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Commissioner Of Sales Tax, Madhya Pradesh, Indore v. Ram Dulare Balkishan And Bros.
Structured Summary of the Opinion
Factual and Procedural Background
Ramdulare Balkishan and Brothers, bus operators of Balaghat who carry on the business of providing transport, owned several buses and trucks. Between 1 January 1957 and 31 March 1959 they sold unserviceable cars, trucks, tyres and other used motor accessories for a total value of Rs. 6,154-12-0. The Assistant Sales Tax Officer, Chhindwara, treated the assessee as a "dealer" under Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, and assessed sales tax on those sales. The assessee's first appeal to the Appellate Assistant Commissioner, Jabalpur, was unsuccessful. A second appeal to the Board of Revenue by the assessee was allowed, the Board holding that the assessee was not liable to pay sales tax on the sales of unserviceable material. The Sales Tax Commissioner referred the question to the court under Section 44 of the Madhya Pradesh General Sales Tax Act, 1958 read with Section 23(1) of the Central Provinces and Berar Sales Tax Act, 1947.
Legal Issues Presented
- Whether, on the facts and circumstances of this case, the nonapplicant (Ramdulare Balkishan and Brothers) can be regarded as a "dealer" within the meaning of Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, in respect of sales of used-up motor vehicles and used-up parts such as tyres and tubes?
Arguments of the Parties
Government / Sales Tax Commissioner's Arguments (as presented by Learned Government Advocate)
- Relied on a Full Bench decision of the Kerala High Court in Gosri Dairy v. State of Kerala [1961] 12 S.T.C. 683 and on Aryodaya Spinning and Weaving Co. Ltd. v. The State of Bombay [1960] 11 S.T.C. 141.
- Contended that the frequency, regularity and the volume of the sales effected by the assessee were such that these sales could be regarded as being in the course of the assessee's business — i.e., constituting activity amounting to carrying on a business of selling those goods.
Assessee's Position (as recorded in the opinion)
- The assessee's primary business was providing transport and operating buses and trucks, not selling unserviceable or second-hand motor vehicles or accessories.
- The vehicles and accessories sold were obtained for the assessee's own use and were not purchased with the object of resale for profit.
- The sales of unserviceable material were made to recover some value and to minimise replacement and reconditioning expenses; they did not reflect a profit-making intention or ordinary trading in those goods.
- The Board of Revenue had accepted this position and held that the assessee was not liable for sales tax on those sales.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of M.P. v. Bengal Nagpur Cotton Mills Ltd. [1961] 12 S.T.C. 333 | Explains that a "dealer" under the Act must carry on the business of selling or supplying the particular commodity sought to be taxed; mere sale or continuity of sales is not decisive without a profit-making/business object. | The court applied these principles as the controlling test for whether the assessee's sales of unserviceable vehicles/accessories made it a "dealer"; concluded they did not. |
| Deputy Commissioner of Commercial Taxes v. Sri Lakshmi Saraswathi Motor Service A.I.R. 1954 Mad. 954 | Held that a transport company whose business was to provide transport could not be treated as dealers in buses simply because it sold buses when they became unserviceable. | Used as supporting authority to show that sale of unserviceable vehicles by a transport operator does not, by itself, convert the operator into a dealer in those vehicles. |
| Commissioner of Sales Tax v. Mohanlal Ramkisan Nathani [1955] 6 S.T.C. 136 | Holds that a person is a "dealer" only in relation to goods which it is his business to sell or supply; sales of commodities not in the line of his business are not taxable under the Act. | Cited to support the conclusion that sales by the assessee of goods not forming part of its business activity are not taxable under the statute. |
| Girdharilal Jiwanlal v. Assistant Commissioner, Sales Tax (Appeals) 1957 N.L.J. 307 | Affirms the principle that a seller is a "dealer" only in relation to goods which are his business to sell — continuity alone does not convert incidental sales into business sales. | Relied on as supporting precedent for the court's treatment of incidental sales as non-business sales. |
| State of Bombay v. Ahmedabad Education Society A.I.R. 1956 Bom. 673 | Construal of "dealer" and "sale" (under Bombay Sales Tax Act, 1946) which are similar to the definitions in the C.P. & Berar Act — emphasises that carrying on the business of selling or supplying goods (not mere act of selling) is essential. | Quoted to underline that the legislative emphasis is on carrying on the business (with commercial character) rather than mere transfers of property in goods. |
