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Davy And United Engineering Co. Ltd. v. Commissioner Of Commercial Taxes, West Bengal, Calcutta

Calcutta High Court

Mar 16, 1978

Judgment

Subsequent
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Structured Summary of the Opinion

Factual and Procedural Background

This reference arises under section 21(1) of the Bengal Finance (Sales Tax) Act, 1941, initiated by the assessee, Davy and United Engineering Co. Ltd. The questions referred ask (1) whether transfers of goods by the applicant to other companies of the same consortium against payment of price constituted sales under the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941, and (2) whether sales of unserviceable goods, scraps, discarded and surplus materials were exigible to tax under the Bengal Finance (Sales Tax) Act, 1941 in view of a 1967 Ordinance (later saved by West Bengal Act 25 of 1969) whose retrospective operation had been struck down by the Calcutta High Court in Shew Bhagwan Goenka v. Commercial Tax Officer.

Facts found or admitted: the assessee is a British company and a member of the Incon consortium, which had a works contract with the Government of India (1956) for construction of steel works at Durgapur. Other consortium members obtained supplies from the assessee by placing orders; the assessee received payments for such supplies. The assessee also disposed of unserviceable, reject and surplus goods (furniture, motor vehicles, office equipment) to outsiders during closing years. The assessee was at one time registered as a dealer. Assessments to sales tax were made for specified earlier periods, and the assessee appealed. The Assistant Commissioner held the assessee to be a dealer regarding sales to consortium members, excluded disposal of fixed assets from turnover, but included disposal of surplus stores in turnover. The Additional Commissioner upheld that decision based on an extended, retrospectively-effective definition of “business.” The Board of Revenue (Member) also upheld the authorities below, noting that the Calcutta High Court's decision in Shew Bhagwan Goenka (striking down retrospective extension) was not yet available when the Additional Commissioner acted.

Legal Issues Presented

Whether transfers of goods by the assessee to other companies of the same consortium against payment of price constituted "sales" within the meaning of the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941.
Whether sales of unserviceable goods, scraps, discarded and surplus materials were exigible to tax under the Bengal Finance (Sales Tax) Act, 1941, in view of the Ordinance of 1967 (and its subsequent saving by West Bengal Act 25 of 1969) whose retrospective operation was struck down by the Calcutta High Court in Shew Bhagwan Goenka.

Arguments of the Parties

Assessee's (Davy and United Engineering Co. Ltd.) Arguments

The assessee was not a "dealer" within section 2(c) of the Sales Tax Act — it did not carry on the business of selling goods in West Bengal but only executed the works contract; therefore it could not be held liable to pay sales tax on transfers to consortium members (argument addressed under question No. (1) by counsel).
Question No. (1) as framed concerned whether the transfers were "sales" within the Sales Tax Act; counsel contended that a sale within the meaning of the Sales Tax Act must be a sale by a dealer and thus the assessee could not be taxable as it did not carry on trade in sales.
As to question No. (2), the assessee contended it had not been found to be carrying on a business as a dealer of rejected/unserviceable goods, scraps and discarded materials, and therefore such sales could not be taxed. Counsel relied on Supreme Court authority (State of Madras v. K.C.P. Ltd.) and other cases (e.g., State of Gujarat v. Vivekanand Mills, State of Gujarat v. Raipur Manufacturing Co. Ltd.) to show that isolated sales of surplus or unserviceable items do not amount to carrying on a business of selling such goods and so are not taxable turnover.
The assessee further argued that the Additional Commissioner's withdrawal of relief (as to fixed assets and surplus materials) had proceeded on the basis of a retrospective definition of “business”; since the retrospective extension had been struck down (Shew Bhagwan Goenka) and later approved by a Division Bench (Bengal Paper Mill Co. Ltd. v. Commercial Tax Officer), the Member ought not to have withheld the relief claimed.

