Vajhala Venkata Ramana v. State Of Andhra Pradesh

1. Messrs. Tirumala Timber Depot did "business" in timber at Gokavaram. The firm submitted in A-1 return a net turnover for the year 1968-69 on 29th April, 1969. The managing partner reported that the "business" had been stopped with effect from 31st March, 1969. A show cause notice was issued proposing best judgment assessment on the turnover of Rs. 2,07,000. The notice was also served on all the partners of the firm. One of the partners, K. Venkataramaiah, appeared before the assessing authority on 23rd February, 1970. He, however, stated that he had no account books and expressed his inability to produce the same. Y. Narasimha Rao appeared on 2nd March, 1970. It is in his name that the auction was confirmed. He was also not in a position to produce the account books. Another set of notices were also issued to the partners. Since no one took interest, the assessing authority to the best of its judgment reached the conclusion that the assessee-firm had purchased the rights in the forest coupe for Rs. 60,000. They were assessed accordingly and a tax amounting to Rs. 3,600 was directed to be levied.

2. The turnover related to a forest coupe. The writ petitioner is a partner of the firm, Tirumala Timber Depot, Rampachodavaram. The petitioner alleges that Y. Narasimha Rao, who had originally purchased the forest coupe for timber from the forest department, was a partner of the firm, Tirumala Timber Depot. The auction therefore was thus taken by Y. Narasimha Rao for and on behalf of the firm. There were 12 partners" in the firm according to the deed of partnership dated 4th April, 1968.

3. The petitioner contended that the partnership firm is the first purchaser and since sales tax was levied on the first sale, it is the Government from whom the sales tax has to be collected and not from the firm on the ground that the firm is selling timber to third parties.

4. The writ petitioner, therefore, has applied under Aricle 226 of the Constitution for the issue of a writ of certiorari to quash the assessment order dated 31st March, 1970, as well as the demand notice issued against the petitioner dated 10th July, 1970.

5. The petition is resisted by the respondents. It is, however, denied that Y. Narasimha Rao was the auction-purchaser. He purchased the forest coupe for the firm. It is, however, contended that the firm has already been provided with reasonable opportunity to produce the books and since it failed to do so, the assessing authority had to have recourse to an assessment by best of judgment. That assessment order has become final and in pursuance of that order, a notice of demand has been served upon the petitioner. An appeal ought to have been preferred against the assessment order, which has not been preferred., It was, therefore, submitted that the High Court in such circumstances should not interfere in the process of collection of The tax due from the petitioner. It was submitted that although sales tax is leviable at the point of first sale, since the tax cannot be collected from the Government whatever sales the firm conducted in favour of third parties, that would amount to the first taxable sale and, therefore, the firm has been rightly held liable to pay the sales tax.

6. When the matter came for hearing before our learned brother, Parthasarathi, J., the learned Judge referred the case to the Bench, as he thought that there are apparently conflicting pronouncements in T.R.C. 6 of 1959 and A.M. Ansari v. Board, of Revenue (1969) 2 An. W.R. 171.

7. The principal contention raised in this writ petition by Sri K.B. Krishnamurty, the learned counsel for the petitioner, is that the petitioner being the first purchaser from the forest department and that being the first sale in his favour, sales tax has to be levied at the point of first sale from the forest department and any transaction of sale which the petitioner after cutting the timber enters into then amounts only to a second sale on which no sales tax can be levied. It is, therefore, argued that the assessment order as against the petitioner was without jurisdiction and, therefore, has to be quashed.

8. In order to appreciate the implications of this contention it is necessary to read a few provisions of the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as the Act). In Section 2(bbb) the term ""business"" has been defined. It is an inclusive definition and reads:

'"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.

9. The term "dealer" is then defined in Clause (e) thus :

'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-

(i) the Central Government, a State Government, local authority, a company, a Hindu undivided family or any society (including a co-operative society), club, firm, or association which carries on such "business".

10. We are not concerned with the other Sub-clauses, as nothing turns upon them in this case. The term "goods" is then defined in Clause (h), according to which definition it means all kinds of movable property other than actionable claims, stocks, shares and securities and includes all materials, articles and commodities including those mentioned in the said definition. The term "turnover" is then defined in Clause (s). The proviso to that definition concerns itself with agricultural produce.

