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Union Of India v. The State Of Punjab And Others
Structured Summary of Judicial Opinion
Factual and Procedural Background
This order disposes General Sales Tax Reference Nos. 21 to 28 of 1972. The Tribunal referred two questions of law to the Court:
- Whether the petitioner is a "dealer" within the meaning of section 2(d) of the Punjab General Sales Tax Act, 1948, and is liable to pay sales tax on its sales turnover?
- Whether, in the circumstances and on the facts of the case, no sales tax can be levied in view of the provisions of Article 285 of the Constitution?
The factual matrix, as stated in the opinion, is that the Union of India owns and operates the Northern Railway Departmental Catering at Railway Station, Pathankot. The railway has held a registration certificate since 1955, purchases provisions and goods (using that registration), and sells foodstuffs at the canteen. The State sought to tax this activity under the Punjab General Sales Tax Act on the ground that the railway canteen was carrying on the business of selling foodstuffs. Penalties were imposed under section 10(6) of the Act for failure to file returns. The railway authorities contended that Article 285(1) of the Constitution exempts Union property from State taxation and that the canteen operations were run on a no-profit, no-loss basis and therefore did not amount to "business" taxable under the Act. The Tribunal referred the two questions above for the Court's opinion.
Legal Issues Presented
- Whether the petitioner (the Northern Railway Departmental Catering) is a "dealer" within the meaning of section 2(d) of the Punjab General Sales Tax Act, 1948, and thus liable to pay sales tax on its sales turnover?
- Whether sales by the Union (here, the railway canteen) are immune from State sales taxation under Article 285(1) of the Constitution, such that no sales tax can be levied in the circumstances of this case?
Arguments of the Parties
Railway's Arguments
- The railway asserted that Article 285(1) of the Constitution exempts the property of the Union from State taxation and thus State sales tax could not be levied on sales by the railway canteen.
- The railway further contended that its canteen was not engaged in "business" of sale of foodstuffs because it operated on a no-profit, no-loss basis (i.e., lacking a profit motive), and therefore should not be treated as a taxable dealer under the Punjab General Sales Tax Act.
Department/State's Position
- The State sought to tax the canteen on the basis that the railway canteen was carrying on the business of selling foodstuffs and thus fell within the taxable ambit of the Punjab General Sales Tax Act; accordingly, penalties under section 10(6) were also imposed for failure to file returns.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| The Atlas Cycle Industries Limited, Sonepat v. The State of Haryana (decision of this Court) | Held that supply of goods by an employer to its employees on hire-purchase basis without profit motive is not liable to sales tax under the Act (i.e., absence of profit motive negates characterisation as taxable "business"). | The Court relied on this decision to support the proposition that activities carried out without a profit motive (supply to employees or otherwise) do not necessarily amount to a taxable "business" under the Sales Tax Act, and thus are not liable to sales tax. |
| State of Tamil Nadu v. Thirumagal Mills Ltd., Etc. (1972 1 SCC 176) | Affirmed the view that sale of foodstuffs in a canteen run without profit motive is not taxable as business; the High Court's similar view in a canteen case was affirmed by the Supreme Court. | The Court treated the Supreme Court's affirmation as persuasive authority supporting non-taxability of canteen sales conducted without profit motive. |
| State of Andhra Pradesh v. H. Abdul Bakhi and Brothers | Explained the meaning of "business" in taxing statutes: it denotes an occupation or profession occupying time and labour normally with the object of making profit; to be a business there must be a course of dealings continued or contemplated with a profit motive. | The Court quoted this explanation of "business" to underpin its conclusion that an activity lacking profit motive and not constituting a course of dealings with a profit objective does not amount to taxable "business". |
Court's Reasoning and Analysis
The Court addressed the second question first. It quoted Article 285(1) of the Constitution: "The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State." The Court reasoned that because the goods sold at the canteen are purchased by the railway and belong to the railway at the time of sale, any tax imposed on the sale would fall on the railway. Article 285(1) therefore renders such sales by the Union immune from State taxation. On that basis the Court answered the second question in the affirmative — in favour of the assessee (the railway) and against the department (the State).