Revenue's (Sales Tax Authorities') Arguments

The sales tax authorities maintained the assessments — the Assistant Commissioner and Additional Commissioner found the assessee to be a dealer in respect of sales to consortium members and to have included disposal of surplus stores in turnover; the Additional Commissioner relied on a broadened, retrospectively effective definition of “business.”
Before this court, Mr. Sanjay Bhattacharya (for the sales tax authorities) could not distinguish the decisions cited by the assessee but relied on a Supreme Court decision (District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer) holding that a retrospective introduction of the definition of “business” in the Rajasthan Sales Tax Act, 1954 by an amending Act of 1965 was proper and competent, i.e., supporting the validity of retrospective amendments in that context.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Shew Bhagwan Goenka v. Commercial Tax Officer [1973] 32 S.T.C 368	Held that the retrospective operation of the amendment extending the scope of “business” was in violation of Article 19 of the Constitution (Calcutta High Court decision relied on).	The court treated this judgment as dispositive for interpreting the Bengal Finance (Sales Tax) Act and read the Act in light of that decision; it influenced the answer to question No. (2) in favour of the assessee.
Bengal Paper Mill Co. Ltd. v. Commercial Tax Officer	Division Bench approval of the Shew Bhagwan Goenka decision (as cited in the opinion).	The court noted this approval as supporting the position that the retrospective extension of “business” was not effective; used as part of the basis for answering question No. (2) for the assessee.
State of Madras v. K.C.P. Ltd. [1969] 23 S.T.C 173 S.C.	On facts where imported arc furnaces were unsuitable/unserviceable and subsequently sold, the Supreme Court held proceeds were not includible in turnover (i.e., sales of discarded/fixed assets not part of taxable turnover under those facts).	Cited by the assessee to support non-taxability of sales of unserviceable/fixed assets; the court described the decision and treated it as authority relevant to question No. (2).
State of Gujarat v. Vivekanand Mills [1967] 19 S.T.C 103 S.C.	Where an assessee unexpectedly received imported cotton and sold part of it, the Supreme Court held that the sales could not be inferred to be by way of business and no sales tax was leviable.	Cited by the assessee and discussed in the opinion as relevant precedent on whether isolated sales constitute carrying on a business of selling those goods; the court noted the decision but did not need to examine all cited authorities in detail because of its own findings.
State of Gujarat v. Raipur Manufacturing Co. Ltd.	Held that selling goods unserviceable for one's business does not make the seller a dealer in those goods unless there is an intention to carry on a business of selling them.	Cited by the assessee to support the proposition that mere sale of unserviceable items does not create dealer status; the court recorded and relied on the principle in assessing question No. (2).
District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer	Upheld retrospective introduction of the definition of “business” into section 2 of the Rajasthan Sales Tax Act, 1954 (Rajasthan Taxation Laws (Amendment) Act, 1965) as proper and within legislative competence.	Relied on by the revenue's counsel; the court noted this contrary authority but distinguished the Bengal Act issue by reference to the judgments of this court and Calcutta High Court decisions; it did not give this Rajasthan decision primacy in construing the Bengal Act.
State of Andhra Pradesh v. Abdul Bakshi and Bros.	This precedent was cited by counsel (no specific rule described in the opinion text).	Listed by the court among decisions cited by the assessee; the court said its own finding made detailed consideration of these decisions unnecessary.
Southern India Tea Estates Co. Ltd. v. State of Kerala [1967] 20 S.T.C 397	Cited by counsel (specific principle not described in the opinion text).	Noted by the court among authorities cited by the assessee; the court did not consider it in detail given its findings.
Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal [1970] 26 S.T.C 141	Cited by counsel (specific principle not described in the opinion text).	Noted by the court among cited decisions; the court did not examine it in detail because its own statutory interpretation resolved question No. (1).
Hindustan Steel Ltd. v. State of Orissa [1970] 26 S.T.C 302 S.C.	Cited by counsel (specific principle not described in the opinion text).	Recorded by the court as cited; not examined in detail in light of the court's statutory finding on question No. (1).
The State of Tamil Nadu v. Rambal Private Limited [1972] 29 S.T.C 526	Cited by counsel (specific principle not described in the opinion text).	Noted by the court among the cases cited by the assessee; not analyzed further due to the court's conclusive statutory finding.
New India Assurance Co. Ltd. v. Deputy Commercial Tax Officer [1972] 29 S.T.C 539	Cited by counsel (specific principle not described in the opinion text).	Listed by the court among decisions cited; the court found further detailed consideration unnecessary in view of its conclusions.
Chief Commercial Superintendent, South Eastern Railway v. Member, Board of Revenue, West Bengal [1973] 32 S.T.C 171	Cited by counsel (specific principle not described in the opinion text).	Recorded by the court; not examined in detail because the court's direct interpretation of the statutory definitions resolved the issues.
Board of Revenue v. A.M. Ansari [1976] 38 S.T.C 577 S.C.	Cited by counsel (specific principle not described in the opinion text).	Listed in the opinion among cited authorities; no detailed discussion because of the court's dispositive statutory analysis.
Sole Trustee, Lok Shikshana Trust v. CIT, Mysore [1975] 101 I.T.R 234 S.C.; 1976 1 SCC 254	Cited by counsel (specific principle not described in the opinion text).	Mentioned among authorities cited; the court did not undertake separate analysis of this decision in the opinion.

