Seetharam Reddy, J.
1. In this batch of revisions, preferred against the order made by the Sales Tax Appellate Tribunal, the question that arises for determination is whether the sales effected during the assessment years 1969-70 to 1980-81 by the Andhra Pradesh State Road Transport Corporation ('APSRTC' for short) in respect of scrapped vehicles, old tyres, tubes, tender forms and other unserviceable material, would be exigible to sales tax. The Appellate Tribunal held that it is not possible to hold that the corporation is carrying on any business or it is a dealer. Therefore, the sale of discarded and unserviceable material by it amounts to no business.
2. The contention of the Revenue is that the activity of the corporation is nothing but commercial in nature and, therefore, it must be held that it is carrying on business and consequently the scrap material which the corporation is selling away must be held to be incidental to its main activity and, therefore, the sale of such scrap material must be subjected to sales tax. It is further contended that though the activity of the corporation is commercial in nature which might not attract sales tax but any other activity like sale of scrap material would come within the definition of 'business' or commerce and, therefore, it must be subjected to sales tax.
3. Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act is the relevant statutory provision which deals with the definition 'dealer'. It reads :
''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 - * * *'
4. We may now advert to the case law on which reliance was placed by both sides. Shri Reddappa Reddy, learned standing counsel for 'APSRTC', placed reliance upon a decision of a Division Bench of this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42. This case is the first one that dealt with the corporation in question directly. The question that fell for consideration before the Bench in this case was whether the sale of scrapped vehicles, old tyres and other unserviceable material left with the corporation which it has been disposing of periodically by public auction or by inviting tenders, amounted to sales attracting thereby sales tax. It was held :
'In view of these pronouncements of the Supreme Court, the Andhra Pradesh State Road Transport Corporation which is primarily constituted for operating an efficient road transport service, could not be held to be carrying on business of selling the discarded vehicles and other scrap which it has come into possession in the course of its activities .......... To our mind any incidental or ancillary transaction or activity should be in connection with the trade or commerce or adventure carried on by the petitioner and should itself partake of the nature of trade, commerce, manufacture, adventure or concern.'
In the aforesaid case, this Court has also dealt with the objects of the corporation to the following effect :
'The Andhra Pradesh State Road Transport Corporation is constituted under the Road Transport Corporations Act, 1950. The object of this corporation is to provide or secure or promote the provision of an efficient, adequate, economical and properly co-ordinated system of road transport service in the State. It is not a trading corporation. Ever since it was constituted in 1958 it has been operating bus services on various routes in the State. In the course of its activity, scrapped vehicles, old tyres, old containers and other unserviceable material were left with the corporation which it has been disposing of periodically by public auction or by inviting tenders. The proceeds of the sale of this material is sought to be included in the taxable turnover of the corporation for the purpose of assessing it to sales tax. The decision of this writ petition depends upon the view we take as to the nature of the activity of the corporation in disposing of the scrap material and precisely whether such activity could be termed its business. 'Business' is defined in section 2(bbb) as follows :
'2. (bbb) 'business' includes, -
(i) any trade, 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 or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and
(ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.'
In view of the terms of its incorporation the Andhra Pradesh State Road Transport Corporation is not authorised to carry on any activity except that of providing or securing or promoting the provision of an efficient, adequate, economical and properly co-ordinated system of road transport service in the State. It is not one of its objects to carry on the business of purchase or sale of any scrapped vehicles or other types of scrap.'
5. In State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd. [1973] 31 STC 426, the Supreme Court approved the ratio laid down by this Court in Andhra Pradesh State Road Transport Corporation's case [1971] 27 STC 42 by holding :
'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 Corporation v. Commercial Tax Officer [1971] 27 STC 42 which is in conflict with the Hyderabad Asbestos Cement Products Ltd. case [1972] 30 STC 26 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 therein 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 Supreme Court further held that :
'The chargeable section, viz., section 3, 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.'