| Gosri Dairy v. State of Kerala [1961] 12 S.T.C. 683 | Kerala Full Bench held that frequency, regularity and volume of sales of cattle by a dairy firm could render those sales part of its business — applying a volume/regularity test. | The court considered this decision and rejected the sole reliance on volume/frequency as determinative, distinguishing it from the present facts because the profit/business object test was not satisfied here. |
| Aryodaya Spinning and Weaving Co. Ltd. v. The State of Bombay [1960] 11 S.T.C. 141 | Held that the sale of subsidiary products (e.g., cotton waste) by a manufacturer could be part of the business of selling those goods where such sales are incident to the main business. | Distinguished on facts: in Aryodaya the sales of subsidiary products were incidental to and part of the manufacturing business; here there was no material to show an intention to sell used vehicles as part of the transport business. |
Court's Reasoning and Analysis
The court framed the question as whether the nonapplicant was a "dealer" under Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, with respect to sales of used-up motor vehicles and parts. The court's analysis proceeded as follows:
- Found the decision in State of M.P. v. Bengal Nagpur Cotton Mills Ltd. to be the guiding authority: the statutory scheme taxes the sale of goods specified in the Schedules only when the sale is effected by a person who is a "dealer" in those particular goods — i.e., when the sale is in the course of that person's business of selling or supplying the goods in question.
- Interpreted "carries on the business of selling or supplying goods" in its commercial sense: continuous trading operations carried on with the object of earning profit. Continuity or repetition of activity by itself does not convert an activity into a commercial business unless it is carried on with a profit motive.
- Applied the above legal principle to the facts: the assessee's primary business was providing transport (operating buses and trucks). The vehicles and accessories sold were originally acquired for the assessee's use, not for resale. Sales of unserviceable items occurred when those items became unserviceable and were sold to reduce replacement/rehabilitation costs — not with an intention to trade in such items for profit.
- Considered and rejected the contrary argument advanced by the Government Advocate that frequency, regularity and volume alone could make the sales part of the business. The court examined Gosri Dairy (which applied a volume/regularity test) and concluded that applying that test alone overlooks the necessity of a profit/business motive as laid down in the Bengal Nagpur decision.
- Distinguished Aryodaya Spinning and Weaving Co. on facts: there the sale of subsidiary products was naturally a feature of the manufacturing business and an intention to sell could be inferred; no analogous intention or business plan existed here for resale of used vehicles.
- Noted supportive authorities (including decisions from Madras, Bombay and other tribunals) which held similar positions that incidental sales of unserviceable vehicles by transport operators do not make them dealers in those goods.
- Concluded that, on the application of those legal principles to the established facts, the sales of unserviceable vehicles and motor accessories were not sales by a "dealer" in the course of a business of selling those goods.
Holding and Implications
Holding: The court answered the reference by holding that the assessee cannot be regarded as a "dealer" under Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, in respect of the sales of "used up motor vehicles and used up parts like tyres and tubes." The court awarded costs of the reference to the assessee and fixed counsel's fee at Rs. 100.
Implications: The direct effect of the decision is that the assessee is not liable to pay sales tax on the sales of the unserviceable vehicles and motor accessories that are the subject of the reference. The opinion applies and reiterates existing principles from earlier authorities about the meaning of "dealer" and does not purport to lay down a novel legal doctrine; it decides the matter on application of established tests (in particular, the requirement of carrying on the business of selling the particular commodity with a profit-making object) to the facts of this case.
This summary is prepared exclusively from the content of the provided opinion and does not add information beyond that text.
1. In this reference under Section 44 of the Madhya Pradesh General Sales Tax Act, 1958, read with Section 23(1) of the Central Provinces and Berar Sales Tax Act, 1947, the question which we have been asked to answer is-
Whether under the facts and circumstances of the case, the nonapplicant can be regarded as a dealer under Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, in respect of the sales of used up motor vehicles and used up parts like tyres and tubes ?