11. Section 5 is the charging section. According to that section, every dealer other than a casual trader or an agent of a non-resident dealer whose total turnover for a year is not less than Rs. 15,000 and every agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year, at the rate of three paise on every rupee of his turnover. We are not concerned with the proviso to that section. We need not therefore read it.

12. sub-section (2) of that section enjoins that notwithstanding anything contained in Sub-section (1) the tax under the Act shall be levied, (a) in the case of the goods mentioned in the First Schedule at the rates and only at the point of the sale specified as applicable thereto, effected in the State by the dealer selling them, on his turnover of sales in each year relating to such goods irrespective of the quantum of turnover.

13. According to items 63 and 64 of the First Schedule, timber and firewood respectively are charged with sales tax at the rate of three paise in the rupee at the point of first sale in the State.

14. A combined reading of all these provisions would unmistakably point out that timber and firewood are charged with sales tax at the point of first sale in the State. The question, therefore, is whether the transaction which has been entered into by the forest department in auctioning the forest, timber and accepting the petitioner as the highest bidder and agreeing to allow them to cut the timber amounts to first sale in the State.

15. The contention was that since the Government sells its own property, it can not be said that the Government is carrying on "business" in selling the timber by auction. In support of this contention reliance was placed on A.M. Ansari v. Board of Revenue (1969) 2 An. W. R. 171. No doubt at page 182 their Lordships posed the following question for consideration :

...Whether the sale of one's own goods can be said to be buying or selling or carrying on trade or commerce.

16. The learned Judges, however, did not expressly answer that question. But by necessary implication we think that the question has been answered in the affirmative. We find at page 184 an observation to the effect that sales tax is neither a part of the consideration of auction nor its levy is permissible under the Sales Tax Act. From the trend of the discussion and the abovesaid observation we understand the decision as if the question which earlier was posed for consideration has been answered affirmatively.

17. This decision, however, in our judgment, cannot be considered to be a good law in view of the decision of the Supreme Court in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 S.T.C. 1 (S.C.). Their Lordships categorically held that when a subsidiary product is turned out in the factory of the assessee regularly and continuously and it is being sold from time to time, an intention to carry on "business" in such product may be reasonably attributed to the assessee. What is plain from the said decision of the Supreme Court is that even if the factory produces a subsidiary product and sells it, it can only mean that the factory is carrying on a "business" in the sale of such subsidiary product. Applying the same principle to the facts of the present case, it is not difficult to hold that when the Government, who owns the forest timber, regularly and continuously sells it every year by means of auction, an intention to carry on "business" in selling of such forest timber can very reasonably be attributed to the Government. The definition of the term "sale" given in Section 2(n) would easily take in regular and continuous sales of the forest timber held periodically by the Government in favour of the different contractors.

18. What is however to be seen is whether the Government when it sells by means of auction forest timber periodically, can it be said that the Government is carrying on "business" in the sale of forest timber. That question arises because the definition of dealer, which is also an inclusive definition, includes a State Government within the meaning of that term, which 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. It was not doubted before us that forest timber is included in the definition of goods. What remains, therefore, to be seen is whether the Government, which is a dealer according to the definition, can be said to have carried on a "business" of selling forest timber.

19. We have already referred to the definition of ""business"". If that definition is read carefully and analytically, it can leave no one in doubt that any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture carried on irrespective of the motive to make gain or profit is a "business" within the meaning of that term. Even the transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern is also considered as a "business". The definition, of course, would imply some kind of regularity and continuity in carrying on the trade or commerce.

20. In State of Gujarat v. Raiftur Manufacturing Co. Ltd. [1967] 19 S.T.C. 1 (S.C.), the Supreme Court was concerned with that term, of course, in another context. Their Lordships observed that "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". Since the definition of ""business"" excludes the consideration of profit motive, what remains, according to the abovesaid observation of the Supreme Court, is to see the volume, frequency, continuity and regularity of the transactions of sale and purchase. It could not be disputed that in organising auctions the Government periodically but regularly and frequently sells the forest timber. The volume of such transaction is quite considerable. The transaction thus entered into by the Government every year, in our view, amounts to carrying on "business" within the meaning of the term ""business"".

