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The Divisional Superintendent (Works), Southern Railway, Mysore Vs. State of Karnataka and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberWrit Petitions Nos. 7025 of 1975 and 7387 of 1976
Judge
Reported in[1981]48STC33(Kar)
ActsKarnataka Sales Tax Act, 1957 - Sections 2(1), 12(3) and 13(3)
AppellantThe Divisional Superintendent (Works), Southern Railway, Mysore
RespondentState of Karnataka and anr.
Appellant AdvocateG. Dayananda, Adv.
Respondent AdvocateM.R. Vanaja, High Court Government Pleader
Excerpt:
.....the relevant portion of the judgment is contained in para 6 and para 9 which read as follows :an attempt to realize price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to the inference that business is intended to be carried on in selling those goods......amendment after amendment 2. (1)(f-2) 'business' includes any 2. (1)(f-2) 'business' includes, - trade, commerce or any adventure or (i) any trade, commerce or manu- concern in the nature of trade, or facture or any adventure or concern commerce, with or without profit- in the nature of trade, commerce or motive in such trade, commerce, manufacture, whether or not such adventure or concern. 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; * * * * (k) 'dealer' means any person who (k) 'dealer' means any.....
Judgment:

Rama Jois, J.

1. In these two writ petitions presented by the District Controller of Stores, Southern Railway, Mysore, the following question of law arises for consideration :

'Whether sales tax is leviable on the sale proceeds of cinder and scrap material sold by the railway department under the provisions of the Karnataka Sales Tax Act, 1957, as they stood prior to 1st April, 1976 ?'

2. Facts : (i) W.P. No. 7025 of 1975 : Coal is one of the important materials which the railway administration purchases during every year for being used as fuel for the purpose of running the locomotive engines. After the coal is burnt as fuel in the railway engines, the cinder and ash resulting therefrom are dropped from the engines. Such cinder and ash dropped from the engines get accumulated at the station and in the railway workshops. The cinder and ash so discarded by the railway engines are waste material and of no use for the railway administration. This has got to be removed at great expense for the purpose of maintaining efficient running of the railways and safety of railway tracks. Therefore, the railway administration disposes of the said cinder and ash by calling for tenders. By such sale the railway administration recovered some amounts during the years 1970-71, 1972-73 and 1973-74. The Commercial Tax Officer, Mysore City Circle, considered that the sale price recovered by the railway administration by the sale of cinder and ash during the above years was exigible to tax under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act'). Therefore, he called upon the petitioner to get himself registered as a 'dealer' under the Act and also to pay sales tax at the rate of 3 1/2 per cent on the turnover of Rs. 6,12,870.77 : vide notice exhibit F. Thereafter he issued a notice under section 13(3)(b) of the Act calling upon the petitioner to pay tax, the details of which are as follows :

'Sales tax 1970-71 Rs. 8,307.09 1971-72 Rs. 10,189.35 Penalty 1972-73 Rs. 18,386.10 ------------------- Rs. 36,882.54' -------------------

This writ petition is presented questioning the legality of the above orders.

(ii) W.P. No. 7387 of 1976 : During the year which ended by 31st March, 1976, the petitioner had sold discarded and unserviceable old materials recovered from railway wagons and also the cut-ups in the workshop, which are all collectively called 'scrap material'. They were sold by the petitioner as they were unfit for use by the petitioner and also to clear the railway premises. The Commercial Tax Officer, II Circle, Mysore City, issued notice dated 10th August, 1976, under section 12(3) of the Act proposing to determine the total taxable turnover at Rs. 5,53,250 realised from the auction sales of scrap material. This petition is presented by the petitioner questioning the legality of the said notice.

3. Sri G. Dayananda, the learned counsel appearing for the railway department, contended that the sale of cinder and scrap material by the railways was not in the course of its business and, therefore, the sale price realised by the sale of such waste and unwanted materials resulting from the operation of the railways is not exigible to tax under the provisions of the Act. In support of this submission he relied on the decisions of the Supreme Court in State of Gujarat v. Raipur . : [1967]1SCR618 and State of Tamil Nadu v. Burmah Shell : [1973]2SCR636 .

4. Smt. Vanaja, the learned counsel appearing for the State, submitted that the sale of cinder and scrap material by the railways was incidental to the commercial activity carried on by the railways and, therefore, should be considered as part of its business and, therefore, the sale proceeds are exigible to tax under the provisions of the Act. She relied on the decision of the Supreme Court in District Controller of Stores, Northern Railway v. Assistant Commercial Taxation Officer : AIR1976SC489 .

