State of Tamil Nadu ANR Vs. Board of Trustee of the Port of Madras  INSC 102 (26 March 1999)
JAGANNADHA RAO, & S.N. PHUKAN. M.JAGANNADHA RAO,J.
appeal is preferred by the State of Tamil Nadu and the Commercial Tax Officer, Harbour- I, Assessment Circle, Chennai against the Judgment of
the High Court of Madras in Writ Appeal No.1015 of 1994 dated 10.12.1996. 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 30th March, 1994.
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 1.9.1993 and 8.2.1994 stood quashed.
facts are as follows:
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 cleaning Agents etc.
are also exported through the Port Trust by means of its services. In the case
of uncleared or abandoned goods, the Port Trust brings them for sale in public
auction after the approval of the customs authorities. Before 1959, the Sales
Tax Authorities in Madras sought to assess the Port Trust to
sales tax under the Madras General Sales Tax Act (Act 9 of 1939) in respect of
charges collected for water supplied by the Port Trust to ships. At that time,
the Port Trust was governed by the Madras Port Trust Act (Act 2 of 1905). A
Division Bench of the High Court of Madras in Trustees of the Port of Madras
vs. State of Madras [1960 (11) STC 224](Mad) held by Judgment dated 27.11.1959
that the Port Trust was not constituted for the purposes of "carrying on
any business" of buying and selling with a view to make profit and that
while supplying water to the ships that called at the Port, it was only
discharging a statutory duty imposed upon it by the statute and was not a
"dealer", within the meaning of `dealer' in Section 2(b) of the
Madras General Sales Tax Act, 1939. At that time Section 2(b) which defined the
word "dealer" stated that a dealer would be any person who carried on
the business of buying or selling goods. The definition did not say that it was
not relevant whether the said person was carrying on business with or without
profit motive. In other words, profit motive was treated, at that time, as an
essential element of business. The High Court, therefore, held that inasmuch as
the Port Trust was performing certain statutory functions and rendering duties
without any intention to make profit, it was not a `dealer' within the definition
of the said expression.
above said statute of 1939 was replaced by the Tamil Nadu General Sales Tax
Act, 1959. It contained a definition of "business" in Section 2(d)
and a definition of "dealer" in Section 2(g).
definitions were amended from time to time.
2(d) which defined "business" did not initially state that the motive
to gain or profit was not relevant. But the said sub-clause 2(d) was
substituted by a new clause by the Madras Act 15 of 1964 which included within
the said definition of "business", the activity of carrying on
business whether or not such business was carried on with a motive to make gain
or profit. After the said amendment of 1964 the matter in regard to the Madras
Port Trust again went before the Madras High Court in State of Madras vs.
Trustees of Port 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 vs. Trustees of 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 "business" by Madras Act 15 of 1964, still the
above said 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 Government, it could not be
treated as a department of Central Government so as to come within Explanation
2 read with Section 2(g) of the Act of 1959 nor was the Port Trust liable as a
local authority within the meaning of `dealer' in section 2(g)(i) as it was not
established that it was carrying on business of buying and selling etc.
sub-clause (iii) of Section 2(g) of the Tamil Nadu General Sales Tax Act, 1959
was amended by Tamil Nadu Act 31 of 1992. Section 2(g)(iii) after amendment
included within the definition of `dealer' a factor, broker or commercial agent
or Arhati, a del Credere Agent or a commercial or any other mercantile agent by
whatever name called, and whether of the same description as stated above or
not, who carried on the business of buying, selling, supplying or distributing
goods on behalf of any principal or through whom the goods were bought, sold,
supplied or distributed. On the assumption that after the above said amendment
by Tamil Nadu Act 31 of 1992 in the definition of "dealer", the
Judgment of the Madras High Court in State of Madras vs. Trustees of Port of
Madras [1974 (34) STC 135] (Mad) would not come in his way, the second
appellant namely, the Commercial Tax Officer issued a notice dated 1.9.1993
calling upon the Port Trust to register itself as a dealer under the Tamil Nadu
General Sales Tax Act, 1959. The respondent then replied on 26.10.1993 relying
upon the above Judgment of the Madras High Court rendered in State of Madras
vs. Trustees of Port of Madras [(1974) 34 STC 135] (Mad) and it contended that
the amendment did not make any difference. Thereupon, the second appellant gave
a further notice dated 8.2.1994 directing the respondent to furnish details of
the auction sales conducted during the year 1993-94 upto 1.4.1993. In the said
notice the respondent was asked "to furnish the details of auction sales
conducted during 1993-94 and the quantum of sales effected by way of auction
commodity-wise, date- wise" to the second appellant. It was at that stage
that the Port Trust filed Writ Petition No.5509 of 1994 contending that the
Tamil Nadu General Sales Tax Act, 1959 did not apply to it and that the notices
issued to them were without jurisdiction. A learned single Judge of the High
Court dismissed the writ petition by Judgment dated 30.3.1994 holding that the
definition 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 vs. Trustees of 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.
