1. The main question that arises in this Letters Patent appeal is whether by virtue of sections 4(1) and 5(1) of the General Insurance Business (Nationalisation) Act of 1972, the petitioner's trade, assets and properties can be said to be that of the Central Government and as such are exempt from the levy of sales tax under article 285 of the Constitution of India.
2. The petitioner-company is engaged in the business of general insurance and the functions of the petitioner-company are to insure the vehicles and properties and other gods thereby providing insurance to the customers and indemnify them against loss, damage or theft of the insured property in terms of the contract of insurance. After making the payment of the compensation amount to the claimants, in certain cases, the petitioner-company becomes the owner and entitled to possess the waste or unusable property damaged by the risk insured against. The properties or goods, which are thus damaged or rendered unsalable are taken into custody by the petitioner-company after payment of compensation to the person concerned. These goods are then disposed of by way of auction or otherwise as salvaged material. The disposal of the said material is an essential part of the petitioner's business of insurance and part of the insurance contract with the assureds.
3. The Sales Tax Officer, respondent No. 4, issued a show cause notice dated 11th August, 1976, requiring the petitioner-company to appear before him on 19th August, 1976, and to furnish the statement of sales in respect of salvage effected by the petitioner-company during the years 1971-72 to 1975-76 for the purpose of making the assessments of tax under the provisions of the Bengal Finance (Sales Tax) Act, 1941, as was extended to the Union Territory of Delhi and also under the Delhi Sales Tax Act, 1975. The petitioner-company in response to the show cause notice appeared before respondent No. 4 and challenged the legality and validity of the said notice inter alias on the following grounds :
'I. In the repealed Act there was no definition of the term 'business' and as such the sale proceeds which is incidental to the function of the company was not subject to levy of sales tax under the repealed Act.
II. The assets, business and property of the petitioner-company had vested in the Central Government after the nationalisation of the company, and being the property of the Central Government is exempt from the levy of sales tax by virtue of article 285 of the Constitution of India.
III. The clauses (c), (e) and (g) of section 2 of the Delhi Sales Tax Act, 1975, are void being vocative of article 285 of the Constitution of India.
4. The Sales Tax Officer, thereafter, issued memorandum dated 22nd November, 1976, requiring the petitioner-company to explain why the transactions prior to the commencement of the local Act and also under the repealed Act, were not subjected to the levy of sales tax and proposed to form assessment for the years 1970-71 to 1975-76. The petitioner-company again submitted objections regarding taxability of salvage under the repealed Act and again explained the position that under the repealed Act, there was no definition of the term 'business' as has been effective under the local Act and as such the disposal of salvage cannot be subjected to tax and in support of this contention, invited the attention of respondent No. 4 to the decision of the Supreme Court in the case of State of Gujarat v. Raipur Manufacturing Company : 1SCR618 . The Sales Tax Officer thereafter issued a notice in form ST 14 thereby requiring the petitioner-company to produce relevant record and statement of sales in respect of period from 1st April, 1970, to 31st March, 1976, and to attend the proceedings on 27th November, 1976. Again on 10th December, 1976, the Sales Tax Officer directed the petitioner-company to furnish the figures of sale of salvage effected from the year 1970-71 onwards. The petitioner-company furnished the particulars of the sale of salvage effected during the year 1975-76 and expressed their inability to furnish the figure for the earlier period. The Sales Tax Officer, however, insisted on the particulars asked for by him and further told the petitioner-company that in case the particulars asked for were not supplied, he would proceed on the basis of best judgment assessment. It is at this stage that the petitioner filed a petition under article 226 of the Constitution of India challenging the action of the Sales Tax Officer.
5. The petition was heard by a learned single Judge of this Court who held that the petitioner-company, though a Government company, was not the Central Government within the meaning of article 285 and hence was not the party aggrieved by the Delhi Sales Tax Act which imposed tax on transaction of sale or purchase by the Central Government. He further held that a petition to challenge the constitutional validity of clauses (c), (e) and (g) of section 2 of the Act was not maintainable at the instance of the said company. The learned single Judge was of the opinion that the show cause notice issued was not without jurisdiction and as such it was for the authorities under the Act to decide the questions on merits. With these observations the petition was dismissed.
6. The first contention of the learned counsel for the appellant before us was that by virtue of section 4(1) of the Nationalisation Act the appellant-company became the property of the Central Government and as such on a true interpretation of article 285 of the Constitution, the assets of the company were exempt from sales tax. Section 4(1) of the Nationalisation Act is as follows :
'On the appointed day, all the shares in the capital of every Indian insurance company shall, by virtue of this Act, stand transferred to and vested in the Central Government free of all trusts, liabilities and encumbrances effecting them.'
7. We have given our careful consideration to this submission of the learned counsel but we are unable to agree with the same. In the case of a Government company incorporated under the Companies Act even if the entire share capital of the company may have been subscribed by the Central Government, it cannot be said that the properties belonging to the company are owned by or vest in the Central Government as the company has a legal entity of its own. The shares of the company may be owned by the Central Government but the company which has a legal entity of its own owns its properties and as such it cannot be said that the property of the company is owned by the Central Government. It is true that if we were permitted to lift the corporate veil the result may be different but while interpreting a taxing statute we are not entitled to do so. The company or the corporation cannot be equated to its shareholders. We are, thereforee, in agreement with the learned single Judge and hold that the properties of the appellant-company cannot be said to be the properties of the Central Government and similarly the appellant-company cannot be said to be the Central Government.
8. The learned counsel for the appellant also sought to argue the case on merits and contended that the learned single Judge should have gone into the matter whether the disposal of salvage matter was a part of the business of the appellant-company or the same was incidental to the appellant's business of general insurance. These are questions of fact and can be gone into by the authorities under the Act. It would be premature for us to pronounce on merits of the case at this stage without the facts having been found.
9. For the reasons recorded above, we do not find any merits in this appeal which is dismissed. Considering the circumstances of the case, we leave the parties to bear their own costs.
10. Appeal dismissed.
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