Chief Commercial Superintendent, South Eastern Railway v. Member, Board Of Revenue, West Bengal

1. In this reference under Section 21(1) of the Bengal Finance (Sales Tax) Act, 1941, the Board of Revenue has referred the following question to this court:

Whether, the petitioner-railway, in so far as it effects sales of unclaimed and unconnected goods under the provisions of Section 56 of the Indian Railways Act, is a dealer within the meaning of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941 ?

2. The South Eastern Railway, at whose instance this reference has been made, disposes of unclaimed goods for consideration of money. On the 29th August, 1957, the Commercial Tax Officer, Lyons Range Charge, Calcutta, issued a notice in form No. VI under Sections 11 and 14(1) of the Bengal Finance (Sales Tax) Act, 1941, to the Chief Commercial Superintendent, South Eastern Railway, directing him to produce on 12th November, 1957, the books of accounts and other documents for the purpose of assessment of tax payable under the said Act in respect of the period of four quarters ending March, 1957. Thereafter, a petition dated 12th August, 1958, was filed before the said Commercial Tax Officer praying for cancellation of the registration certificate on the ground that the South Eastern Railway was not a dealer within the meaning of the said Act as the said railway was neither a producer nor supplier for value of the unclaimed and unconnected goods sold in the public auction. The said Commercial Tax Officer did not agree with the said contention and he, accordingly, held by his order dated 6th June, 1959, that the disposal of unclaimed goods was a regular feature of the said railway. Accordingly, the assessment was completed after hearing the assessee on 6th June, 1959. Against the order dated 6th June, 1959, the assessee filed a revision petition before the Assistant Commissioner of Commercial Taxes, Calcutta, Chowringhee Circle. The point that was urged was whether the South Eastern Railway could be treated as a dealer or not within the meaning of the said Act. It was contended that the Government did not become a dealer irrespective of the nature of the sales conducted by it in some cases. It was also submitted that unclaimed and unconnected goods came into the possession of the railway not as a result of any activity of purchase or of manufacture for sale. When these came into its possession, the railway acquired some rights over these goods exercisable under Section 56 of the Railways Act, rendering surplus, if any, of the sale proceeds to any person entitled thereto. The Assistant Commissioner of Commercial Taxes held in his order that if the sales effected by the railway conform to the definition provided under the Act, the railway should discharge the obligation of a dealer and should account for the same. He also observed in the said order that the Government had been included under the Act within the meaning of "dealer" under Section 2(c) of the Bengal Finance (Sales Tax) Act by the West Bengal Amendment Act of 1950. He, accordingly, rejected the revision petition filed before him by the order dated 27th January, 1960.

3. A revision petition was then filed before the Commissioner of Commercial Taxes, West Bengal. The Additional Commissioner of Commercial Taxes who dealt with the case rejected the said revision petition and confirmed the order of the Assistant Commissioner by his order dated 17th June, 1960. The assessee thereafter filed a revision petition before the Board of Revenue, West Bengal. The first contention before the Board was that the railway did not acquire property in the goods sold by it, but only possession and that as such it could not be said that the railway sold the goods. The next contention was that the railway did not carry on the business of selling. Regarding the first contention, the Board held that the transfer of property was involved in the auction held by the railway and as such, it should be held that there was sale of goods in such an auction held by the railway. Regarding the second contention, the Board held that the emphasis was not so much on unbroken continuity as on the systematic and organised character of business. The Board of Revenue, accordingly, by its order dated 19th September, 1961, rejected the revision petition filed before it. Thereafter, on an application being made to the Board of Revenue the aforesaid question has been referred to this court.