Port Trust preferred an appeal to the Division Bench of the High Court, which
on a consideration of the provisions of the Major Port Trust Act, 1963 and the
amended provisions of Tamil Nadu General Sales Tax Act, 1959 came to the
conclusion that 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 quashed.
by the above said Judgment of the Division Bench of the High Court in the writ
appeal, the State of Madras and the Commercial Tax Officer have filed this
appeal. The Port Trusts of Cochin, Kandla, Calcutta have filed Interlocutory Applications for intervention but inasmuch as
the concerned State Governments which levy sales-tax under the respective State
Laws are not before us, we have not permitted any arguments by the said Ports
in regard to the leviability of sales tax under the respective State
enactments. We have merely allowed them to support the submissions of the
Madras Port Trust in the context of the Tamil Nadu Statute. Their applications
are, therefore, liable to be dismissed.
this appeal, we have heard elaborate submissions of the learned senior counsel Shri
A.K.Ganguli for the State of Tamil Nadu and
of Sri T.L.Viswanatha Iyer, learned senior counsel for the Madras Port Trust.
Counsel cited a large number of rulings in support of their respective
notices in the present case refer to the auctions conducted by the Port Trust
during 1993-94 and in the Civil Appeal it is stated in ground No.
(l) and (r) that the Port Trust is liable to pay sales tax in regard to the
auctions of unclaimed or unservicable goods including scrap.
the dispute was in relation to these items.
the Tamil Nadu Sales Tax Act, 1959, after the amendment by Madras Act 15 of
1964 and Tamil Nadu Act 31 of 1992, sub clause (g) of section 2 defines
`dealer' and in so far as it is material for the purpose of this case, reads as
"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) a local authority,........ which
carries on such business;
factor, ........., or an auctioneer, or any other mercantile agent by whatever
name called,........who carries on the business of buying, selling, supplying
or distributing goods on behalf of any principal or through whom the goods are
bought, sold, supplied or distributed;
(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.
2(d) defines `business' as follows:
"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." 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 definition of `sale' contains sub-clauses (i) to (vi).
There are four Explanations to the section and Explanation (1-B) deals with
transfer of property involved in the purchase, sale, supply or distribution of
goods through various persons including an auctioneer.
3 of the Act, in sub-clause (1), states that every dealer (other than a casual
trader or agent of a non-resident dealer) whose total turnover for a year exceeds
three lakhs of rupees and every casual trader or agent of a non- resident
dealer, whatever be his turnover for the year, shall pay tax for each year in
accordance with the provisions of the Act.
will be clear from the definition of `dealer' in section 2(g) the question is
whether the Port Trust, - treated as a person under section 2(g) or a local
authority under section 2(g)(i) or as an auctioneer under section 2(g)(iii) -
is a `dealer' "who carries on the business of buying, selling etc.".
The emphasis here is on "carrying on business" and not merely buying
and selling. In view of the definition of "business" in section 2(d)
after the 1964 Amendment, it does not matter whether the business is carried on
without a motive to make profit or gain or whether profit has in fact accrued.
the definition of "business" in section 2(d) and in most of the sales
tax statutes is an inclusive definition and includes `trade or business or
manufacture etc.'. This itself shows that the legislature has recognised that
the word `business' is wider than the words `trade, commerce or manufacture etc.'.
The word `business' though extensively used is a word of indefinite import.
taxing statutes, it is normally used in the sense of an occupation, a
profession - which occupies time, attention and labour of a person, normally
with a profit motive and there must be a course of dealings, either actually
continued or contemplated to be continued with a profit motive and not for
sport or pleasure[State of A.P. vs.
Bakhi & Bros. (AIR 1965 SC 531)]. Even if such profit motive is statutorily
excluded from the definition of `business' yet the person could be doing
word `carrying on business' requires something more than merely selling or
a person `carries on business' in a particular commodity must depend upon the
volume, frequency, continuity and 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 & Others vs. A.M.Ansari & Others
( 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
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.