Court's Reasoning and Analysis

The court proceeded in two principal analytical steps corresponding to the two questions referred.

Question No. (1) — whether transfers of goods by the assessee to other consortium members against payment of price constituted "sales" under the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941:

The court examined the statutory definitions. It quoted section 2(g) of the Bengal Finance (Sales Tax) Act defining "sale" as any transfer of property in goods for cash, deferred payment or other valuable consideration, including transfers involved in the execution of a contract (but excluding mortgage, hypothecation, charge or pledge), and section 4(1) of the Indian Sale of Goods Act defining a contract of sale as transfer or agreement to transfer property in goods for a price.
The court found as a matter of fact (based on the admitted/found facts) that the assessee had transferred goods to other consortium members and that the transfers were against payment of price.
Given the statutory definitions and the established facts (transfer + price), the court concluded that the transactions between the assessee and other consortium members amounted to sales under both the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act.
Because the facts admitted transfer for price, the court answered question No. (1) in the affirmative and in favour of the sales tax authorities.

Question No. (2) — whether sales of unserviceable goods, scraps, discarded and surplus materials were exigible to tax under the Bengal Finance (Sales Tax) Act, 1941:

The court considered the submissions of the parties and relevant precedents. The assessee relied on authorities (including State of Madras v. K.C.P. Ltd., State of Gujarat v. Vivekanand Mills, State of Gujarat v. Raipur Manufacturing Co. Ltd.) to contend that sales of unserviceable or surplus items do not necessarily constitute taxable turnover or make the seller a dealer unless there is an intention to carry on the business of selling such items.
The revenue relied upon a contrary Supreme Court decision from Rajasthan (District Controller of Stores, Northern Railway, Jodhpur) which upheld retrospective introduction of a definition of “business” in that statute; however, the court observed that the Bengal Act must be construed in the light of the judgments of this court and the Calcutta High Court (notably Shew Bhagwan Goenka and its Division Bench approval in Bengal Paper Mill Co. Ltd.).
The court stated that the matter as to the Bengal Finance (Sales Tax) Act is concluded by those judgments of this court (and the High Court decision) and therefore read the Bengal Act accordingly.
Applying those authorities and the facts of the present case, the court held that the sale of unserviceable goods, reject scraps, discarded and surplus materials were not exigible to tax under the Bengal Finance (Sales Tax) Act, 1941.
The court also noted the factual finding (or lack of finding) that the assessee had not been shown to be carrying on a business as a dealer of such discarded/unserviceable items that would attract taxation in the absence of the retrospective extended definition.

Holding and Implications

Core Rulings:

Question No. (1): Answered in the affirmative — the transfers of goods by the assessee to other members of the consortium against payment of price constituted "sales" within the meaning of the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941. This result was in favour of the sales tax authorities.
Question No. (2): Answered in favour of the assessee — the sale of unserviceable goods, reject scraps, discarded and surplus materials were not exigible to tax under the Bengal Finance (Sales Tax) Act, 1941 (having regard to the judicial pronouncements about the retrospective extension of the definition of "business").

Implications:

Direct effect on the parties: The court sustained the characterization of the transfers to consortium members as sales (supporting the sales tax authorities on question No. (1)), while relieving the assessee from liability for tax on sales of unserviceable, rejected and surplus materials (question No. (2)).
Costs: The court ordered that there will be no order as to costs.
Precedential effect: The court read the Bengal Finance (Sales Tax) Act in light of the prior judgments cited in the opinion (notably Shew Bhagwan Goenka and the Division Bench approval in Bengal Paper Mill Co. Ltd.). The opinion does not state that it is laying down any novel legal principle beyond applying those authorities to the facts; its answers are founded on statutory definitions and the cited judicial decisions as recorded in the opinion.

Result: Reference answered accordingly.

Show all summary ...

Dipak Kumar Sen, J.:— This is a reference under section 21(1) of the Bengal Finance (Sales Tax) Act, 1941, at the instance of Davy and United Engineering Co. Ltd., the assessee. The questions referred are as follows:

(1) Whether or not transfers of goods by the applicant-company to other companies of the same consortium against payment of price constituted sales within the meaning of the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941.

(2) Whether or not sales of unserviceable goods, scraps, discarded and surplus materials were exigible to tax under the Bengal Finance (Sales Tax) Act, 1941, in view of the incorporation of the definition of “business” by an Ordinance promulgated in 1967 (since repealed and saved by West Bengal Act 25 of 1969), the retrospective operation of which was struck down by the Calcutta High Court in the case of Shew Bhagwan Goenka v. Commercial Tax Officer [1973] 32 S.T.C 368..