2. Ramdulare Balkishan and Brothers of Balaghat are bus operators and carry on the business of providing transport. They own several buses and trucks. During the period from 1st January, 1957, to 31st March, 1959, the assessee sold unserviceable cars, trucks, tyres, and other used motor accessories to various persons. The value of all these sales amounted to Rs. 6,154-12-0. The Assistant Sales Tax Officer, Chhindwara, held that the assessee was a "dealer" as defined in Section 2(c) of the Act of 1947 and accordingly assessed Ramdulare Balkishan and Brothers to sales tax on these sales. The assessee unsuccessfully appealed to the Appellate Assistant Commissioner of Sales Tax, Jabalpur. Thereupon a second appeal was preferred before the Board of Revenue by the assessee which was allowed and it was held that the assessee was not liable to pay any sales tax on the value of the sales of unserviceable material. The present reference is at the instance of the Sales Tax Commissioner.
3. The reference must be answered in the light of our decision in State of M.P. v. Bengal Nagpur Cotton Mills Ltd. [1961] 12 S.T.C. 333. In that case, after referring to the definitions of "dealer" and "sale" given in Section 2 of the Act of 1947, we pointed out that under Section 5 of the Act sales tax was payable by a dealer on his taxable turnover of the goods specified in the Schedule as liable to tax ; that the Act did not impose sales tax on all goods but only on those goods specified in Schedules I and II; that it did not, impose the tax on the mere sale or purchase of the goods specified in the Schedules; and that what was taxable under the Act was the sale of those goods effected by a dealer. We further said that according to the definition of "dealer" every seller of a commodity was not a dealer ; that in order to constitute a person a "dealer", he must be engaged, whether as principal or agent, in the business of selling or supplying goods; that for the purpose of the Act the transfer of property in the goods from one person to another should be in the course of business of selling or supplying the goods ; and that for the imposition of tax under the Act on the sale transaction of a commodity, it was not sufficient that the sale should be by a "dealer" carrying on the business of selling or supplying some commodity but that the business of the dealer must be the selling or supplying the particular commodity sought to be taxed. We further said-
Merely because an activity is continuous or repeated, it does not follow that it is a business activity as understood in a commercial sense. The expression 'carries on the business of selling or supplying goods' in the definition of 'dealer' must be construed in its commercial sense. So construed, it means the carrying on of continuous trading operations with a view to earn profit. A person engaged in continuous trading operations may not actually obtain profit. He may incur a loss. But if he engages himself in those operations with the object of earning profit, then he is carrying on a business. The test is, therefore, the object with which the activity is carried on, and not whether he actually gets profit or loss, which is material.
4. In the present case, the business of the assessee is not of selling unserviceable or second-hand motor-cars, trucks or motor accessories. The business of Ramdulare Balkishan and Brothers is of providing transport, and operating buses. For this business the assessee has to keep a number of buses and trucks. Some of the vehicles naturally become unserviceable after some years. The tyres, batteries and other motor accessories also become unserviceable after sometime. These vehicles and motor accessories were obtained by the assessee for their own use. They were not obtained with the object of selling them to anyone at profit. Indeed in the sale of this unserviceable and secondhand material, there could be no question of earning any profit. Such vehicles and motor accessories are generally sold for whatever price that is obtainable and the value obtained only minimises the expenses which a person engaged in the business of providing transport has to incur in replacing and reconditioning his unserviceable vehicles. The sale of unserviceable material belonging to the assessee might have been on a large scale and might have been fairly regular. But from that it cannot follow that the assessee was engaged in the business activity, as understood in the commercial sense, of selling unserviceable cars, trucks and motor accessories. On the principles laid down in State of M.P. v. Bengal Nagpur Cotton Mills Ltd. [1961] 12 S.T.C. 333, there can be no doubt that the assessee's sales of unserviceable vehicles and motor accessories were not sales by a dealer in the course of his business of selling or supplying these goods.