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.
would categorize the rulings cited before us by learned senior counsel on both
sides into two basic and distinctive categories, the first one where the main
activity of the person amounted to "carrying on business" and the
second where it did not. In the first category where the main activity was
business, there could be sales relating to certain transactions `connected
with', `incidental' or 'ancillary' to the main business though without profit
motive, and the question would arise as to whether these sales were liable to
sales tax or not. The second category would be one where the main activity did
not admittedly amount to "carrying on business". Even so, in regard
to sales which were connected or incidental or ancillary to such main activity,
question would arise whether such sales were exigible to sales tax. The
contention of the Port Trust before us is that its case falls under the second
category and not under the first category. The State contends contra.
as the first category of cases are concerned, we may state that initially most
sales tax statutes did not provide in the definition of `business' that profit
motive was irrelevant. Thus the profit motive remained relevant. Nor did the
statutes include in the definition of `business' sales `in connection with' or
`ancillary' or `incidental' to the main business.
large number of cases belonging to this first category the person was held not
to be `carrying on business' if he was not doing business for profit, an
element which, not being excluded, was to be treated as a basic component of
`business' and, therefore, implied under various sales-tax statutes. It was
held in these cases that though trading activities were no doubt proved, there
being no profit motive involved in the relevant activity, the sales were not
liable to sales tax, and the person could not be held to be `carrying on
business'. To this line belonged Director of Supplies and Disposals, Calcutta vs.
Board of Revenue, West
Bengal, Calcutta [AIR 1967 SC 1826 = 20 STC 398]
cited for the respondent Port Trust, which related to disposal of war equipment
taken over from the American forces in the Second World War. The Directorate of
Disposals which carried on the disposals was merely disposing of surplus
material by way of realisation of capital and there was no profit motive. On
the same basis, in Government Medical Store Depot, Gauhati vs. Superintendent
of Taxes, Gauhati & Others [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
was followed in Government Medical Store Depot, Karnal vs. State of Haryana
& Others [ 1986 (3) SCC 669]. In State of Punjab vs. Assessing Authority, Chandigarh [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.
before the statutory exclusion of `profit motive' from the definition of
`business', question arose whether certain sales of commodities other than the
goods relating to the main business could also be included in the turnover. The
definition did not, in the initial stages, include sales made "in
connection with" the main business activities. The said word is obviously
wider than the word `ancillary' or `incidental'. We shall start with the
leading case. In State of Gujarat vs. Raipur
Manufacturing Co. Ltd. [AIR 1967 SC 1066 = 19 STC 1], relied upon for the
respondent - Port Trust, it was held by Shah, J. (as he then was) that the
definition of `business' did not exclude profit motive nor did it include sales
"in connection with" the main activity. The Textile Mill's main
activity did indisputably amount to `carrying on business' but in regard to the
incidental sales of `unserviceable or discarded' goods, it was held that these
sales were intended only for reduction of the space and to save accommodation
and were not so integrated with (or connected with) the main business, even if
they were of considerable volume and frequency. There was no proof that the
Mills intended to carry on business in unserviceable and discarded goods.
in the same case, `Kolsi and Waste Caustic Liquor' which were sold regularly
and continuously were held to be part of the business being subsidiary products
of the main business of the Textile Mill and sales of these items were held
liable to sales tax inasmuch as an intention to trade in these items could be
presumed. Likewise in State of Gujarat vs. Vivekanand Mills [(1967) 19 STC 103
(SC)], cited for the respondent- Port Trust, the Mills purchased cotton locally
believing that shipment from California would take 6 months time to arrive but
the Californian Cotton arrived suddenly and therefore the local cotton had to be
sold to avoid blocking up of a large sum of money.
held that it could not be inferred that the Mills intended to carry business in
sales were not liable to tax. Position was similar in State of Gujarat vs. Arvind Mills Ltd.
19 STC 12 (SC)] where sales of old containers such as cans, boxes, discarded
stores, machinery and iron scrap, discarded hessian, oil and chemicals were
held not part of business but sale of `Waste Caustic liquor' were held liable
to tax. Again in State of Gujarat vs. Ambica
Mills Ltd. [(1967) STC 12 (SC)] the sale of 89 looms, 28 carding engines, 2
lathes etc. were held not exigible to tax. In Hindustan Steels Ltd. vs.
of Orissa [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.
the amendment to the definition of `business' in 1964 or thereabouts 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'.
words `in connection with' occurring in the definition of `business' fell for
consideration in State of Tamil Nadu vs. M/s Burmah Shell Oil Storage and
Distributing Co. of India Ltd. & Another [1973 (3) SCC 511 = 31 STC 426] strongly
relied upon for the appellant - State of Tamil Nadu. In that case, sales fell
into two periods.
oil company's sales during 1-4-64 to 31-8-64 and those during 1.9.64 to 31.3.65 were in question.