6. The learned Government Pleader for Commercial Taxes placed reliance upon the decision of the Supreme Court in District Controller of Stores v. Assistant Commercial Taxation Officer [1976] 37 STC 423. The question that arose for determination before the Supreme Court in this case was whether the sales of unserviceable material by the railways are liable to sales tax. The Supreme Court held :
'The contention of the appellant was that it was not carrying on the business of buying and selling and therefore the sales of unserviceable material and scrap-iron, etc., would not be a transaction in connection with or incidental or ancillary to 'such' trade, commerce, manufacture, adventure or concern.
We think that the activity of the appellant in the selling of unserviceable material and scrap-iron, etc., would be 'business' within clause (i) of the definition of the word 'business' introduced by the amending Act. The word 'business' according to clause (i) of that definition would include any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not it is carried on with a motive to make gain or profit. So even if it be assumed that the activity involved in selling unserviceable material and scrap-iron, etc., would not amount to carrying on business in the normal connotation of that term, it would be 'business' within clause (i) of that sub-clause as introduced by the amending Act.'
It was further held :
'We also think that there is no fallacy in thinking that the railway since it is concerned in the activity of transportation is engaged in commerce within the meaning of clause (i) of the definition and that the sale of unserviceable materials and scrap-iron, etc., is transaction in connection with or ancillary to such commerce within the clause (ii) of that definition.'
7. In Joint Director of Food v. State of A.P. : [1977]1SCR59 , in order to ensure equitable supplies of commodities essential to the life of the community at fair prices, the Central Government was procuring food-grains and fertilisers and selling them to the States or their nominees. On the question whether inter-State sales and intra-State sales of such goods by the assessee (the Joint Director of Food) to the Andhra Pradesh State were liable to sales tax under the Central Act and the Andhra Pradesh Act respectively, the Supreme Court held :
'That the assessee represented the Central Government in the sales and, therefore, could legitimately be dealt with for sales tax proceedings as representing the Central Government, which by the express inclusive definition was made a 'dealer' under the Central Act. The systematic activity of buying foodgrains and fertilisers and selling them by the Central Government, although in fulfilment of a beneficent national policy, was nevertheless trade or business; but the assessee would become a 'dealer' under the Central Act, only if there was profit-motive in the sales effected by the assessee to the Andhra Pradesh State. As profit-motive or profit-accrual was irrelevant under the Andhra Pradesh Act, the assessee would be liable to sales tax under the Andhra Pradesh Act.'
8. In State of Orissa v. Orissa Road Transport Co. Ltd. [1983] 53 STC 329 (Orissa), the assessee was a public limited company providing transport facilities for the general public wherein a major interest was held by the Government of Orissa. In that process, the company had several units and whenever there was a shortfall of fuel and lubricants in one unit they were being transferred from other units and this transfer was treated as sale and tax was levied. On being challenged it was held by the High Court of Orissa that :
'(i) that as long as title had not been transferred from one owner to another, there could be no sale. Admittedly, when fuel and lubricants had been transferred from one unit to the other, there had been no transfer of title, because all the units were owned by the assessee, and as long as the articles belong to the same owner there was no change of ownership, there could be no sale. The Sales Tax Officer and the first appellate authority clearly went wrong in holding that merely because for accounting purpose the adjustment was treated as sale, such transactions would amount to sale and tax would be exigible;
(ii) that the assessee's main business was running of buses and providing transport facilities to the travelling public. Though one of the objects related to disposal of its own discarded parts, that certainly was an annual event and the assessee did not devote its time and attention for the purpose of having the transactions of disposal of spares and scrap. There was not frequency or repetition of the dealing. Although no general guideline could be laid down to deal with cases of every type, yet, on the facts of the instant case, the transactions which had been taken as sales on the footing that they constituted the assessee's business did not really constitute its business and with reference to that the assessee could not be treated as a dealer under the Act. Even if disposals by the assessee were considered as ancillary, it was necessary that the other tests of 'business' should extend to such transactions. On looking at the matter from a broad perspective, the transactions relating to disposal of scrap and new parts which were no more necessary for the business of the assessee did not constitute business and the assessee could not be treated as a dealer in respect of such transactions.'
