Hukumchand Mills Ltd. Vs. Commissioner of Sales Tax - Court Judgment

Excerpt:
- madhya pradesh nagar tatha gram nivesh adhiniyam (23 of 1973)section 50(4) proviso (as inserted by act of 2004): [dipak misra, krishna kumar lahoti & rajendra menon, jj] preparation of town development scheme proviso prescribing time limit held, object of amendment is to remove hardship caused to citizens and to provide time limit to consider objections and suggestion and to provide a deeming clause so that the authority would act in quite promptitude. proviso unequivocal, categorical and unambiguous and does not permit any other kind of construction but a singular one. section 50 (4) proviso (as inserted by act of 2004): [dipak misra, krishn kumar lahoti & rajendra menon, jj] preparation of town development scheme held, proviso is not retrospective. scheme already finalised will not lapse and has to be completed within the time span provided under proviso. no vested right accrues in favour of authority on commencement of process of preparation of scheme, which cannot be impaired by introducing proviso. section 50(4) proviso (as inserted by act of 2004): [dipak misra, krishn kumar lahoti & rajendra menon, jj] preparation of town development scheme held, proviso uses the term shall be deemed to have lapsed. it does not convey that scheme gets automatically lapsed. - general sales tax act, 1958 and section 9(2) of the central sales tax act, 1956, the board of revenue has referred the following common question of law for the opinion of this court, which arises in all these cases :whether, in the facts and circumstances of the case, the tribunal was right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc. the assessing authority, while assessing the assessee for the aforesaid period, found as a fact that the applicant made sales of miscellaneous items which constituted sale of discarded machinery, unserviceable surplus and/or discarded material like chemicals, scrap, empty drums, etc. the learned counsel further submitted that admittedly the principal business of the petitioner as a dealer has been manufacture of cloth and yarn and that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores were not made with a view to earn profit. an attempt to realise 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 the inference that business is intended to be carried on in selling those goods. 12. thus, considering the facts and circumstances, we are of opinion that the question referred to us for our opinion has to be answered in favour of the assessee and against the revenue as under :in the facts and circumstances of the case, the tribunal was not right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc.orderp.d. mulye, j.1. this order shall also govern the disposal of m. c. c. no. 106 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.), m. c. c. no. 106 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.), m. c. c. no. 107 of 1986 (hukamchand mills ltd. v. commissioner of sales tax, m. p.), m. c. c. no. 108 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.), m. c. c. no. 109 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.), m. c. c. no. 110 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.) and m. c. c. no. 111 of 1985 (hukamchand mills ltd. v. commissioner of sales tax, m. p.) as in all these references, made at the instance of the assessee under section 44(1) of the m. p. general sales tax act, 1958 and section 9(2) of the central sales tax act, 1956, the board of revenue has referred the following common question of law for the opinion of this court, which arises in all these cases :whether, in the facts and circumstances of the case, the tribunal was right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc., were liable to tax ?2. m.c.c. no. 104 of 1985 relates to the period 1st april, 1958 to 31st march, 1959 under the state act, whereas m. c. c. no. 105 of 1985 relates to the central act for the same period.3. m.c.c. no. 106 of 1985 relates to the period 1st january, 1961 to 31st december, 1961 under the state act, whereas m. c. c. no. 107 of 1985 relates to the central act for the same period.4. m.c.c. no. 108 of 1985 relates to the period 1st january, 1962 to 31st december, 1962 under the state act, whereas m. c. c. no. 109 of 1985 for the same period relates to the central act.5. similarly m.c.c. no. 110 of 1985 relates to the period 1st january, 1963 to 31st december, 1963 under the state act, whereas m. c. c. no. ill of 1986 relates to the same period under the central act.6. the facts giving rise to these references as per the statement of case furnished by the tribunal, may be stated, in brief, thus : the applicant is a public limited company duly incorporated under the companies act having its registered office at mill premises at indore. the applicant carries on business of manufacture of cloth and yarn and is registered as a dealer both under the state and central acts. the applicant has been assessed to sales tax by the assistant commissioner of sales tax, indore. the assessing authority, while assessing the assessee for the aforesaid period, found as a fact that the applicant made sales of miscellaneous items which constituted sale of discarded machinery, unserviceable surplus and/or discarded material like chemicals, scrap, empty drums, etc. before the assessing authority it was contended on behalf of the applicant that these sales were not made in the course of the business of the assessee and the applicant could not be considered as a dealer in respect of these sales. it was also contended that the aforesaid sales in fact were casual sales and consequently the same were not taxable. the assessing authority, however, rejected the contention of the applicant. an appeal filed by the applicant before the deputy commissioner of sales tax, indore, was dismissed who confirmed the assessment order passed by the assistant commissioner of sales tax. the second appeal filed by the applicant before the tribunal also met with the same fate. hence these references at the instance of the assessee.7. it may be noted at the outset that the definition of 'business' was incorporated for the first time in the central sales tax act with effect from 7th september, 1976 [section 2(aa)] whereas in the m. p. general sales tax act it was inserted with effect from 15th april, 1965 [section 2(bb)].8. the learned counsel for the petitioner submitted that at the relevant time, during the period 1958 to 1963 the word 'business' as such was not defined under these acts and, therefore, this definition of 'business', which was inserted subsequently, would not apply to the case of the petitioner for these relevant years, which legal position was not disputed by the learned government advocate appearing for the respondents.9. the learned counsel for the petitioner placed reliance on the decisions reported in [1963] 14 stc 202 (mp) (commissioner of sales tax v. ram dulare balkishan and bros.) [1961] 12 stc 333 (mp) (state of m. p. v. bengal nagpur cotton mills ltd.) and the supreme court decision reported in [1967] 19 stc 1 (state of gujarat v. raipur .) submitted that the tribunal has committed an illegality in trying to distinguish the same as not applicable to the facts of the present case. the learned counsel further submitted that admittedly the principal business of the petitioner as a dealer has been manufacture of cloth and yarn and that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores were not made with a view to earn profit. he also submitted that the respondent has not placed any material on record nor there is any evidence to infer that these sales of such items in dispute had been made to reduce cost of production and thus cut down losses, which otherwise would accrue. the learned counsel further submitted that considering the nature and extent of business carried on by the petitioner there was bound to be frequency and continuity of sales of such materials every year, but unless there is any evidence and material on record to indicate that these sales were effected with a profit-motive, no tax could be levied on the sales of such products as has been held in the supreme court decision, wherein it has been observed as under :the expression 'business' though extensively used in taxing statutes, is a word of indefinite import. in taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. to regard an activity as business 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. whether 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. by the use of the expression 'profit-motive' it is not intended that profit must in fact be earned. nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. it predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. in actual practice, the profit-motive may be easily discernible in some in others it would have to be inferred from a review of the circumstances attendant upon the transaction. for instance, where a person purchases a commodity in bulk and sells it in retail it may be readily inferred that he has a profit-motive in entering into the series of transactions of purchase and sale. a similar inference may be raised where a person manufactures finished goods from raw materials belonging to him or purchased by him and sells them. but where a person comes to own in the course of his business of manufacturing or selling a commodity, some other commodity which is not a bye-product or a subsidiary product of that business and he sells that commodity, cogent evidence that he has intention to carry on business of selling that commodity would be required. where a person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. to infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist.10. it has further been held that :it is clear from these cases that to attribute an intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable. it was urged, however, on behalf of the state that where a dealer with a view to reduce the cost of production disposed of unserviceable articles used in the manufacture of goods and credits the price received in his accounts, he must be deemed to have a profit-motive, for it would be uneconomical for the business to store unserviceable articles and to survive as an economic unit. 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 realise 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 the inference that business is intended to be carried on in selling those goods.11. it is, therefore, clear in the present case that it is not the business of the petitioner to sell these materials with a profit-motive as there is no evidence on record to reach that conclusion, even though it was submitted by the learned government advocate that by sales of such materials the petitioner-mills have obtained a substantial amount. but as held by the supreme court that by itself is not enough to tax the petitioner unless it is proved that these sales were effected with a profit-motive, about which admittedly there is no material on record.12. thus, considering the facts and circumstances, we are of opinion that the question referred to us for our opinion has to be answered in favour of the assessee and against the revenue as under :in the facts and circumstances of the case, the tribunal was not right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc., were liable to tax.the references are answered accordingly. cost as incurred.

