The Bengal Immunity Company Ltd. And Another v. The State Of West Bengal And Others

1. The petitioner is a public limited company, carrying on the business of manufacture of medicines and Pharmaceuticals. The petitioner is regularly assessed under the Bengal Finance (Sales Tax) Act of 1941 (hereinafter referred to as the Act). It is not necessary to narrate the various facts stated in the petition which led to the retention of the books of accounts, as those facts are not relevant for the purpose of deciding the present dispute. The petitioner was served with a notice dated 29th November, 1967, issued by respondent No. 4 under Section 14(1) of the Act. The said notice stated that in the course of examination of the books of accounts in the premises of the petitioner-company on the 16th November, 1967, it was observed that the company made sales of stores and raw materials every year which were not shown in the sales account of the ledger and, therefore, had not been taken into account in the assessments which were completed. By the said notice the petitioner was directed to produce the general ledgers for the accounting years ended on 30th April, 1960, 1961, 1962, 1963 and 1964. The petitioner-company was also directed to produce statements of analysis of credit entries in the stores and raw materials accounts for each year and evidence in support of the statement. The copy of the said notice has been annexed to the petition and marked with letter 'A'. Thereafter by letters dated 8th December and 19th December, 1967, the petitioner showed cause and contended inter alia that the realisations from the old containers, drums and other packages of raw materials discarded as waste and scraps were not subsidiary products of any of the goods manufactured by the petitioner-company. It was also contended that those products of waste were neither ancillary nor incidental to the primary business of manufacturing pharmaceuticals, etc and as such not taxable under the Act. Thereafter the petitioner received notices from respondent No. 3, the Assistant Commissioner, Commercial Taxes, Dharmatala Circle, whereby the petitioner was informed that on a detailed scrutiny of the accounts, it transpired that sales of a number of taxable items (empty containers and other miscellaneous goods) escaped taxation as they were not accounted for in the books of accounts. It. was also stated in the said notices that respondent No. 3 proposed to revise the taxable turnover which was originally assessed at Rs. 75.20 to Rs. 61,821.82. The petitioner thereafter preferred objection. Respondent No. 3 by an order dated 1st August, 1969, treated the sale of empty containers and other miscellaneous goods to be liable to tax under the Act and recomputed the taxable turnover at Rs. 71,437.50. Aggrieved by the said order of respondent No. 3, the petitioner moved this court and obtained a rule nisi.