9. In Indian Express (P.) Ltd. v. State of Tamil Nadu [1987] 67 STC 474 (SC), unused and unsold newspapers were later on sold as waste paper, which were subjected to tax and on being challenged, it was held by the Supreme Court :
'In this appeal learned counsel for the appellant contends that when the surplus copies of the newspapers were sold they possessed the character of newspapers and were, therefore, exempt from sales tax. It seems to us clear that when newspapers are sold to the reading public they are sold as a medium containing information regarded as news. They are purchased by members of the public to acquaint themselves with the current news. Information is news when it is fresh and new. With the lapse of time it ceases to be news. So when newspapers become old, they carry information which is no longer news, and, therefore, they lose their character as newspapers. When they are disposed of as waste paper, their sale cannot be regarded as the sale of newspapers. They are not sold for the purpose of reading the news printed in them. It will be noted that the surplus copies are sold by weight and not per copy. What is exempt from sales tax is the turnover of newspapers and not the turnover of old newspapers or waste paper.
It is also clear from the material on the record that the transactions of sale of the surplus copies must be regarded as a business carried on by the appellant. It was an activity which he pursued regularly, and the motive was to earn a profit. It was incidental to the business carried on by the appellant of printing and publishing newspapers. In the course of carrying on the business of printing and publishing newspapers, it is inevitable that a number of copies should remain surplus and that they should, therefore, be sold as waste paper. The business of selling the surplus copies as waste paper attracted sales tax, having regard to the terms of clause (d) of section 2 of the Act, which defines the expression 'business', as it stood at the relevant time.'
10. In District Electrical Engineer v. State of Rajasthan [1987] 65 STC 101, the question before the High Court of Rajasthan was whether the diposal of coal-ash by the railways is incidental or ancillary to its trade. It was held :
'As regards the first question, namely, whether the disposal of coal- ash through auction or contract is incidental or ancillary to the trade of railways, it may be stated that the said question really involves determination of the question as to whether the Western Railway can be held to be a 'dealer' under section 2(f) of the Act and whether the sale of coal-ash by the Western Railway can be regarded as 'business' as defined in section 2(cc) of the Act.'
11. Finally the High Court held that the disposal of coal-ash is incidental and ancillary to the trade of Western Railway, so it is liable to pay sales tax.
12. On the other hand, the learned standing counsel for the APSRTC relied upon the decision of the Supreme Court in Commissioner of Income tax. v. Andhra Pradesh State Road Transport Corporation : [1986]15ITR1(SC) . In this case the Supreme Court faced with the question whether the corporation is entitled to claim exemption in respect of the income derived by it under section 11(1)(a) of the Income-tax Act, 1961, held :
'The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit.'
13. The objects for which a road transport corporation is established by a State Government are set out in section 3 of the Road Transport Corporations Act. These objects are :
'(a) the advantages offered to the public, trade and industry by the development of road transport;
(b) the desirability of co-ordinating any form of road transport with any other form of transport; and
(c) the desirability of extending and improving the facilities for road transport in any area and of providing an efficient and economical system of road transport service therein.'
Section 22 of the Act lays down the general principle of corporation's finance. It reads :
'It shall be the general principle of a corporation that in carrying on its undertaking it shall act on business principles.'
