act 1 of 1959), the Governor of Madras hereby exempts, with effect on
and from the 1st September, 1964, the tax payable under the said 645 Act on the
sales by all canteens run by an employer or by the employers on Co-operative
basis on behalf of the employer, under a statutory obligation without profit
motive, provided that the employer subsides at least twenty-five per cent of the
total expenses incurred in running the canteen.
Under this G.O. what has to be established is
that the assessee has subsidised at least 25% of the total expenses in running
the canteen. The Sales Tax Officer disallowed this amount because the assessee
had not produced the accounts. In the memorandum of appeal to the Appellate
Assistant Commissioner the assessee characterized this statement as unfair as
the Commercial Tax Officer was invited to state what other records he required
but he did not raise this point during the checking of the accounts.
In support of this grievance a letter of the
assessee's advocate to the officer was referred. In that letter it was stated
that out of the turnover of Rs. 35,974-96 in respect of the canteen sales, the
assessee had supplied free tea to the staff of the value of Rs. 13,740-37. It
was further mentioned in that letter that the assessee bears the expenses
towards salaries and amenities provided for the employees in the. canteen as
also the electric charges and corporation taxes. It also provides free of
charge all equipment including furniture and fittings and a rent free building
for this canteen. It therefore prayed that the turnover be exempted under the
aforesaid G.O. Neither the Appellate Assistant commissioner nor the Sales Tax
Tribunal considered this aspect nor did the assessee pray for producing any
evidence before them. We think as the assesee had sufficiently brought to the
notice of the Sales Tax Officer its claim and was willing to produce accounts
it should be permitted to do so. The Sales Tax Tribunal will give an
opportunity to the assessee to produce evidence to show under the terms of G.O.
2238 it is entitled to exemption from the turnover in respect of the canteen
In the result both the appeals are dismissed
in respect of levy of penalty. They are partly allowed so far as they are
related to scrap in respect of the second period, 1-9-64 to 31-3-65 and
dismissed in respect of the 1st period, 1-4-64 to 31-8-64. In so far as appeal
2119 of 1969 is concerned it is also partly allowed in respect of the
advertisement materials for the period 1-9-64 to 31-3-65 and dismissed in
respect of the 1st period, 1-4-64 to 31-8-64 and with respect to canteen sales
the appeal dismissed in respect of the 1st period, 1-4-64 to 31-8-64 and
allowed in respect of the second period 1-9-64 to 31-3-65 and the matter
remanded with the directions given above. There will be no order as to costs in
both these appeals.
S.C. Appeals partly allowed.