5. In our view, the question raised in these two petitions is not res integra. The ratio of the decisions of the Supreme Court on which the learned counsel for the railway department relied fully applied to this case and the question arising for consideration has to be answered in favour of the railway department. In order to demonstrate that the ratio of the above decisions are applicable, it is necessary to refer to the definitions of the words 'business' and 'dealer' under section 2(1)(f-2) and (k) of the Act, as they stood prior to the amendment dated 1st April, 1976, by Act 17 of 1976 and as they stand after the said amendment. They read :

'Before amendment After amendment 2. (1)(f-2) 'business' includes any 2. (1)(f-2) 'business' includes, - trade, commerce or any adventure or (i) any trade, commerce or manu- concern in the nature of trade, or facture or any adventure or concern commerce, with or without profit- in the nature of trade, commerce or motive in such trade, commerce, manufacture, whether or not such adventure or concern. 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;

* * * *

(k) 'dealer' means any person who (k) 'dealer' means any person who carries on the business of buying, carries on the business of buying, selling, supplying or distributing selling, supplying or distributing goods, directly or otherwise, goods, directly or otherwise, whether whether for cash or for deferred for cash or for deferred payment, payment, or for commission, or for commission, remuneration remuneration or other valuable or other valuable consideration, consideration, and includes - and includes -

(i) an industrial, commercial or (i) an industrial, commercial or trading undertaking of the Govern- trading undertaking of the Govern- ment of Mysore, the Central Govern- ment of Karnataka, the Central ment, a State Government of any Government, a State Government of State, other than the Government of any State, other than the State of Mysore, a local authority, company, Karnataka, a local authority, com- a Hindu undivided family, an Aliy- pany, a Hindu undivided family, an asanthana family, a firm, a Aliyasanthana family, a firm, a society, a club or an association society, a club or an which carries on such business : association which carries on such business; * * * * Explanation-2. - The Central Government or a State Government which whether or not, in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or deferred payment or for commission, remuneration or other valuable consideration shall be deemed to be a dealer for the purposes of this Act.'

The provisions of the Bombay Sales Tax Act which were considered by the Supreme Court in the Raipur Manufacturing Company's case : [1967]1SCR618 are in pari materia with the definitions of the words 'business' and 'dealer' contained in the Act prior to 1st April, 1976. The relevant portion of the judgment is contained in para 6 and para 9 which read as follows :

'... An attempt to realize price by sale of surplus unserviceable or discarded goods does not necessarily lead to an inference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to the inference that business is intended to be carried on in selling those goods.

* * * ... A person who sells goods which are unserviceable or unsuitable for his business does not on that account become a dealer in those goods, unless he has an intention to carry on the business of selling those goods.'

The Supreme Court held that the sale of scrap and other discarded material by the Raipur Manufacturing Company was not liable to tax under the provisions of the Bombay Sales Tax Act, as such sale could not be considered as sale in the course of its business. The same view was reiterated by the Supreme Court in the Burmah Shell's case : [1973]2SCR636 .

6. The ratio of the decision in District Controller of Stores, Northern Railway : AIR1976SC489 , on which the learned counsel for the State relied, could be applicable only to the cases arising after 1st April, 1976. As can be seen from the amended provisions extracted earlier, sub-clause (2) was added to section 2(1)(f) and explanation-2 was added to section 2(1)(k) of the Act. As a result of this amendment, even transactions which are connected or incidental or ancillary to a trade or commerce, whether or not such transactions are in the course of the business of a person, are made exigible to tax under the provisions of the Act. The turnover with which we are concerned in these two petitions are turnovers for the period prior to 1st April, 1976, and therefore governed by the provisions as they stood prior to that date.

7. The learned counsel for the State raised a preliminary objection to the maintainability of W.P. No. 7025 of 1975 on the ground that sufficient court-fee has not been paid on the petition. She pointed out that, in this writ petition, the petitioner has prayed for quashing the orders of assessment for three assessment years 1970-71, 1971-72 and 1972-73 and, therefore, the petitioner should have filed three writ petitions. The objection raised for the State has to be sustained. However, as a single petition has already been filed and registered, it is sufficient to direct the petitioner to furnish deficit court-fee of Rs. 200.

8. In the result, we hold that the orders impugned in these two petitions were made by the concerned Commercial Tax Officer without the authority of law and the same are liable to be quashed and make the following order :

(i) Rule made absolute.

(ii) The impugned orders and notices dated 18th August, 1975, marked as exhibits D, D-1, E, E-1 and F and F-1 in W.P. No. 7025 of 1975 and the notice dated 10th August, 1976, marked as exhibit B in W.P. No. 7387 of 1976 are quashed.

(iii) The petitioner shall pay deficit court-fee of Rs. 200 in W.P. No. 7025 of 1975. The writ shall be issued in this petition after payment of the deficit court-fee.

(iv) No costs.

9. Ordered accordingly.


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