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Tata Iron and Steel Co. Ltd. Vs. State of Orissa - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtOrissa High Court
Decided On
Case Number S.J.C. Nos. 59-61 of 1972
Judge
Reported in40(1974)CLT1119; [1975]35STC195(Orissa)
AppellantTata Iron and Steel Co. Ltd.
RespondentState of Orissa
Appellant AdvocateS. Patnaik, Adv.
Respondent Advocate R.K. Mohapatra, Standing Counsel, Sales Tax
Cases ReferredState of Tamil Nadu v. Thirumagal Mills
Excerpt:
.....(db) and union of india v smt gita banik, 1996 (2) glt 246, are not good law]. - apart from the emphasis given that the concept of business takes within its sweep a profit-motive, the decision clearly lays down that the profit-motive may pervade the whole series of transactions effected by the person in the course of his activity. on the aforesaid analysis, we are clearly of opinion that in running the canteen the petitioner carries on business and the receipts from the canteen are to be included in the taxable turnover. delimiting areas for transactions or parties or denoting price for transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number by achieving proper supply at standard or..........constitutes 'sale' within the meaning of section 2(g).the aggregate of prices in respect of sale transactions would not constitute 'sale price' unless the same is payable to a 'dealer'. similarly, the aggregate of the amount of prices received and receivable on the sale transactions cannot be included in the 'turnover of sales' unless the petitioner is a dealer.thus, in the ultimate analysis the receipts from the canteen for supply of food would not be included in the taxable turnover of the petitioner unless it is a dealer.7. there is no dispute that the petitioner is a dealer in respect of mining limestone from the quarry. it is necessary to examine if it is a dealer in respect of the sales of food and drink in the canteen.8. the petitioner urges that the sale of food in the.....
Judgment:

G.K. Misra, C.J.

1. The petitioner is engaged in mining limestone at Hatibari Lime Stone Quarry in the district of Sundargarh in the State of Orissa. It is registered under the Orissa Sales Tax Act, 1947 (hereinafter to be referred to as the Act) and it holds a certificate of registration No. R. L. 206 for quarry only. The certificate of registration authorises the petitioner to mine limestone from the quarry. Under Rules 64 and 70 of the Mines Rules, 1955, the petitioner is to maintain a canteen for supplying articles of food to the employees engaged in the mine. There is also a similar clause in the agreement between the management and the trade union. The petitioner- accordingly runs a canteen which supplies food and drink to the employees working in the mine. The articles of association of the petitioner and the certificate of registration do not mention that the petitioner is to run a canteen. For the years 1964-65, 1965-66 and 1966-67, the petitioner was assessed under the Act. Subsequently he was reassessed under Section 12(8) of the Act for the self-same three years. In the revised assessment orders the receipts from the canteen for supply of food to the workmen were included in the taxable turnover of the petitioner. Sales tax assessed for the supply of food to the workers of the mine for the three years in question was as follows :

1964-65 ... Rs. 3,665.541965-66 ... Rs. 2,984.551966-67 ... Rs. 2,451.00

Appeals filed by the petitioner before the Assistant Commissioner of Sales Tax challenging the legality of this levy were dismissed. Second appeals were also dismissed on 20th May, 1971, by the Member, Additional Sales Tax Tribunal. The petitioner asked for reference under Section 24(1) of the Act of certain questions of law arising out of the appellate order. The Member, Additional Sales Tax Tribunal, made a reference of the following questions of law :

(1) Whether, in the facts and circumstances of the case, the Tribunal erred in holding that the receipts from the canteen received by the applicant under the statutory provisions of the Mining Act and the Rules made thereunder were part of the applicant's business as a dealer ?

(2) Whether, in the facts and circumstances of the case, the receipts from the canteen for supply of food to the employees would be sales within the meaning of Section 2(g) of the Orissa Sales Tax Act so as to be included in the petitioner's taxable turnover for the purpose of assessment ?

2. Before examining the questions of law it would be appropriate to extract Rule 64, so far as relevant, and Rule 70 of the Mines Rules :

64. Provision of canteen.-At every' mine wherein more than 250 persons are ordinarily employed where the Chief Inspector or Inspector so requires, there shall be provided within the precincts of the mine a canteen for the use of all persons employed :....