The amendment which made profit motive irrelevant and included sales made `in
connection with' main business in the definition of `business' came into force w.e.f.
1.9.64 in Madras State. In respect of the pre-amendment period, this Court
followed Raipur Manufacturing Co. Case [AIR 1967 SC 1066]. Jaganmohan Reddy, J.
held that the sale of miscellaneous, old and discarded items, could not be
treated as part of the activities of carrying on business even if the sales
were frequent and their volume was large. It was also observed that the
discarded goods were not by-products or subsidiary products of or arising in
the course of manufacturing process. Nor could they be treated as sales `in
connection with' the main business for such a contingency was not part of the
then definition of `business'. But in respect of the period after 1.9.64, it
was held that the addition of the words in section 2(d) (ii) of transactions
"in connection with or incidental or ancillary to such trade, commerce,
manufacture, adventure or concern" and the exclusion of `profit-motive' made
the definition of `business' wider. It was, therefore, held that the scrap that
was sold after 1.9.1964 was "connected with" the business of the
company. The Court distinguished Raipur Manufacturing Co. Case on this ground.
An argument was advanced for the assessee in that case that the word `such' in
the inclusive part of the definition of `business' in section 2(d)(ii) viz.
transaction in connection with or incidental or ancillary to, such trade,
commerce, manufacture, etc.", governed the word `trade' etc. and that a
commercial element was intended to be part of the subsidiary sale transaction.
But this contention was rejected by this Court holding that the word `such'
referred to the concept of absence of profit motive, as per the amended definition
of `business' in section 2(d)(i). It was held that the decision of the Andhra
Pradesh High Court in Hyderabad Asbestos Cement Products Ltd. vs. State of A.P.
30 STC 26] had correctly explained the position after a similar amendment.
Adverting to that judgment, it was held(p.516):
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,
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 inclusive part of section 2(d)(ii).
Thus sales of scrap and unserviceable goods, even if made for reduction of
space or such other reason and even if there was no profit motive, they would
become exigible to sales-tax. This was a radical departure from Raipur
Manufacturing Co. but this was because of the amendment in the definition of
`business' in 1964 and not because of any change in legal principle. This
decision would support the case of the appellant, State of Tamil Nadu, if however, it was proved that the
main activity of the Port Trust amounted to 'business'.
words `incidental' in section 2(d)(ii) came up for consideration in State of
Tamil Nadu vs. Binny Ltd. Madras [1980 Suppl. SCC 686] cited for the respondent
- Port Trust. The company was having business of manufacture and sale of
textiles. It was also running a store in the premises of the factory to enable
the workmen to buy provisions which were assessed to tax. The sales to workmen
were on no profit basis. The company contended that it was only running a
facility for its workmen and its main business was certainly not that of
selling provisions. The issue related to 1967-68 after amendment of section
2(d) of the Madras Act. The argument that there should be a "direct"
connection between the main business and these sales of provisions was rejected
by this court and it was held that these sales were `incidental' to the main
business and covered by the amended definition of `business' in section 2(d). Bhagwati,
J.(as he then was) adsverted to the observations of Krishna Iyer, J. in Royal
Talkies, Hyderabad vs. Employees State Insurance
Corporation [1978 (4) SCC 204], a decision under the ESI Act to the following
thing is incidental to another, if it merely pertain to something else as
such work should not be extraneous or contrary to the purpose of the
establishment but need not be integral to it either." It was pointed out
that in the case relating to Royal Talkies, it was held that it was impossible
to hold that a canteen or cycle stand or cinema magazine booth was not
incidental to the purpose of the theatre. The cinema goers ordinarily find the
above to be facilities, amenities and sometimes even a necessity. All that the
statute required was that the work should not be irrelevant to the purpose of
to the facts in the case before them (i.e. Binny Case), 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 vs. Thirumagel Mills Ltd. [(1972) 29 STC 290(SC)] where, before
amendment of definition of `business' in the T.N.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 vs.