2. The facts found and/or admitted are as follows: The assessee is a British company. It was engaged as a constituent of a consortium known as Incon. The consortium entered into a works contract with the Government of India in 1956 for the construction of the steel works at Durgapur. In terms of the said contract other members of the consortium used to obtain their supplies from the assessee by placing orders with the assessee for goods which were required in the construction as also for goods required for their own consumption. The assessee used to receive payments from the other members for such supplies. Also, during the closing years, the assessee disposed of a quantity of unserviceable, reject and surplus goods including furniture, motor vehicles, office equipments, etc., to outsiders. The assessee at one time was registered as a dealer under the relevant Sales Tax Act. Assessments to sales tax were made on the assessee for the following periods prior to its registration as a dealer: 30th November, 1957, to 31st March, 1958, 1st April, 1958, to 31st March, 1959, 1st April, 1959, to 31st March, 1960, 1st April, 1960, to 30th June, 1961, 1st July, 1961, to 31st August, 1962, respectively on 20th September, 12th November, 14th December and 15th December, 1962. Being aggrieved by the assessments, the assessee preferred appeals before the Assistant Commissioner of Commercial Taxes who held that the assessee was rightly held to be a dealer in respect of sales made to the other members of the consortium. So far as disposal of fixed assets were concerned, the Assistant Commissioner held that the same should not have been included in the turnover of the assessee. Disposal of surplus stores was, however, held to be part of its turnover.

3. A revision was preferred to the Additional Commissioner of Commercial Taxes, West Bengal, from the order of the Assistant Commissioner. The Additional Commissioner upheld the decision of the Commercial Tax Officer in its entirety, on the basis of the extended definition of the expression “business” in the statute with retrospective effect.

4. Being aggrieved, the assessee filed further revisions before the Member, Board of Revenue, West Bengal. The Board upheld the contentions of the authorities below. The Member considered a judgment of this court in the case of Shew Bhagwan Goenka v. Commercial Tax Officer, where it was held that the retrospective operation of the amendment of the Act whereby the scope and ambit of the expression “business” was extended was in violation of article 19 of the Constitution. The Member held that at the time when the Additional Commissioner passed his order, this judgment was not there and that the Commercial Tax Officer had taken the meaning of the word “business” as it stood before the amendment at the time of making of the assessment. On these grounds he rejected the contentions of the assessee.

5. From this order of the Member, Board of Revenue, the present reference is initiated.

6. Mr. Bankim Dutt, learned Advocate for the assessee, has contended before us that the assessee was not a dealer within the meaning of section 2(c) of the Act, which defines a dealer as follows:

“2. (c) ‘dealer’ means any person who carries on the business of selling goods in West Bengal and includes the Government.”

7. Mr. Dutt contended that the assessee had not carried on business in selling goods in West Bengal, but only carried out the works contract; therefore, he cannot be held liable to pay sales tax. This argument was made by Mr. Dutt while addressing us on question No. (1). It was pointed out to Mr. Dutt that this question though sought to be raised was not referred and it was not open to him to raise the said question within the framework of question No. (1). Mr. Dutt, however, contended that in question No. (1) the controversy which has been raised was whether the sale in question was a sale within the meaning of the Bengal Finance (Sales Tax) Act, 1941, and, therefore, he was entitled to agitate that a sale within the meaning of the Sales Tax Act must be a sale by a dealer. We are unable to agree with Mr. Dutt. Sale has been defined both in the Indian Sale of Goods Act and in the Bengal Finance (Sales Tax) Act, 1941. The definition in section 2(g) of the Bengal Finance (Sales Tax) Act is as follows:

“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.”

8. Indian Sale of Goods Act defines a contract of “sale” as follows:

“4. (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.” The facts found in this case, in our opinion, conclusively show that the transactions by and between the assessee and the other members of the consortium amounted to sales both within the meaning of the Indian Sale of Goods Act and the Bengal Finance (Sales Tax) Act, 1941.

9. It is not disputed that the assessee transferred the goods to the other members of the consortium. It is also undisputed that the transfers were against payment of price. This admission is implied in the question and, therefore, this question, i.e, question No. (1), must be answered in the affirmative and in favour of the sales tax authorities.