14. The Supreme Court in the aforesaid case (Commissioner of Income tax. v. Andhra Pradesh State Road Transport Corporation : [1986]15ITR1(SC) further held :
'The submission founded upon section 22 is based upon a misunderstanding of what that section provides. A road transport corporation cannot be expected or be required to run at a loss. It is not established for the purpose of subsidising the public in matters of transportation of passengers and goods. The objects for establishing a road transport corporation are those set out in section 3 of the RTC Act which we have already reproduced above. Section 18 shows that it is the duty of road transport corporation to provide, secure and promote the provision of an efficient, adequate, economical and properly co- ordinated system of road transport services in the State. No activity can be carried on efficiently, properly, adequately or economically unless it is carried on on business principles. If an activity is carried on on business principles, it would usually result in profit, but, as pointed out by this court in the Surat Art Silk Cloth Manufacturers Association's case : [1980]121ITR1(SC) , it is not possible so to carry on a charitable activity in such a way that the expenditure balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management. What section 22, therefore, does when it states that it shall be the general principle of a road transport corporation that in carrying on its undertakings it shall act on business principles is to emphasise the objects set out in section 3 for which a road transport corporation is established and to prescribe the manner in which the general duty of the corporation set out in section 18 is to be performed. It is now firmly established by the decisions of this court in the Surat Art Silk Cloth Manufacturers Association's case : [1980]121ITR1(SC) and the Bar Council of Maharashtra's case : [1981]130ITR28(SC) that the test is 'What is the predominant object of the activity - whether it is to carry out a charitable purpose or to earn profit ?' If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity.'
The Supreme Court also held :
'There is no factual foundation for the submission based upon section 23(2) and other sections of the RTC Act which empower a road transport corporation to issue shares including issuing shares to members of the public and to pay dividend thereon. It is an admitted position, as pointed out by the High court in its judgment under appeal, that no share capital has been raised under section 23(2) and the entire capital has been provided by the Government under section 23(1) and the Government is only paid interest thereon under section 28(1) just as interest would be paid on any money due as a debt. That the activity of the respondent-corporation is not carried on with the object of making profit is made abundantly clear by the provisions of section 30 under which, prior to the amendment of that section by the Amendment Act of 1959, the balance of income left, after utilisation of the net profits for the purpose set out in section 30, was to be made over to the State Government for the purpose of road development and after the Amendment Act of 1959 is to be utilised for financing the expansion programmes of the respondent-corporation and the remainder, if any, is to be made over to the State Government for the purpose of road development. As pointed out by this court in Andhra Pradesh Road Transport Corporation v. Income tax Officer, Hyderabad : [1994]52ITR524(SC) the amount handed over to the State Government does not become a part of the general revenues of the State but is impressed with an obligation that it should be utilised only for the purpose for which it is entrusted, namely, road development. It is not, and cannot be, disputed that road development is an object of general public utility.'
15. The ratio laid down by a Division Bench of this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42, viz., that the corporation (APSRTC) is not a dealer and it cannot be said to be carrying on any business and, therefore, the sale of scrap material by it cannot be exigible to tax, has received approval by the Supreme Court in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. [1973] 31 STC 426. These decisions are already referred to by us.
16. The learned Government Pleader for Commercial Taxes relying upon the decision in District Controller of Stores v. Assistant Commercial Taxation Officer : AIR1976SC489 vehemently contends that the activities carried on by the railways in the above case are similar to that of the corporation in question and inasmuch as the Supreme Court held that the railways are liable to pay tax in respect of the scrap and unserviceable material sold by the railways the same ratio must be applied to the case on hand and it must be held that the corporation is liable to pay tax in respect of the scrap sold by it. We are afraid, we cannot agree with the contention advanced by the learned Government Pleader. The decision relied upon by him would not be of any assistance to him.
17. The corporation in question was constituted by a Central Act. Objects have been clearly laid down. In the light of those objects it was held by this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42 that they do not constitute either trade or business so as to attract sales tax. The Supreme Court also while dealing with the very same corporation under the Income-tax Act, held in Commissioner of Income-tax v. Andhra Pradesh State Road Transport Corporation : [1986]15ITR1(SC) that the activities of the corporation are of general public utility and, therefore, they are charitable in nature and consequently exempted from tax. While dealing with that aspect, it was further held by the Supreme Court :
'What section 22, therefore, does when it states that it shall be the general principle of a road transport corporation that in carrying on its undertakings it shall act on business principles is to emphasise the objects set out in section 3 for which a road transport corporation is established and to prescribe the manner in which the general duty of the corporation set out in section 18 is to be performed.'