Estates [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 produce was cleared by felling trees and then the cut
trees and natural growth were sold in various forms like firewood,
timber/sleepers/charcoal,- then these sales were `incidental or ancillary' to
the business. It was immaterial that in these sales there was no profit motive.
In the context, it was to be noted that a `casual dealer' was also included in
the definition of `dealer' and even sales effected before the plantation had
started yielding results would be covered. In Indian Express (P) Ltd. vs. State
of Tamil Nadu [(1987) 67 STC 474 (SC)], it was held that the sales of old and
unsold copies of newspapers by a newspaper publisher as waste paper regularly
with profit motive, were `incidental' to the main business of printing and
publishing newspapers and were liable to sales tax. This case was followed in
The Hindu vs. State of Tamil Nadu [(1987) 67 STC 477 (SC)] which related to
sales of glazed newsprint by a newspaper publisher(during the period when the
publication was stopped) and also sales of old newspapers, print waste and cut
waste and these sales were treated as `incidental or ancillary' to the main
business of printing and publishing of newspaper and liable to sales-tax. These
cases would be of help to the appellant, State of Tamil Nadu, if the main activity of the Port
Trust amounted to 'business'.
senior counsel for the appellant, State of Tamil Nadu contended that merely because the Port Trust was performing statutory
functions or duties, it could not be contended that there was no `business' in
the eye of the law. It was pointed out that even the Central Government and
State Governments had been brought within the purview of the definition of
`dealer' in section 2(g) by way of an Explanation. Similarly, compulsory sales
under Control orders had also been brought within the tax-net.
true that in the Explanation 2 to section 2(g) which defines `dealer', the
Central Government and State Governments have been brought within the
definition of `dealer' in certain respects. In District Controller of Stores,
Northern Railway, Jodhpur vs. Assistant Commercial Taxation Officer &
another [(1976) 37 STC 423], relied upon for the appellant, State of Tamil Nadu,
sale of unserviceable stores and scrap by the Northern Railway were held exigible
to sales tax in view of the enlarged definition of `business' under the
Rajasthan Sales Tax Act, 1954. It was pointed out that there was no fallacy in
thinking that the Railway, since it was concerned in the activity of
transportation, it was engaged in commerce.
in Member, Board of Revenue, West Bengal vs. Controller of Stores, Eastern
Railway, Calcutta [(1989) 74 STC 5], 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 fertilizes 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
State tax agency. The State had power to trade or do business as was manifest
from Article 19(6)(ii) of the Constitution of India. The trade in essential
commodities, though carried on to fulfil a State obligation of ensuring even
distribution of vital goods to needy sections of the people, was nevertheless
trade or business. Necessarily, therefore, the Central Government became a
`dealer' by definition as it carried on business and this was so even if the
State Act excluded the profit motive. Again in M/s Vrajlal Manilal & Co.
and another vs. State of Madhya Pradesh and another [AIR 1986 SC 1085] it was
held that the M.P.General Sales Tax Act, 1959 was amended by enlarging the
definition of `dealer' in section 2(d) and that the Explanation added brought
the Central or State Governments within the purview of the said definition.
Then in the seven Judge decision in M/s Vishnu Agencies (Pvt.) Ltd.
Commercial Tax Officer and Others [1978 (1) SCC 520], this Court had to
consider the transactions of supply of cement by a distributor to a permit
holder in terms of the W.B.Cement Control Act and Control Order to find out if
they amounted to `sale' within section 2(g) of the Bengal Finance (Sales Tax)
Act, 1941. The case was also concerned with the compulsory sales of paddy by
paddy grows to licensed agents appointed by the State Government under the A.P.
Paddy Procurement (Levy) Orders. The issue related to the absence of a
consensual option as between the parties to the bargain. It was held that a
transaction effected in compliance with the obligations imposed by statute
might nevertheless be a `sale' in the eye of the law, so long as mutual assent,
express or implied, was not excluded. There was no obligation for a trader to
deal with business in these controlled goods. But once a dealer opted, he was
bound to trade strictly within the terms of the Control orders. Further though
the terms were mostly predetermined by statute, it could not be said that there
was no area or scope for parties to bargain. Thus, these sales were held liable
to sales-tax. These decisions could help the appellant, State of Tamil Nadu, if the main activity of the Port
Trust amounted to 'business'.
this context reference was also made by the appellant's senior counsel to Food
Corporation of India vs. State of Kerala [1997 (3) SCC 410] as a case where
the services were governed by statute.
that case, purchase of food grains 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
Act, 1964 was established for purpose of trading in food grains and other food
stuffs. Hence the appellants must establish that the Port Trust was established
for carrying on business.