70. Price to be charged.--Food, drink and other items served in a canteen shall be sold on a non-profit basis and the prices charged shall be subject to the approval of the canteen managing committee. A list of approved prices shall be conspicuously displayed in the canteen in English, Hindi and in the language of the district in which the mine is situated.

Explanation.-In calculating the cost of food, drink and other items served in a canteen, expenditure on the following items shall not be taken into account:

(a) the cost of utensils including cooking vessels and utensils necessary to serve food to the workmen ;

(b) the cost of furniture ;

(c) the cost of coal, fuel and electricity ; and

(d) the salaries of supervisory and other staff.

It would thus be seen that Rules 64 and 70 of the Mines Rules statutorily prescribe the running of a canteen at every mine. There is no dispute that in the petitioner's mine more than 250 persons are ordinarily employed. The prices to be charged at the canteen are not only on no-profit basis but at a subsidised rate and the petitioner has to incur loss in supplying food.

3. The following factual conclusions reached by the taxing authorities including the Tribunal are not assailed :

(i) The petitioner's business is to mine limestone and not to run a canteen to sell food and drink to the employees working in the mine, (ii) The canteen is run under obligation both statutory and as embodied in the agreement between the management and the trade union, (iii) Food and drink in the canteen are sold only to employees of the mine not only on no-profit basis but at a subsidised rate whereby the management runs a loss.

4. On the aforesaid factual findings Mr. Patnaik advanced the following contentions :

(i) The sale of food and drink in the canteen set up under compulsion of law being on no-profit basis the petitioner does not run the business of selling food and drink in the canteen and as such it is not a 'dealer' within the meaning of Section 2(c) of the Act. (ii) The business of the petitioner is mining and not running the canteen. Sales in the canteen do not constitute a component part of the business in mining and, as such, the petitioner is not a dealer in respect of the sales in the canteen. Both the contentions require careful examination.

5. It would be appropriate to notice the definition of the expressions 'dealer', 'goods', 'sale', 'sale price' and 'turnover of sales', so far as relevant, as defined in Section 2(c), (d), (g), (h) and (i). They run thus:

(c) 'Dealer' means any person who carries on the business of purchasing or selling or supplying goods in Orissa, whether for commission, remuneration or otherwise....

(d) 'Goods' means all kinds of movable property other than actionable claims, stocks, shares or securities...

(g) 'Sale' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge and the words 'buy' and 'purchase' shall be construed accordingly...

(h) 'Sale price' means the amount payable to a dealer as consideration for the sale or supply of any goods...

(i) 'Turnover of sales' means the aggregate of the amounts of: sale prices and tax, if any, received and receivable by a dealer in respect of sale or supply of goods other than those declared under Section 3-B effected or made during a given period...

6. Food and drink are 'goods' as defined in Section 2(d). Transfer thereof in the canteen to the employees for payment constitutes 'sale' within the meaning of Section 2(g).

The aggregate of prices in respect of sale transactions would not constitute 'sale price' unless the same is payable to a 'dealer'. Similarly, the aggregate of the amount of prices received and receivable on the sale transactions cannot be included in the 'turnover of sales' unless the petitioner is a dealer.

Thus, in the ultimate analysis the receipts from the canteen for supply of food would not be included in the taxable turnover of the petitioner unless it is a dealer.

7. There is no dispute that the petitioner is a dealer in respect of mining limestone from the quarry. It is necessary to examine if it is a dealer in respect of the sales of food and drink in the canteen.

8. The petitioner urges that the sale of food in the canteen does not constitute a business on two grounds : (i) the canteen is run under compulsion of law ; and (ii) there is no profit-motive in it and it is run only to provide amenities to the workers.

9. Decisions on the aforesaid contentions are divergent. The word 'business' as used in the definition of 'dealer' in Section 2(c) has not been defined in the Act. There are several Supreme Court decisions which, however, clarify the concept.