18. It is, therefore, evident that merely because the undertakings' activities are commercial in nature the APSRTC does not cease to be a charitable organisation. In District Controller of Stores v. Assistant Commercial Taxation Officer [1976] 37 STC 423, the Supreme Court was not quite clear as to what were the main objects of the railways, its activities, its constitution, its share in profit-making and whether the surplus revenues to be diverted for the main activity or to be distributed as profits and so forth. Therefore, we find it very hard to treat the aforesaid decision analogous to the case on hand, and so, the ratio laid down in that case may not be applicable to the case of the corporation in question. Secondly, the ratio laid down by this Court in Andhra Pradesh State Road Transport Corporation v. Commercial Tax Officer [1971] 27 STC 42 directly dealt with the corporation in question, its nature and activity which received the approval of the Supreme Court. Although the decision in District Controller of Stores v. Assistant Commercial Taxation Officer : AIR1976SC489 is later in point of time but as the earlier judgment in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. : [1973]2SCR636 is pronounced by a Bench comprising three learned Judges being larger one as against two Judges' Bench which delivered the judgment in District Controller of Stores v. Assistant Commercial Taxation Officer : AIR1976SC489 , we, therefore, follow the earlier decision.
The Tribunal, adverting to the activities, nature and objects of the corporation observed :
'In the instant case it is admitted that the main activity of the road transport corporation is only to provide road transport service in the State. In other words, the activity of the corporation cannot be termed as 'dealer' in transport vehicles much less a dealer in unserviceable vehicles and other unserviceable material. For the application of the decision in District Controller of Stores : AIR1976SC489 , the corporation has to be found as a fact to be a dealer carrying on business. Before a person is treated as a 'dealer' he must be found factually to carry on business. As we have already found that the APSRTC does not carry on any business except to provide transport service to the people, the burden of proving that the APSRTC was carrying on selling or buying unserviceable goods was on the department. The department has nothing on record to prove that the APSRTC was carrying on business either in purchase or sales of unserviceable vehicles or unserviceable material. The activity which the corporation has been conducting is not an activity as a business. The sales of unserviceable materials were incidental to the statutory duty of the corporation. Sales of unserviceable material by the corporation cannot be characterised as being a system or organised course of activity as a business. Before an activity can come within the purview of a business activity, it must be a commercial activity and not incidental to the fundamental activity of the corporation, i.e., providing transport service to the people. When the primary activity of the corporation itself cannot be treated as a business activity, it is indeed difficult to say how it can at all be said that the activity of selling discarded and unserviceable material was an activity of the dealer. It would be seen that where a person in the course of a statutory activity which cannot be treated as a business activity sells some discarded and unserviceable material cogent evidence has to be given that his intention is to carry on business of selling discarded and unserviceable material. Further in order to ensure that there is an intention to carry on business in the subsidiary activity, viz., discarded and unserviceable material, it has to be shown that the volume, frequency, continuity and regularity of activity is such that it can lead to the only inference that a person desires to carry on business of selling such goods. On the undisputed facts of the present case, we do not think that any such inference can be drawn and particularly when the department has not brought on record any material to show that the corporation during the course of carrying on its activity of transport service had any intention to carry on business in the sale of unserviceable and discarded material.'
19. From the foregoing, we have no hesitation to hold that the activities of the corporation do not constitute 'business' within the meaning of section 2(1)(bbb) of the Andhra Pradesh General Sales Tax Act and, therefore, it cannot be said to be a 'dealer' within the meaning of section 2(1)(e) of the Act. If that be so, the sale of scrap material by the corporation in the course of its activities cannot be said to be an independent and unconnected with the main activity of the corporation so as to attract tax. It has not been established in this case that the subsidiary activity is a distinct and separate activity so as to attract tax. In our considered view, the subsidiary activity is an integral part of the main activity and, therefore, it must escape tax.
20. Hence, we confirm the order of the Tribunal and dismiss the T.R.Cs., but in the circumstances without costs.
Advocate's fee Rs. 1,200.
21. Petitions dismissed.