Judgment:
ORDER

P.D. Mulye, J.

1. This order shall also govern the disposal of M. C. C. No. 106 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.), M. C. C. No. 106 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.), M. C. C. No. 107 of 1986 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.), M. C. C. No. 108 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.), M. C. C. No. 109 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.), M. C. C. No. 110 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.) and M. C. C. No. 111 of 1985 (Hukamchand Mills Ltd. v. Commissioner of Sales Tax, M. P.) as in all these references, made at the instance of the assessee under Section 44(1) of the M. P. General Sales Tax Act, 1958 and Section 9(2) of the Central Sales Tax Act, 1956, the Board of Revenue has referred the following common question of law for the opinion of this Court, which arises in all these cases :

Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc., were liable to tax ?

2. M.C.C. No. 104 of 1985 relates to the period 1st April, 1958 to 31st March, 1959 under the State Act, whereas M. C. C. No. 105 of 1985 relates to the Central Act for the same period.

3. M.C.C. No. 106 of 1985 relates to the period 1st January, 1961 to 31st December, 1961 under the State Act, whereas M. C. C. No. 107 of 1985 relates to the Central Act for the same period.

4. M.C.C. No. 108 of 1985 relates to the period 1st January, 1962 to 31st December, 1962 under the State Act, whereas M. C. C. No. 109 of 1985 for the same period relates to the Central Act.

5. Similarly M.C.C. No. 110 of 1985 relates to the period 1st January, 1963 to 31st December, 1963 under the State Act, whereas M. C. C. No. Ill of 1986 relates to the same period under the Central Act.