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.
question in issue before us is whether the Port Trust was established by
statute to `carry on business'.
come to the second category of cases cited for the respondent, Port Trust where
the main activity of the person or body does not amount to `carrying on
business'. If that be the case the activities will stand far removed from any
business. Let us assume that such "non-business" activities might
result (say) in some scrap or unwanted material which should be cleared so that
accommodation could be saved. If the sales were then made with an intention to
reduce the congestion and not with the intention of running an independent
business in the scrap or unwanted material, then would they be liable to
sales-tax? If in such situations, the activities of sale of the scrap or
unwanted material were only a very infinitesimal part of the activities when
compared with the main "non-business" activity, could they be brought
under the tax net? In our view, if the main activity was not `business', then
the connected, incidental or ancillary activities of sales would not normally
amount to `business' unless an independent intention to conduct `business' in
these connected, incidental or ancillary activities is established by the revenue.
It will then be necessary to find out whether the transactions which are
connected, incidental or ancillary are only an infinitesimal or small part of
the main activities. In other words, the presumption will be that these
connected, incidental or ancillary activities of sales are not `business' and
the onus of proof of an independent intention to do `business' in these
connected, incidental and ancillary sales will rest on the Department. If, for
example, these connected, incidental or ancillary transactions are so large as
to render the main activity infinitesimal or very small, then of course the
case would fall under the first category referred to earlier.
shall now refer to a few decided cases where such questions have arisen and
which have been cited for the respondent, Port Trust.
the earliest of the cases where the `object or purpose' of the main activities
fell for consideration was the case decided by the Chagla, CJ in the Bombay
High Court in State of Bombay vs. Ahmedabad Education Society [(1956) 7 STC 497
(Bom)]. In that case, an Educational society was entrusted with the task of
founding a College and for that purpose to construct buildings therefor.
held that it could not 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 sale of bricks were
held not exigible to sales tax.
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.
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 the
principles enunciated are, with respect, correctly stated and support the case
of the respondent, Port Trust.
Lal Jiwanlal vs. Assistant Commissioner of Sales Tax (Appeals), Nagpur [1957
Vol.8 STC 732(Bom)], relied on for the respondent- Port Trust, the Bombay High
Court held that an agriculturist did not necessarily fall within the definition
of a `dealer' under section 2(c) of the CP & Berar Sales Tax Act (Act 21 of
1967), merely because he sold or supplied commodities. It must be shown that he
was carrying on a business. It was held that it must be established that his
primary intention in engaging himself in such activities must be to carry on
the business of sale or supply of agricultural produce. The High Court held
that there was "nothing to show that the petitioner acquired these lands
with a view to doing the business of selling or supplying agricultural product.
According to the assessee, he was principally an agriculturist who also deals
in cotton, coal, oil-seeds and groundnuts". He was having agriculture for
the purpose of earning income from the fields but there was nothing to show
that he acquired the lands with the primary intention of doing business of
selling or buying agricultural produce. This decision was approved by this
Court in Dy. Commissioner of Agricultural Income-tax & Sales-tax vs. Travancore
Rubber & Tea Co. [1967 vol.20 STC 520(SC)] and it was held that where the
only facts established were that the assessee converted latex tapped from
rubber trees into sheets and effected a sale of those sheets to its customers,
the conversion of latex into sheets being a process essential for transport and
marketing of the produce, the department had failed to prove that"the assessee
was formed" with a commercial purpose. The Allahabad High Court in Swadeshi Cotton Mills Co.Ltd. vs. Sales Tax
Officer [(1964) 15 STC 505 (All.)] was dealing with a batch of cases where
different bodies were running canteens. One of the cases concerned the Aligarh Muslim University which was maintaining dining halls
where it was serving food and refreshments to its residents-students. It was
held, referring to observations of this Court in University of Delhi &
Another vs. Ram Nath & Others [AIR 1963 SC 1873] that it was incongruous to
call educational activities of the University as amounting to `carrying on
business'. The activity of serving food in the dining hall was a minor part of
the overall activity of the University.
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.
after the amendment of definition of `business' question arose in India Institute
of Technology vs. State of UP [(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 organisation, in Dy.