5. The view we have taken is fully supported by the decisions in Deputy Commissioner of Commercial Taxes v. Sri Lakshmi Saraswathi Motor Service A.I.R.1954 Mad. 954. Commissioner of Sales Tax v. Mohanlal Ramkisan Nathani [1955] 6 S.T.C. 136, Girdharilal Jiwanlal v. Assistant Commissioner, Sales Tax (Appeals) 1957 N.L.J. 307 and State of Bombay v. Ahmedabad Education Society A.I.R. 1956 Bom. 673. In Nathani's case [1955] 6 S.T.C. 136, it has been held that a person can be regarded as a dealer within the meaning of Section 2(c) of the Act only in relation to the goods which it is his business to sell or supply; and so, where a person, though a dealer in respect of certain commodities, effects a sale of a commodity which it is not his business to sell, he is not liable to be taxed under the Act. A similar view has been expressed in Girdharilal Jiwanlal v. Assistant Commissioner of Sales Tax 1957 N.L.J. 307 In the Bombay case, State of Bombay v. Ahmedabad Education Society A.I.R. 1956 Bom. 673, Chagla, C. J., had occasion to construe the definitions of "dealer" and "sale" given in the Bombay Sales Tax Act, 1946, and which definitions were similar to those given in the C.P. and Berar Sales Tax Act, 1947. He said-
It is clear from the definition of a dealer that it is not merely the act of selling as defined in the Act which constitutes a person a dealer. The activity which the person must indulge in is not merely the activity of selling in the sense of transferring property in goods, but it must be the activity of carrying on the business of selling or supplying goods. What the Legislature has emphasised is not the act or activity of selling but the act or activity of carrying on the business.
In Deputy Commissioner of Commercial Taxes v. Sri Lakshmi Saraswathi Motor Service A.I.R. 1954 Mad. 954, it was held that a transport company whose only business was to provide transport could not be treated as dealers in buses merely because when the buses became unserviceable or useless the company sold them as old buses or scrap.
6. Learned Government Advocate referred us to a Full Bench decision of the Kerala High Court in Gosri Dairy v. State of Kerala [1961] 12 S.T.C. 683, and to Aryodaya Spinning and Weaving Company Ltd. v. The State of Bombay 3, and contended that the frequency, regularity and the volume of sales effected by the assessee in the present case were such that the sales could be regarded as in the course of the business of the assessee. In the Kerala case, the assessee-firm was a dealer in dairy products. It sold away a part of its livestock annually and replaced the same by fresh yielding stock. It was held that the frequency, regularity and the volume of sales of cattle by the assessee-firm were such that they could be regarded as "an activity in the course of the business of the assessee" and, therefore, the assessee's sales of cattle were part of its business constituting it a dealer within the meaning of the relevant Sales Tax Act. The learned Judges of the Kerala High Court reached the conclusion that they did solely on applying the test of volume, regularity and frequency of sales for determining whether the assessee was or was not a "dealer". But they overlooked the fact that an activity, though continuous, serious and large, could not assume the characteristics of a business unless it was an activity coming within the definition of "dealer" given in the Act. As we have said, the true test is not whether the selling activity is continuous or repeated; but it is whether the carrying on of continuous operations is with a view to earn profit. The case of Aryodaya Spinning and Weaving Company Ltd. [1960] 11 S.T.C. 141 is clearly distinguishable on facts. In that case, the assessee was carrying on the business of manufacturing cotton textiles and yarns. It also sold subsidiary products such as cotton, cotton waste etc. It was held by the Bombay High Court that though the normal business of the assessee was the manufacture of yarn and cloth, cotton waste, which was a subsidiary product, was normally sold and, in the circumstances, an intention to carry on business of selling the subsidiary product as a part or an incident of the business of the assessee could be inferred. Here there is no material whatsoever to hold that when the assessee purchased new vehicles it was with the object of selling them to anyone at profit after some use. On the other hand, the fact that the vehicles and motor accessories, which the assessee sold, were unserviceable only indicates a complete absence of the profit motive in the sale of those goods.
7. For these reasons, our answer to the question referred is that the assessee cannot be regarded as a "dealer" under Section 2(c) of the C.P. and Berar Sales Tax Act, 1947, in regard to the sales of "used up motor vehicles and used up parts like tyres and tubes." The assessee shall have costs of this reference. Counsel's fee is fixed at Rs. 100.
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