On the first question (whether the petitioner is a "dealer" under section 2(d) of the Punjab General Sales Tax Act and liable to pay sales tax), the Court relied on prior authorities. It noted the decision in Atlas Cycle Industries (this Court) which held that supply of goods without profit motive is not liable to sales tax. It further referred to a similar canteen case in Tamil Nadu, which the Supreme Court affirmed in State of Tamil Nadu v. Thirumagal Mills Ltd., and to State of Andhra Pradesh v. H. Abdul Bakhi and Brothers, which elucidated the meaning of "business" in taxing statutes as requiring an element of profit motive and a course of dealings. Applying these principles, the Court concluded that the railway canteen's activities — described as provided on a no-profit, no-loss basis — did not constitute "business" liable to sales tax under the Act. The Court therefore answered the first question in the affirmative in favour of the assessee and against the department.
The Court expressly noted that, given the authorities cited and the conclusions reached, it was "not necessary to elaborate" further on the matter.
Holding and Implications
BOTH QUESTIONS ANSWERED IN THE AFFIRMATIVE (in favour of the assessee and against the department).
Direct effects and consequences:
- Sales by the Union (the railway canteen) are immune from State sales taxation under Article 285(1) of the Constitution; consequently, the State cannot levy sales tax on those sales in the circumstances presented.
- The Court applied established precedents to hold that the canteen's operations, being run on a no-profit, no-loss basis and lacking the requisite profit motive/course of dealings, do not amount to a taxable "business" under the Punjab General Sales Tax Act.
- There will be no order as to costs.
The opinion follows and applies existing case law rather than announcing a new legal principle; its effect is to resolve the referred questions in favour of the railway canteen (the assessee) and against the taxing department.
Judge D.K. Mahajan delivered the order; P.S. Patter, J. agreed. "Reference answered affirmatively."
D.K Mahajan, J.:— This order will dispose of General Sales Tax Reference Nos. 21 to 28 of 1972. In all these references, the following two questions of law have been referred by the Tribunal for our opinion:
“(1) Whether the petitioner is a ‘dealer’ within the meaning of section 2(d) of the Punjab General Sales Tax Act, 1948, and is liable to pay Sales tax on its sales turnover?
(2) Whether in the circumstances and on the facts of the case, no sales tax can be levied in view of the provisions of Article 285 of the Constitution?”
2. There is no dispute that the Union of India is the owner of the Northern Railway Departmental Catering, Railway Station, Pathankot. They hold the registration certificate since the year 1955, They purchase provisions and goods on the strength of the registration certificate and sell foodstuffs at the canteen. This venture was sought to be taxed under the Punjab General Sales Tax Act (hereinafter referred to as the Act) on the plea that the railway canteen was carrying on the business of sale of foodstuffs.
3. Penalties were also imposed under section 10(6) of the Act on their failure to file the return. The railway authorities raised the contention that no tax could be levied in view of the provisions of Article 285(1) of the Constitution, and that they were not engaged in the business of sale of foodstuffs because what the railway was doing was providing these amenities on no profit no loss basis. It is on these facts that the questions of law referred to above have been referred to us.
4. So far as the second question is concerned, it presents no difficulty. Article 285(1) of the Constitution is in the following terms:—
“The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.”
5. The goods are purchased by the railway and are sold by the railway. The tax is imposed on the sale of goods. At the time of the sale, the goods belong to the railway, and the tax has to be paid by the railway. Therefore, in view of the provisions of Article 285(1) of the Constitution, the sales by the Government are immune from taxtion under any State law. In this view of the matter, the second question referred to us must be answered in the affirmative, that is, in favour of the assessee and against the department.
6. As regards the first question, it is concluded by a decision of this Court in The Atlas Cycle Industries Limited, Sonepat v. The State of Haryana,1 wherein it was held that the supply of goods to its employees by, the assessee company on hire-purchase basis without profit motive is not liable to Sales tax under the Act. A similar case with regard to the sale of foodstuffs in a canteen arose in Tamil Nadu and the High Court took the same view, and that view was affirmed by the Supreme Court in State Of Tamil Nadu v. Thirumagal Mills Ltd., Etc . 1972 1 SCC 176, and in The State of Andhra Pradesh v. H. Abdul Bakhi and Brothers,3 wherein it was held:
“The expression ‘business’ though extensively used, is a word of indefinite import. In taxing statutes it 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. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure.”
7. It is, therefore, not necessary to elaborate on this matter.
8. For the reasons recorded above, we answer the first question also in the affirmative, that is, in favour of the assessee and against the department. However, there will be no order as to costs.
9. P.S Patter, J.:— I agree.
10. Reference answered affirmatviely.
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