(C.T), Coimbatore vs. South India Textile Research Association [(1978) 41 STC
197 (Mad)], which was purchasing cotton and selling the cotton- yarn/cotton
waste resulting from the research activities, it was held that the Institute
was solely and exclusively constituted for the purposes of research and was not
carrying on `business' and these sales and purchases above-mentioned could not
be subjected to sales-tax. Likewise, in State of Tamil Nadu vs. Cement Research
Institute of India [(1992) 86 STC 124(Mad)], it was held that the Institute was
an organization the objects of which were to promote research and other
scientific work, that the laboratories and workshops were maintained by the
organization for conducting experiments, and that though the cement
manufactured as a result of research was sold, it could not be considered to be
a trading activity within section 2(d) of the Tamil Nadu General Sales Tax Act,
1959. Again in Tirumala Tirupati Devasthanam vs. State of Madras [(1972) 29 STC
266(Mad)] the dispute arose with regard to the sales of silverware etc. which
are customarily deposited in the Hundis by devotees.
held by the Madras High Court that the Devasthanam's main activities were
religious in nature and these sales were not liable to tax. (No doubt, the case
related to a period where the profit motive was not excluded by statute). We
are of the view that all these decisions involve the general principle that the
main activity must be `business' and these rulings do support the case of the
we come to the Naval Dockyard Case in Base Repair Organisation, (Now Naval
Dockyard), Visakhapatnam vs. The State of A.P. [(1983) 53
STC 223(AP)]. Here the Naval Dockyard was established for repairing and
servicing ships of the Navy. It was obliged by section 46 of the Factories Act
to run a canteen to cater to the needs of its employees and the canteen was run
on no-profit no loss basis. It was held that the sales in the canteen were not
liable to sales tax.
held as follows:
should be noticed that the canteen is not only being run in discharge of a
statutory obligation, but that it constitutes an infinitesimal and
insignificant part of the entire activity of the assessee. Having regard to the
nature of the functions and the purpose for which the Naval Dock yard is
established, 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.
senior counsel for the appellant, State of Tamil Nadu, however, relied upon the certain other observations in the above case.
The observations relied upon are as follows:
(ii) is in the nature of an explanation. It says that any transaction in
connection with or incidental or ancillary to 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:
to the definition, if the main activity is in the nature of trade, commerce or
manufacture, any ancillary or incidental transaction, be it per se in the
nature of trade, commerce or manufacture or not, is also treated as `business'.
But the converse is not true. In other words, if the main activity is not
business, but if an ancillary or incidental activity is per se business, the
incidental or ancillary activity does not cease to be business, merely because
it is ancillary or incidental to the main activity, which itself is not
business. The definition is not capable of being read in such a manner."
We agree with the above observations subject to the following clarification or
modification. If the main activities are `business' then the sales in
connection with or incidental or ancillary thereto need not have been intended
as a business or commercial activity. Their mere connection with or being
incidental or ancillary to something else which was `business' was sufficient
to include such sales in the main business. The second part of the last extract
starting with the words `But the converse is net true',are to be modified to
mean that if the main activity falling under sub-clause (i) did not amount to
business, normally these sales made in connection with or were incidental or
ancillary to the main activity would not be 'business' but there could still be
an exception where the sales so connected or incidental or ancillary to the
main "non-business" activity were proved to have been made with an
independent intention to do business and the burden of proof to prove the
exception would fall on the revenue. In our view, the Andhra Pradesh High Court
did not, in the above passage, imply that even where the main activities were
not business, the assessee must prove want of an intention to carry on business
in the connected, incidental or ancillary activity which involved sales. It is
possible, in exceptional cases that such latter sales could per se be business
having been proved by the revenue to have been carried in with such an explicit
intention. The burden, as already stated, would here lie on the revenue.
the learned senior counsel for the appellant-State relied upon yet another
passage from the above judgment of the Andhra Pradesh High Court which reads as
must make it clear that there is a definite distinction between an activity
which 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.
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. But if the sales were connected or incidental or ancillary to the
"non-business" activity then, as stated earlier, there would be a
presumption that they were not intended to be `business'. It would then be for
the revenue, in any exceptional case to prove that, in respect of a
"non-business" activity the ancillary or incidental sales were independently
intended to be carried on as a separate business. To this extent, we modify the
principle stated in the Andhra Pradesh High Court in the Naval Dockyard case.
brings us finally to the question whether the Port Trust was established under
the Major Port Trusts Act, 1963 for `carrying on business'? The observations of
this Court in Trustees of Port of Madras vs. M/s Aminchand Pyarelal &
Others [1976 (1) SCR 721] in connection with the earlier Madras Port Trust Act
were strongly relied upon by the learned senior counsel for the respondent -
Port Trust. In that case Chandrachud, J.(as he then was) observed (at p.735) as
Trusts do not do the business of warehousing goods and the rates which the
Board charges for storage of goods are not levied as a means of collecting
revenues. The Board is under a statutory obligation to render services of
various kinds and those services have to be rendered not for the personal
benefit of this or that importer but in the larger national interests."