21. Our attention, however, was drawn to A.M. Ansari v. Board of Revenue (1969) 2 An. W. R. 171. It was contended that a Bench of this Court has taken the view that the Government in auctioning forest timber cannot be said to have been carrying on "business" within the meaning of that term. We were taken through the judgment. After going through the judgment very carefully we do not think that their Lordships have anywhere decided expressly or by necessary implication that the Government in. selling timber frequently, regularly and continuously cannot be said to have been doing "business" within the meaning of that term for the purposes of the Act. Their Lordships had posed one question alone for consideration, which we have extracted above. No doubt immediately before the said question was posed it is observed that the second question is whether sales tax is leviable on transactions entered into between the contractor and the Government either in respect of sale of beedi leaves, bamboo or standing timber. It is also true that the learned Judges then considered the definitions of "dealer" and ""business"", but the judgment did not turn upon these definitions, as is clear from the question, which after referring to these definitions, was immediately posed for consideration. We have already stated that the answer given to this question necessarily implies that the question was answered in the affirmative. We are not, therefore, prepared to hold that the said decision in any manner says that in spite of regularity, continuity and frequency of the sale of timber by the forest department and in spite of large volume of such transactions the Government cannot be said to have been carrying on "business" in selling timber. The said decision is, therefore, no authority for the proposition that in spite of the features referred to above, the Government cannot be said to have been carrying on "business" in selling timber. It is perhaps quite relevant to mention that although the definition of "dealer" has been referred to in the said judgment, attention was not directly focussed on the fact that the State Government according to Section 2(e)(i) has been included within the definition of "dealer" provided of course that it carries on the "business" of selling goods. That is why this particular aspect was not considered in the said decision.

22. It is also pertinent to mention that the Supreme Court decision in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 S.T.C. 1 (S.C.) which was not a decision on those lines, was not brought to the notice of the learned Judges in A.M. Ansari v. Board of Revenue (1969) 2 An. W.R. 171. These two aspects clearly support the view we have taken as above.

23. We were then referred to Raja Bhairabendra v. Superintendent of Taxes [1958] 9 S.T.C. 60. The facts have been brought out in the said decision and we consider it unnecessary to detail them here. At page 65 the following observation appears :

The learned counsel contends that this does not in any sense amount to carrying on the "business" of 'seeing' or 'supplying'. These expressions have been considered in various decisions, in all of which it has been laid down that the words 'carrying on "business"' connote a continuous trade or occupation involving time and labour as also some investments, which may be regarded as an independent trade or occupation by itself capable of being sold or transferred as such. Here, the trees which were sold had grown spontaneously upon the land of the petitioner and they were sold, not as an independent "business", but as part of the rights which he had in the zamindari of disposing of the timber grown on his land. A transaction of this nature could not, therefore, have the attributes of a "business" in the legal sense of the term.

24. It would immediately be plain from the abovesaid extract that in so far as the understanding of the word ""business"" is concerned, the. decision lays down somewhat similar principles to which we have already made a reference. The definition, as extracted in the judgment, of "dealer" denotes that any person who carries on the "business" of buying, selling or supplying is considered to be a dealer. The abovesaid extract from the Assam High Court judgment must have to be understood in the light of what is laid down by the Supreme Court in these cases referred to above. We do not consider it necessary that an investment is necessary in order to bring a transaction within the meaning of "business". Since the term ""business"" is expressly defined in our Act, which definition does not insist upon the necessity of an investment, whether a particular transaction involves an investment or not could not, in our opinion, be a decisive factor. We do not, therefore, consider that the Assam decision, in so far as the principle is concerned, lays down anything inconsistent with what we have stated in regard to the term ""business"". Whether the said decision has been correctly laid down on the facts of that case or not obviously is not our concern. We have already referred to the aspect of profit-making motive and ruled that in the light of the definition of the term ""business"" that also does not constitute a consideration.