2. The main contention urged on behalf of the petitioner is that the sales of the empty containers and other miscellaneous goods do not attract sales tax under the Act, as such sales do not constitute the business of the petitioner within the meaning of the Act. Under Section 4 of the Act a dealer whose gross turnover exceeds the taxable quantum is liable to pay tax in respect of the sales of goods in accordance with the provisions of the Act. A dealer is defined under Section 2(c) of the Act to mean a person who carries on the business of selling goods in West Bengal and includes the Government. The expression "business" was not defined under the Act. By Section 4(1) of the Taxation Laws (Amendment) Act, 1968, the expression "business" under Section 2(1a) of the Act includes any trade, commerce, 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. By Sub-clause (ii) of Section 2(1a) of the Act business includes also any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, adventure or concern. This definition has been introduced in the Act with retrospective effect. Section 2(1a) of the Act shall and shall always be deemed to have been inserted in the Act. The result is that in view of the introduction of Section 2(1a) of the Act, if the sale of the empty containers and other miscellaneous goods is found to be ancillary or incidental to the trade or commerce or manufacture of the petitioner such sale would amount to business within the meaning of Section 2(1a)(ii) of the Act and the dealer is treated as carrying on the business of selling such goods. In the present case, the finding of the Assistant Commissioner of Sales Tax, respondent No. 3, is that the empty containers and other miscellaneous goods as were sold by the dealer were either ancillary or incidental to its trade or commerce or manufacture. That finding has not been challenged in this petition. In fact, it is not open to the petitioner in this application to challenge such finding. In view of such finding and in view of the retrospective operation of the definition of the word "business" introduced by Section 2(1a) of the Act, the sale of such goods would attract tax under the Act. Learned counsel for the petitioner relied upon an unreported decision in the case of Chief Commercial Superintendent, South Eastern Railway v. Member, Board of Revenue, West Bengal (Matter No. 568 of 1968) Since reported at [1973] 32 S.T.C. 171 decided by the Division Bench on 18th May, 1973. In my view the facts of that case are materially different from the facts in the present case. In the said case the question arose as to whether the South Eastern Railway is a dealer within the meaning of the Act in respect of the disposal of unclaimed goods. The learned Judges on an examination of the various provisions of the railways act held that the provisions of the railways act do not indicate that the railway carries any business of selling goods in West Bengal. They are not carrying on the business of selling goods. The learned Judges distinguished the decision of the Supreme Court in the case of State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. Ltd. [1973] 31 S.T.C. 426 (S.C.) on the ground that in that case the Burmah Shell Oil Storage and Distributing Co. Ltd. was undoubtedly carrying on the business of selling goods which also sold advertisement materials, canteen materials and scraps. But in the case decided by the Division Bench, it was held that the railways did not carry on any business of selling goods in West Bengal. It is true that they sell goods in West Bengal but that was considered to be an incident of their operation of the railways. In the facts of that case their Lordships held that when the railway effected sales of unclaimed or unconnected goods it was not a dealer within the meaning of Section 2(c) of the Act. In my view the said decision is of little assistance to the petitioner. The petitioner in the present case admittedly carries on the business of manufacture of medicines and Pharmaceuticals. The sale of empty containers and other miscellaneous goods was ancillary or incidental to the trade or commerce or manufacture carried on by the petitioner. In the case of State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Company of India Ltd. [1973] 31 S.T.C. 426 (S.C.), the Supreme Court held that the sale of the scraps and the advertisement materials was connected with the business of the company and hence in view of the amended definition of business under the Madras General Sales Tax Act, 1959, sales of advertisement materials, scraps and canteen materials would attract sales tax after the said amendment. As a result of the said decision, under both parts of the definition of "business" appearing in Section 2(1a) of the Act, profit-motive is now immaterial and the concept of business in the commercial sense, in respect of materials falling under Section 2(1a)(ii) of the Act cannot be accepted for the purpose of the Act. If it is found that the person is carrying on trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture which falls within the definition of Section 2(1a)(i) of the Act, any transaction in connection with or ancillary or incidental to such trade, commerce or manufacture, adventure or concern would also amount to business within the meaning of Section 2(1a)(ii) of the Act. When the motive to make a gain or profit is not considered to be an essential requisite to constitute a business within the meaning of Section 2(1a)(i) of the Act it is not permissible to hold that such profit-motive can constitute a necessary ingredient for the purpose of Section 2(1a)(ii) of the Act which embraces within the inclusive definition of business, transaction connected with or ancillary or incidental to such trade, commerce or manufacture, adventure or concern which falls within Section 2(1a)(i) of the Act. Under both parts of the definition profit-motive is now immaterial. In view of the new definition it is not necessary for me to deal with the case of State Of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 S.T.C. 1 (S.C.). In that case, the Supreme Court took the view that the disposal by a company carrying on the business of manufacturing and selling cotton textile of its miscellaneous old and discarded items cannot be considered to be the business of selling those items of goods. The Supreme Court in that case held that the expression "business" in taxing statute is used in the sense of an occupation or profession which occupies the time, attention and labour of a person normally with the object of making profit. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activities. By the use of the expression "profit-motive" it is not intended that profit must in fact be earned. The Supreme Court in the above case had no occasion to consider the amended new definition introduced by the Act. The concept of business as understood in the ordinary and commercial sense has to yield to the statutory definition given now in the Act.

3. For the reasons stated above, this application fails. The rule is discharged. Interim order, if any, stands vacated.