The above observations clearly show that Port Trusts are not established for
carrying on business.
to the Major Port Trusts Act, 1963 (before amendment by Act 15/97), Chapter V
refers to "works and services to be provided by ports" (sections 35
to 47) while Chapter VI deals with `Imposition and Recovery of Rates at Ports'
(sections 48 to 65). Section 35(a) refers to various works and appliances to be
provided by the Ports, namely,wharves, quays, docks, stage, jetties, piers etc.
within the port or port approaches or on the foreshore of the port or port
approaches, with all convenient articles, drains, landing places, stains,
fences, roads, railways, bridges, tunnels and approaches and buildings required
for the residence of the employees of the Board as the Board may consider
necessary; section 35(b) refers to providing buses, railways, locomotives,
rolling stock, sheds, hotels, warehouses and other accommodation for passengers
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;
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 transshipping passengers or goods under
section 42; section 35(i) requires it to provide tubewells and equipment,
maintenance and use of boats, bongs and other appliances for extinguishing
fires; section 35(k) requires it to provide construction models and plans for
carrying out hydraulic studies; section 35(l) requires it to provide dry docks,
slipways, boat basins and workshops for carrying out repairs or overhandling of
vessels, tugs boats, machinery etc. Section 35-A, 36 also refer to other works.
have referred to the Port Trust's activities and services in some detail only
with a view to show that the port trust was not constituted by Parliament to
`carry on business' as stated in M/s Aminchand Pyarelal's case [1976 (1) SCR
721]. We have given the long list of its activities and services only to show
how infinitesimal are the sales of unserviceable or unclaimed goods as compared
to the very large range of the activities and services it is supposed to
view of the requirements of sections 37, 39 and 42 ships come to the ports and
carry goods outside or bring goods inside our country. Under section 43, the
Board is liable for the loss, destruction or deterioration of goods of which it
has taken charge in the manner provided in the sections. Under section 44,
accommodation is to be provided for customs officers in the wharves etc.
Chapter VI deals with imposition and recovery of rates at ports. Sections 48 to
57 deal with the rates.
important provisions for the present purpose are those in Sections 58 to 65 in
Chapter VI. They deal with the Board's lien for rates on the goods which, in
enforcement of the lien could be seized & detained till such rates and
rents are fully paid. Section 61 refers to sale of goods after 2 months if
rates or rent are not paid or lien for freight is not discharged. Section 62
refers to disposal of goods not removed from premises of Board. Section 63
mentions how the sale proceeds are to be dealt with - in payment of liens,
claims, other charges, demurrages, penalties etc. From the above provisions, in
our opinion, it is clear that the Port Trust is not involved in any activity of
'carrying on business' as has been clearly held in Aminchand Pyarelal's case(supra)
and that unclaimed and unserviceable goods are sold in discharge of various
statutory charges, items etc. and the sales of these items 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 & 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'.
view, the conclusions arrived at by the Madras High Court in State of Madras vs.Trustees
of Port Trust of Madras [(1974) 34 STC 135(Mad)] which ruling was followed by
the Andhra Pradesh High Court in Board of Trustees of the Visakhapatnam Port
Trust vs. Commercial Tax Officer & Another [(1979) 43 STC 36(AP)] and the
conclusions arrived at in the judgment under appeal by the Madras High Court
holding that such sales are not exigible to tax, are correct, though for the
reasons given by us in this judgment. We do not accept the contention of the
appellants that at this stage the respondent should be directed to file its
reply before the department and go by the alternative remedies under the Act.
In view of the case set up by the State in the show cause notice, it is not
necessary to drive the respondent - Port Trust to the remedy under the Sales
Tax Act. The submission for the appellants that the Port Trust was a local
authority need not also be gone into for, even then, the question will be
whether it was carrying on business. Nor does the amending Act 31 of 1992 have
any bearing on this question.
intervention applications are dismissed.
the aforesaid reasons, the appeal is dismissed but in the circumstances,