4. The question, as mentioned hereinbefore, is whether the railway can be considered to be a dealer within the meaning of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941, for the purpose of its liability to sales tax in respect of the sales conducted by it under the provisions of Section 56 of the Railways Act. It would be, therefore, necessary to refer to the position under the statute. Prior to the passing of act 25 of 1969, which came into effect on 15th October, 1969, under Section 2(c) it was provided that "dealer" meant any person who carried on the business of selling goods in West Bengal and included the Government. Section 2(d) defines "goods" as inclusive of all kinds of movable properties other than actionable claims, stocks, shares or securities. Under Section 2(g) "sale" means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge. As mentioned hereinbefore, the Act underwent certain amendments by the West Bengal Taxation Laws (Amendment) Act, 1969, being Act 25 of 1969 and it would be, therefore, necessary to refer to the relevant provisions of the amendment. Section 4 of the said amending Act provides as follows :

Section 4.-In the Bengal Finance (Sales Tax) Act, 1941,-

(1) In Section 2, before Clause (a), the following clause shall be and shall always be deemed to have been inserted, namely :-

(1a) "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 with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and

(ii) any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, adventure or concern.

5. Under Section 4 a dealer, whose gross turnover during certain period exceeded the taxable quantum, is made liable to pay tax under the Act on all sales effected by it. In this case, it is undisputed that the sales done by the railway under Section 56 of the Indian Railways Act, 1890, exceeded the gross turnover prescribed under the Act. The question is whether, in the matter of such sales, the railway is liable under the provisions of the Act. The amendment, as mentioned hereinbefore, came into force on 15th October, 1969. But the amendment in express terms made the amended provisions retrospective. In the case of State Of Tamil Nadu v. Thirumagal Mills Ltd., Etc. [1972] 29 S.T.C. 290 (S.C.), the Supreme Court had occasion to consider the definition of "business" in Section 2(d) of the Madras General Sales Tax Act, 1959, as amended by the Madras General Sales Tax (Second Amendment) Act, 1964. The Supreme Court was of the opinion that the said amendment was prospective and not retrospective. The said amendment however had been effected by terms dissimilar to the present amending terms of the instant case. The Supreme Court noted the provisions of Section 9 of the said amending Act and observed that although the definition of "business" was substituted by the Second Amendment Act of 1964, it was not made retrospective by the usual words that it should be deemed to have been always substituted nor was any other language employed to show that the substantive provision, namely, the definition of "business" was being amended retrospectively. Therefore, if the expression had been used that "it should be deemed to have been always substituted", then the amendment would have been retrospective. Having regard, therefore, to the language used in the instant case, it must be held that the said amendment is retrospective. It was also so held in the decision of this court in the case of Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal [1970] 26 S.T.C. 141. Reference to this decision will be necessary later on some other points. In view of the amendment, therefore, we have to consider whether the railway is a dealer in terms of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941. Dealer, according to the Act, must be a person who carries on the business of selling goods in West Bengal. The business that is necessary to be carried on must be a trade, commerce, or manufacture or adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern and it would also include any transaction in connection with, or ancillary or incidental to, "such" trade, commerce, manufacture, adventure or concern. Therefore, to be a dealer under the amended definition, a dealer must be a person who carries on any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade or commerce or manufacture or adventure or concern is carried on with a motive to profit or whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern of selling goods and any transaction in connection with, or ancillary or incidental to, the trade, commerce or manufacture or adventure or concern in the nature of trade or commerce or manufacture of selling goods in West Bengal. If no trade, commerce or manufacture or adventure or concern in the nature of trade, commerce or manufacture is carried on in respect of selling goods, then any transaction which is incidental or ancillary to such trade, commerce or manufacture or concern cannot come within the ambit of the definition of dealer under Section 2(c) of the Act. It is, therefore, necessary to find out the true character of the transactions done by the railways under Section 56 of the Indian Railways Act, 1890. Railways carry on business of carriage of goods for hire and of passengers for fare. It would be necessary to refer to certain relevant provisions of the statute. Section 7 of the Indian Railways Act, 1890, gives certain authority to railway administration to execute certain works. There are other provisions in Chapter III, which authorise certain incidental works to be done by the railway for the purpose of carrying on its work. Chapter IV deals with opening of railways and Chapter V deals with railway commission and traffic facilities. Chapter VI provides for the working of the railways and provides for the conditions under which the railways would work. It provides for the carriage of property and limitation of such carriage of property. Section 55 of the Railways Act provides for lien, for rates and other charges not paid to the railways and Section 56 is in the following terms:

Section 56. Disposal of unclaimed things on a railway.-(1) When any animals or goods have come into the possession of a railway administration for carriage or otherwise and are not claimed by the owner or other person appearing to the railway administration to be entitled thereto, the railway administration shall, if such owner or person is known, cause a notice to be served upon him, requiring him to remove the animal or goods.

(2) If such owner or person is not known, or the notice cannot be served upon him or he does not comply with the requisition in the notice, the railway administration may, within a reasonable time, subject to the provisions of any other enactment for the time being in force, sell the animals or goods as nearly as may be, under the provisions of the last foregoing Section, rendering the surplus, if any, of the proceeds of the sale to any person entitled thereto.

6. Section 71 deals with carriage of passengers. Chapter VIA deals with certain limitations on the railway servants which are not relevant. The other provisions are not relevant for the purpose of this case. Therefore, as mentioned hereinbefore, the essential function of the railway is to carry passengers for fare and carry goods for freight and incidental and ancillary powers or authority had been given to the railways under the Railways Act to discharge these essential functions. The disposal of unclaimed goods under Section 56 is an incidental power. It provides, as mentioned hereinbefore, that if, under Sub-section (1) of Section 56, the goods and animals coming to the possession of railway for carriage or otherwise is not claimed by the owner, the railway administration shall cause a notice requiring him to remove the animals or goods and upon his failure, the railway administration has a right to dispose of the said goods and hand over the surplus, if any, of the sale proceeds to the person entitled to the same. These provisions, it appears, do not indicate that the railways carry on any business of selling goods in West Bengal. It is true that they do sell goods in West Bengal but that is an incident of their operation of the railways whose main functions have been noted. They are not carrying on the business of selling goods. There is no evidence on record to show or produced before the sales tax authorities to indicate that the railways carried on the business of selling goods. No provision of any rules or statute has been shown to us authorising the railways to carry on the business of selling goods.