6. The facts giving rise to these references as per the statement of case furnished by the Tribunal, may be stated, in brief, thus : The applicant is a public limited company duly incorporated under the Companies Act having its registered office at mill premises at Indore. The applicant carries on business of manufacture of cloth and yarn and is registered as a dealer both under the State and Central Acts. The applicant has been assessed to sales tax by the Assistant Commissioner of Sales Tax, Indore. The assessing authority, while assessing the assessee for the aforesaid period, found as a fact that the applicant made sales of miscellaneous items which constituted sale of discarded machinery, unserviceable surplus and/or discarded material like chemicals, scrap, empty drums, etc. Before the assessing authority it was contended on behalf of the applicant that these sales were not made in the course of the business of the assessee and the applicant could not be considered as a dealer in respect of these sales. It was also contended that the aforesaid sales in fact were casual sales and consequently the same were not taxable. The assessing authority, however, rejected the contention of the applicant. An appeal filed by the applicant before the Deputy Commissioner of Sales Tax, Indore, was dismissed who confirmed the assessment order passed by the Assistant Commissioner of Sales Tax. The second appeal filed by the applicant before the Tribunal also met with the same fate. Hence these references at the instance of the assessee.

7. It may be noted at the outset that the definition of 'business' was incorporated for the first time in the Central Sales Tax Act with effect from 7th September, 1976 [Section 2(aa)] whereas in the M. P. General Sales Tax Act it was inserted with effect from 15th April, 1965 [Section 2(bb)].

8. The learned counsel for the petitioner submitted that at the relevant time, during the period 1958 to 1963 the word 'business' as such was not defined under these Acts and, therefore, this definition of 'business', which was inserted subsequently, would not apply to the case of the petitioner for these relevant years, which legal position was not disputed by the learned Government Advocate appearing for the respondents.

9. The learned counsel for the petitioner placed reliance on the decisions reported in [1963] 14 STC 202 (MP) (Commissioner of Sales Tax v. Ram Dulare Balkishan and Bros.) [1961] 12 STC 333 (MP) (State of M. P. v. Bengal Nagpur Cotton Mills Ltd.) and the Supreme Court decision reported in [1967] 19 STC 1 (State of Gujarat v. Raipur .) submitted that the Tribunal has committed an illegality in trying to distinguish the same as not applicable to the facts of the present case. The learned counsel further submitted that admittedly the principal business of the petitioner as a dealer has been manufacture of cloth and yarn and that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores were not made with a view to earn profit. He also submitted that the respondent has not placed any material on record nor there is any evidence to infer that these sales of such items in dispute had been made to reduce cost of production and thus cut down losses, which otherwise would accrue. The learned counsel further submitted that considering the nature and extent of business carried on by the petitioner there was bound to be frequency and continuity of sales of such materials every year, but unless there is any evidence and material on record to indicate that these sales were effected with a profit-motive, no tax could be levied on the sales of such products as has been held in the Supreme Court decision, wherein it has been observed as under :

The expression 'business' though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business 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. Whether 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. By the use of the expression 'profit-motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive may be easily discernible in some in others it would have to be inferred from a review of the circumstances attendant upon the transaction. For instance, where a person purchases a commodity in bulk and sells it in retail it may be readily inferred that he has a profit-motive in entering into the series of transactions of purchase and sale. A similar inference may be raised where a person manufactures finished goods from raw materials belonging to him or purchased by him and sells them. But where a person comes to own in the course of his business of manufacturing or selling a commodity, some other commodity which is not a bye-product or a subsidiary product of that business and he sells that commodity, cogent evidence that he has intention to carry on business of selling that commodity would be required. Where a person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist.

10. It has further been held that :

It is clear from these cases that to attribute an intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable. It was urged, however, on behalf of the State that where a dealer with a view to reduce the cost of production disposed of unserviceable articles used in the manufacture of goods and credits the price received in his accounts, he must be deemed to have a profit-motive, for it would be uneconomical for the business to store unserviceable articles and to survive as an economic unit. 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 realise 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 the inference that business is intended to be carried on in selling those goods.

11. It is, therefore, clear in the present case that it is not the business of the petitioner to sell these materials with a profit-motive as there is no evidence on record to reach that conclusion, even though it was submitted by the learned Government Advocate that by sales of such materials the petitioner-mills have obtained a substantial amount. But as held by the Supreme Court that by itself is not enough to tax the petitioner unless it is proved that these sales were effected with a profit-motive, about which admittedly there is no material on record.

12. Thus, considering the facts and circumstances, we are of opinion that the question referred to us for our opinion has to be answered in favour of the assessee and against the Revenue as under :

In the facts and circumstances of the case, the Tribunal was not right in holding that the sales of materials like discarded machinery, chemicals, scrap, empty drums, unsuitable and unserviceable stores, etc., were liable to tax.

The references are answered accordingly. Cost as incurred.