25. Since the transactions entered into by the Government with various contractors satisfy not only the requirements of the definition of "business" but also satisfy the test laid down by the Supreme Court, we have no hesitation in holding that in selling timber the Government is doing "business" within the meaning of the term

"business"

26. What must necessarily follow, therefore, is that according to entries 63 and 64, it is the Government which is the first seller of the timber or the firewood and, therefore, it is the Government that has to pay the sales tax. It was, however, contended by the learned Government Pleader that no sales tax can be levied from the Government. The learned advocate was not, however, in a position to point out any provision of law or any authority which would support his contention. The definition of "dealer", on the other hand, refutes any such submission, because it expressly includes Government provided of course it carries on "business" as referred to in the said definition. It was also contended before us by the learned Government Pleader that since the tax cannot be levied from the Government whatever sales are held by the petitioner subsequent to his purchase of the forest timber in favour of third parties would constitute first sale within the meaning of entries 63 and 64 of the First Schedule. We are not inclined to accept this argument. In our judgment, the transactions entered into by the Government with the petitioner constitute the first sale and the transactions which are entered into by the petitioner in favour of third parties after he cut the timber, obviously constitute the second sale. Since sales tax is leviable on the first sale, no tax can be levied on the second sale. No authority was brought to our notice and we are not aware of anywhere it is laid down that if the first sale cannot be taxed as the Government is a party, it is the second sale which must be treated as the first sale and taxed. This approach is also not correct because we have already held that the Government is not exempted in the Act from paying tax. On the other hand, it is included in the definition of "dealer". The effect of the foregoing is that the assessing authority must be held to have gone wrong in assessing the petitioner to sales tax. It may be that the petitioner has not preferred any appeal against that order, but it is now firmly settled that the existence of an alternative remedy is not a bar to the exercise of our jurisdiction under Aricle 226 of the Constitution. It may constitute one of the considerations for considering whether this court should exercise its jurisdiction in favour of the petitioner or not. When we have reached the conclusion that the second sale is not taxable at all under the law and that the assessing authority has exceeded its limits in assessing the petitioner to sales tax, we do not think that the existence of an alternative remedy should be allowed to come in the way of quashing the assessment order as it is clearly inconsistent with the provisions of the Act.

27. The argument that the assessment order has become final and, therefore, this court should not interfere is not impressive obviously because in the writ petition the assessment order is directly attacked and it is, therefore, open to this court to examine whether the assessing authority was right in levying tax on the two sales and collecting the same from the petitioner.

28. We must not omit to consider the decision dated 14th April, 1960, in T.R.C. 6 of 1959. This decision is supposed to be in conflict with the one in A.M. Ansari v. Board of Revenue (1969) 2 An. W.R. 171. The unreported decision is very short. What seems to have happened in that case was that the casuarina trees were purchased by the respondents for sale as firewood. The learned Judges held that the casuarina trees attached to the land, which are agreed to be severed for sale, are "goods" within the meaning of that term. Since it was not disputed that the sales tax was paid by the assessees to the forest depirtment, from which they purchased the standing timber and since it was not disputed that sales tax was leviable only at one point on these goods, the learned Judges held that the tax having been paid when the assessees bought the casuarina, they were not liable to pay for the sales when they actually sell it as firewood. This decision in effect supports the view which we have taken although this decision neither considers the definition of "dealer" nor the definition of ""business"". In any case we do not think that this decision is contrary to the decision in A.M. Ansari v. Board of Revenue (1969) 2 An. W.R. 171. The later decision, as noticed earlier, can be said to be an authority only for the proposition that when the Government sells its own forest produce, it cannot be said to be carrying on "business" in that commodity, whereas the unreported decision, first referred to, can be said to be an authority for the proposition that sales tax having been paid to the Government and as it is taxable at one point only, no sales tax can be levied from the petitioner for selling the firewood to others. It is, however, plain that this unreported decision although in conclusion supports the view which we have taken does not deal with the definitions of "dealer" and ""business"" to which we have made elaborate reference.

29. Since no other contention was raised we would allow the writ petition and quash the impugned assessment order by the issue of a writ of certiorari. The demand notice issued in pursuance of the said assessment order would automatically be quashed. The petitioner will get his costs. Advocate's fee Rs. 100.