7. Counsel for the sales tax authorities contended before us that the railway business was of a complex character and it carried on many composite activities. It was further submitted that in carrying on complex character of the railways, transactions which arose in connection with, or as incidental or ancillary to, the business of railway would come within the expanded meaning of the dealer after the amendment of 1969. It is true that the railways in discharge of their function might be selling some goods and it is also true that the railways carry on several composite transactions in respect of these transactions. But it has to be noted that to come within the definition, a transaction must be in connection with, or incidental or ancillary to, the business of selling goods and the reference to the expression "such trade, commerce or concern" makes it clear that to be an incidental or ancillary transaction to come within the misphief of the amended definition, the transaction must be incidental to the business of selling goods. In fact, the adverb "such" indicated that it must be a trade, as mentioned in clause (1a) and sub-clause (i) of clause (1a) of the amended section 2, which provides that the expanded definition of business must be of selling goods. For the proposition that when one concern carries on composite operations the true character of the essential operation has to be found, reliance may be placed on the decision of the Supreme Court in the case of State of Himachal Pradesh and Ors. v. Associated Hotels of India Ltd. [1972] 29 S.T.C. 474 (S.C.) Can it, therefore, be said that the company which is authorised to deal in immovable properties, if as an incident of such a sale, any transactions of sale of goods arise in West Bengal, it would be still liable under the provisions of the Bengal Finance (Sales Tax) Act ? It appears the expression "such" indicated, that for the trade and business of selling goods, if any incidental or ancillary transaction arises as an incident of such sale, it would be included in the definition of business but not beyond it. The Supreme Court had occasion to consider some of these questions in the case of State of Tamil Nadu v. Burmah Shell Oil Storage & Distributing Co. of India Ltd. [1973] 31 S.T.C. 426 (S.C ). There, the Supreme Court held that under the Madras General Sales Tax Act, 1959, sales of advertisement materials and scraps and canteen sales during the period of 1st April, 1964, to 31st August, 1964, were not liable to sales tax. The aforesaid decision was made because the Madras Sales Tax Act was not made retrospective in the same extensive term as has been done in the instant case. Under the Madras General Sales Tax Act, 1959, before this amendment in 1964, transactions which were incidental or ancillary to trade or commerce where there was no profit-motive were not liable to sales tax. It was further held that sales after 31st August, 1964, of advertisement materials and scraps and canteen sales, in view of the amendment of definition of business in 1964, were liable to such tax. It is to be noted that the Supreme Court was dealing with the case of Burmah Shell Oil Storage & Distributing Co. of India Ltd., which undoubtedly carried on the business of selling goods and which also sold advertisement materials, canteen materials and scraps. The question was whether these sales, viz., advertisement materials, canteen sales and sales of scraps were liable to tax under the amended definition of 1964. As mentioned hereinbefore, if the business was of selling goods, anything incidental or ancillary would also be liable to be included under the amended definition and profit-motive in the actual transaction after the amendment is irrelevant consideration. But the Supreme Court observed what the assessee in that case was doing was to facilitate the dealers to acquire at their cost such advertising materials of uniform type approved by the assessee-company which, instead of allowing to each of them to have these separately printed or manufactured itself undertook to do so and supplied them to its dealers. The supply of such material was, in the view of the Supreme Court, connected with the business of selling goods and, therefore, liable to be included in the turnover of the assessee. Reference was also placed on a decision of this court, as mentioned hereinbefore, in the case of Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal [1970] 26 S.T.C. 141. That case, however, in our opinion, dealt with a different kind of problem. For the purpose of determining the present controversy, it is not necessary to refer to the said decision in detail. It must, however, be observed that it was held in the said decision that the business should be done from a commercial point of view. Counsel for the revenue authority contended that in view of the observations of the Supreme Court in respect of canteen sales it could not be said that the view of this High Court was any longer valid. However, for the purpose of this case, it is not necessary for us to examine this question and we do not express any opinion on this co- troversy.

8. Reliance was also placed on a decision of the Andhra Pradesh High Court in the case of Andhra Pradesh State Road Transport Corporation, Hyderabad v. Commercial Tax Officer, Hyderabad III [1971] 27 S.T.C. 42. There, the Andhra Pradesh State Road Transport Corporation, the assessee, constituted under the Road Transport Corporation Act, 1950, had as its object, to provide or secure or promote an efficient, adequate, economical and properly coordinated system of road transport service in the State. Since 1958 the corporation had been operating bus service on various routes in the State. In the course of its activity, scrapped vehicles, old tyres, old containers and other unserviceable materials were left with the corporation which it had been disposing of periodically by public auction or by inviting the tenders. The corporation was provisionally assessed to sales tax in respect of the sales of the scrapped vehicles and other scraps effected during the period 1st April, 1S66, to 30th September, 1966. It was held that the corporation was not a dealer carrying on a business in old or scrapped vehicles and other scraps to be liable to be assessed to sales tax. It was, however, held that in order that an incidental or ancillary transaction or activity might amount to business within the meaning of clause (ii) of section 2(bbb), it should be in connection with the trade or commerce or adventure by the assessee and should itself partake of the character of trade, commerce, manufacture, adventure or concern.

9. For the aforesaid reasons, it appears to us, that when the railway effected sales of unclaimed and unconnected goods, it is not a dealer within the meaning of Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941. The question referred to us, therefore, is answered in the negative and in favour of the petitioner. There will be no order as to costs.

S.K. Hazra, J.

10. I agree.