In State of Andhra Pradesh v. Abdul Bakshi & Bros. [1964] 16 S.T.C. 644 (S.C.), their Lordships observed thus:

The expression 'business' though extensively used 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 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. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption, i.e., without a profit-motive, will not make a person dealer within the meaning of the Act, but a person who consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer. The legislature has not made sale of the very article bought by a person a condition for treating him as a dealer: the definition merely requires that the buying of the commodity mentioned in Rule 5(2) must be in the course of business, i. e., must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. The commodity may itself be converted into another salable commodity, or it may be used as an ingredient or in aid of a manufacturing process leading to the production of such salable commodity.

In that case the definitions of 'dealer', 'sale' and 'turnover' were almost identical with the definitions under the Act. The dealers contended that the purchase of tanning bark by them as required in their tannery was not for sale and as such they were not dealers in tanning bark. The contention was negatived as the tanning bark was bought for a purpose connected with the business carried on by the dealers.

Two important principles are to be gathered from this decision. It explains the concept of business. Secondly, it lays down that an activity integrated with the business is to be treated as a component part of the business.

This decision was followed in State of Gujarat v. Raipur . [1967] 19 S.T.C. 1 (S.C.). The position was further elucidated by the following observation :

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 transactions; in others it would have to be inferred from a review of the circumstances attendant upon the transaction...

But no test is decisive of the intention to carry on the business : in the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised.

The definitions of 'dealer', 'goods', 'sale' and 'turnover' in that decision were almost identical with the definitions in the Act. Apart from the emphasis given that the concept of business takes within its sweep a profit-motive, the decision clearly lays down that the profit-motive may pervade the whole series of transactions effected by the person in the course of his activity.

10. Doubtless the running of a canteen is on no-profit basis; but provision for a canteen is integrally connected with the business and constitutes a component part of the integrated activity of the business of mining whereunder canteens are run to provide amenities and incentive to the workers engaged in the mines. If considered separately, the petitioner cannot be said to have the intention to run a canteen with a profit-motive. It cannot, however, be so separately taken. It constitutes an integral part of the commercial activity of mining quarries. Provision for canteens cannot be dissociated from the working of mines.

On the aforesaid analysis, we are clearly of opinion that in running the canteen the petitioner carries on business and the receipts from the canteen are to be included in the taxable turnover.

11. It is, however, contended that the canteens are run under compulsion of law on no-profit basis to provide amenities to the workers and unless there is freedom of contract in every aspect, the transaction would not constitute sale. The concept that transactions can constitute sale where freedom of contract is not wholly excluded is no longer res

In Salar Jung Sugar Mills Ltd. v. State of Mysore [1972] 29 S.T.C. 246 (S.C.), a Bench of seven Judges reviewed the decisions of the Supreme Court and made the following observations :

These decisions establish that statutory orders regulating the supply and distribution of goods by and between the parties under Control Orders in a State do not absolutely impinge on the freedom to enter into contract. Legislative measures or statutory provisions fixing the price, delivery, supply, restricting areas for transactions are all within the realm of planning economic needs ensuring production and distribution of essential commodities and basic necessities of community. The recent trends in these legal rules delimit the variety of structure of rights and duties which individuals may create by such acts and transactions. The complexity of modern activities and the consequent difficulty of providing for every eventuality have shaken fervour for freedom of contract as there was during the nineteenth century. The economic environment has changed. The individual freedom is to be reconciled with adequate performance by the Government of its functions in a highly organised society. Delimiting areas for transactions or parties or denoting price for transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number by achieving proper supply at standard or fair price to eliminate the evils of hoarding and scarcity on the one hand and availability on the other.

In Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1972] 30 S.T.C. 26 (A.P.), their Lordships examined the identical question with reference to the corresponding rules of the Indian Factories Act, 1948, and observed :

It is thus seen from the Act and the Rules that while the occupier of a factory is obliged to maintain a canteen and serve food and drink on a non-profit basis, there is a large amount of discretion in all other matters such as the choice of food and drink to be served, the prices at which they may be served, the time when they may be served, etc. In these matters, the voice of the managing committee, half the members of which are the occupier's own nominees, is to be that of an adviser only. Having regard to these circumstances, we are of the opinion that the transactions of supply of food and drink to workmen in the canteen maintained by the company, in pursuance of the Indian Factories Act and the Rules, are sales and do constitute business for the purposes of the Andhra Pradesh General Sales Tax Act.