10. Mr. Dutt cited a large number of decisions in support of his contention, but in view of our finding as above, it is not necessary for us to consider the same in greater detail. We note the same:

(a) State of Andhra Pradesh v. Abdul Bakshi and Bros., (b) State of Gujarat v. Vivekanand Mills [1967] 19 S.T.C 103 S.C., (c) Southern India Tea Estates Company Ltd. v. State of Kerala [1967] 20 S.T.C 397., (d) Fort Gloster Industries Ltd. v. Member, Board of Revenue, West Bengal [1970] 26 S.T.C 141., (e) Hindustan Steel Ltd. v. State Of Orissa. [1970] 26 S.T.C 302 S.C., (f) The State Of Tamil Nadu v. Rambal Private Limited [1972] 29 S.T.C 526., (g) New India Assurance Co. Ltd. v. Deputy Commercial Tax Officer [1972] 29 S.T.C 539., (h) Chief Commercial Superintendent, South Eastern Railway v. Member, Board of Revenue, West Bengal [1973] 32 S.T.C 171., (i) Board of Revenue v. A.M Ansari [1976] 38 S.T.C 577 S.C., (j) Sole Trustee, Lok Shikshana Trust v. Cit, Mysore [1975] 101 I.T.R 234 S.C; 1976 1 SCC 254.

11. On question No. (2), Mr. Dutt contended that in any event it has not been found that the assessee was carrying on business as a dealer of rejected and unserviceable goods, scraps and discarded materials and, therefore, could not be held to be liable to pay sales tax on such sales. In support of his contention, Mr. Dutt cited a decision of the Supreme Court in State of Madras v. K.C.P Ltd. [1969] 23 S.T.C 173 S.C.

12. In this case, the assessee, who was carrying on business of manufacture and sale of machinery and parts thereof, imported two arc furnaces for installation in its own plant. The furnaces were found to be unsuitable and were ultimately sold. The question arose whether the sum realised on sale had to be included in the total turnover. The Supreme Court held on these facts that the arc furnaces were either fixed assets or discarded goods which had been found to be unsuitable or unserviceable and the sale proceeds could not be included in the turnover of the plant.

13. Mr. Dutt also cited another decision of the Supreme Court in State of Gujarat v. Vivekanand Mills. The facts in this case were that the assessee carried on business of manufacturing cotton fabrics. In January, 1953, it had arranged to import 500 bales of cotton from California and expected the same to arrive after six months. Arrangements had been made to meet the assessee's immediate requirements by local purchases. The foreign consignment reached unexpectedly in April, 1953, and the same had to be accepted resulting in the blocking of considerable capital of the assessee. The assessee sold a large part of the imported cotton. The Supreme Court held on these facts that it could not be inferred that the assessee sold the cotton by way of business and no sales tax was leviable.

14. Mr. Dutt contended further that so far as the fixed assets and surplus materials are concerned, the Assistant Commissioner had granted relief to the assessee. The Additional Commissioner proceeded on the basis of the definition of “business” as introduced retrospectively in the statute and, therefore, this relief granted to the assessee was withdrawn. The retrospective operation of the definition having been struck down by this court, the Member ought not to have withheld the relief claimed. The decision of the Calcutta High Court in the case of Shew Bhagwan Goenka has been approved subsequently in another Division Bench of this Court in Bengal Paper Mill Co. Ltd. v. Commercial Tax Officer. Therefore, in view of the law as it stood at the material time, the sale of these items could not have been made liable to sales tax in the absence of the extended definition of the word “business”.

15. Mr. Dutt also cited another decision of the Supreme Court in State of Gujarat v. Raipur Manufacturing Co. Ltd. The assessee there was carrying on the business of manufacturing and selling cotton textiles. It sold a part of its coal stocked for the purpose of lighting its furnace. The question arose whether such a sale was liable to sales tax. The Supreme Court held that a person who sells goods which are unserviceable for his business does not on that account become a dealer in those goods until he has an intention to carry on the business of selling those goods. Mere sale of a commodity which the assessee may require for the purpose of its business and which has been purchased for use in that business will not justify an inference that a business of selling that commodity was intended.

16. Mr. Sanjay Bhattacharya, learned counsel for the sales tax authorities, could not distinguish the decisions cited by Mr. Dutt. He however drew our attention to a decision of the Supreme Court in District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer, where the Supreme Court held that introduction of the definition of the word “business” in section 2 of the Rajasthan Sales Tax Act, 1954, by the Rajasthan Taxation Laws (Amendment) Act, 1965, retrospectively was proper and the legislature was competent to give such retrospective effect by the amending Act.

17. In our opinion, so far as the Bengal Finance (Sales Tax) Act, 1941, is concerned the matter is concluded by the judgments of this court and the said Act must be read and construed in the light of those judgments. In the facts and circumstances, it appears to us that question No. (2) must be answered in favour of the assessee. Our answer is that the sale of unserviceable goods, reject scraps, discarded and surplus materials were not exigible to tax under the Bengal Finance (Sales Tax) Act, 1941. In the facts and circumstances, there will be no order as to costs.

18. Reference answered accordingly.