We are in respectful concurrence. The same principle applies to this case where canteens are statutorily prescribed under the Mines Rules.

With regard to the factum of compulsion, their Lordships also examined the question with reference to the relevant sections of the Contract Act relating to coercion, undue influence, fraud, misrepresentation and mistake and concluded that the supply of food and drink by the company to its workmen was not the result of 'coercion' or 'undue influence' as defined in Sections 14 and 15 of the Contract Act. It is not necessary for us to repeat the reasons. We accept those very reasonings.

12. Several decisions have been cited on behalf of the petitioner that sales in canteens on no-profit basis under compulsion of rules do not constitute 'sale' within the meaning of the Sales Tax Acts as prevailing in different States. Those decisions are Gannon Dunkerley & Co. v. State of Madras [1954] 5 S.T.C. 216 (Mad.), Sree Meenakshi Mills Ltd. v. State of Madras [1954] 5 S.T.C. 291 (Mad.), Davanagere Cotton Mills Ltd. v. State of Mysore [1957] 8 S.T.C. 793 (Mys.), Trustees of the Port of Madras v. State of Madras [1960] 11 S.T.C. 224 (Mad.), I.C.F. Canteen v. Deputy Commercial Tax Officer [1962] 13 S.T.C. 827 (Mad.), Deputy Commissioner of Commercial Taxes v. Thirumagal Mills Ltd. [1967] 20 S.T.C. 287 (Mad.), Fort Gloster Industries Ltd. v. Member, Board of Revenue [1970] 26 S.T.C. 141 (Cal.), Indian Iron & Steel Co. Ltd. v. Member, Board of Revenue [1971] 27 S.T.C. 373 (Cal.) and Motor Industries Co. Ltd. v. State of Mysore [1971] 27 S.T.C. 379 (Mys.). It is not necessary to refer to the facts of each case. On the analysis given by us, with respect, we are unable to agree with the conclusions in those cases.

Strong reliance was placed by Mr. Patnaik on State of Tamil Nadu v. Thirumagal Mills [1972] 29 S.T.C. 290 (S.C.). The definition of 'business' in the Madras General Sales Tax Act, 1959, as it originally stood, was as follows :

2. (d) 'Business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern.

By an amendment in 1964, the definition was changed to add a clause 'whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit'. Their Lordships did not express any view on the question of the liability of the assessee subsequent to the amendment. They differed from the Madras decision and held that the amendment was not retrospective. On the definition as it stood, their Lordships expressed the view :

It has not been contended before us on behalf of the revenue that the turnover of the sales by the fair price shop and the canteen could be included in the taxable turnover according to the definition of 'business' as it stood in the original Act.

The decision is, therefore, no authority on the argument now advanced. Advocates for both the parties did not canvass that question. The entire concentration was whether the amendment was retrospective or not. Their Lordships held that the amendment was not retrospective. This decision, therefore, does not throw any light on the question in issue.

13. We would sum up our conclusions thus :

(i) Running of a canteen taken separately is not done with a view to earn profit. If it could be separately considered, it would not have been a business.

(ii) It cannot, however, be dissociated from the petitioner's business of mining quarries. Running the canteen constitutes an integral component part of the mining business. The intention of the petitioner in doing business to earn profit is to be determined with reference to the entire business of mining quarries.

(iii) Despite the compulsion of law under the mining rules that the petitioner is to run a canteen and supply food to workers on no-profit basis, the petitioner did not discontinue its business in mining operation. Freedom of contract in setting up a canteen is not wholly excluded. In such a case the transactions of selling food to the workers would constitute a sale.

14. On the aforesaid analysis, question No. (1) is answered in the negative and question No. (2) in the affirmative.

15. In the result, the references are discharged, but in the circumstances, there will be no order as to costs.

B.K. Ray, J.

15. I agree.


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