Important Point
There is no element of profit or gain in the duties discharged or in the services rendered by the Port Trust of Madras; the services are statutory and these services do not come within the definition of the word business in Section 2(d) of the Tamil Nadu General Sales Tax Act and therefore, Madras Port Trust is not a ‘dealer’ within meaning of Section 2(g) of the TNGST Act notwithstanding the amendment to Section 2(g)(iii).

Headnote:Tamil Nadu General Sales Tax Act, 1959—Sections 2(d) and 2(g) —‘Business’ — Dealer — Whether Madras Port Trust a ‘dealer’?—No—Profit motive is an essential element of business—No element of profit or gain in duties discharged or in service rendered by Port Trust —Services are statutory—Auction sale of unclaimed or unserviceable goods—Not business of trust—Port trust is not a dealer—Not liable to get registered—Not liable to tax.
       Held : The question is whether the Port Trust,—treated as a person under Section 2(g) or a local authority under Section 2(g)(i) or as an auctioneer under Section 2(g)(iii) - is a ‘dealer’ “who carries on the business of buying, selling etc.”. The emphasis here is on “carrying on business” and not merely buying and selling. In view of the definition of “business” in Section 2(d) after the 1964 Amendment, it does not matter whether the business is carried on without a motive to make profit or gain or whether profit has in fact accrued. (Para 13)
       The definition of “business” in Section 2(d) and in most of the sales tax statutes is an inclusive definition and includes `trade or business or manufacture etc.’. This itself shows that the legislature has recognised that the word `business’ is wider than the words `trade, commerce or manufacture etc.’. The word `business’ though extensively used is a word of indefinite import. In taxing statutes, it is normally used in the sense of an occupation, a profession—which occupies time, attention and labour of a person, normally with a profit motive and 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. Even if such profit motive is statutorily excluded from the definition of `business’ yet the person could be doing `business’. (Para 14)
       The word ‘carrying on business’ requires something more than merely selling or buying etc. Whether a person ‘carries on business’ in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. Such profit motive may, however, be statutorily excluded from the definition of ‘business’ but still the person may be ‘carrying on business’. (Para 15)
       If the main activity was not ‘business’, then the connected, incidental or ancillary activities of sales would not normally amount to ‘business’ unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not ‘business’ and the onus of proof of an independent intention to do ‘business’ in these connected, incidental and ancillary sales will rest on the Department. (Para 29)
       Coming to the Major Port Trusts Act, 1963 (before amendment by Act 15/97), Chapter V refers to “works and services to be provided by ports” (Sections 35 to 47) while Chapter VI deals with `Imposition and Recovery of Rates at Ports’ (Sections 48 to 65). Section 35(a) refers to various works and appliances to be provided by the Ports, namely, wharves, quays, docks, stage, jetties, piers etc. within the port or port approaches or on the foreshore of the port or port approaches, with all convenient articles, drains, landing places, stains, fences, roads, railways, bridges, tunnels and approaches and buildings required for the residence of the employees of the Board as the Board may consider necessary; Section 35(b) refers to providing buses, railways, locomotives, rolling stock, sheds, hotels, warehouses and other accommodation for passengers and goods. The port is required to provide appliances for carrying passengers and for conveying, receiving and storing goods, landed or to be shipped etc.; Section 35(c) requires the port to provide moorings and cranes, scales and all other necessary means; appliances for loading and unloading vessels; Section 35(d) requires the Port to take up work for reclamation, excavation, enclosing and raising any part of the foreshore of the port or port approaches which may be necessary for the execution of the works authorised by the Act, or otherwise for the purposes of the Act; Section 35(e) requires the port to provide such breakwaters and other works as may be expedient for the protection of the port; Section 35(f) requires it to provide dredges and other machines for clearing, deepening and improving any portion of the port or port approaches or of the foreshore of the port or port approaches; Section 35(g) requires to provide light hours, lightships, beacons, buoys, pilot boats etc; Section 35(h) requires it to provide vessels, tugs or other boards for use or for towing vessels or for protecting life or property and for purposes of landing, shipping or transhipping passengers or goods under Section 42; Section 35(i) requires it to provide tubewells and equipment, maintenance and use of boats, bongs and other appliances for extinguishing fires; Section 35(k) requires it to provide construction models and plans for carrying out hydraulic studies; Section 35(1) requires it to provide dry docks, slipways, boat basins and workshops for carrying out repairs or overhandling of vessels, tugs boats, machinery etc. Section 35-A, 36 also refer to other works. We have referred to the Port Trust’s activities and services in some detail only with a view to show that the port trust was not constituted by Parliament to ‘carry on business’. We have given the long list of its activities and services only to show how infinitesimal are the sales of unserviceable or unclaimed goods as compared to the very large range of the activities and services it is supposed to render. (Para 39 & 40)
       In view of the requirements of Sections 37, 39 and 42 ships come to the ports and carry goods outside or bring goods inside our country. Under Section 43, the Board is liable for the loss, destruction or deterioration of goods of which it has taken charge in the manner provided in the sections. Under Section 44, accommodation is to be provided for customs officers in the wharves etc. Chapter VI deals with imposition and recovery of rates at ports. Sections 48 to 57 deal with the rates. The more important provisions for the present purpose are those in Sections 58 to 65 in Chapter VI. They deal with the Board’s lien for rates on the goods which, in enforcement of the lien could be seized and detained till such rates and rents are fully paid. Section 61 refers to sale of goods after 2 months if rates or rent are not paid or lien for freight is not discharged. Section 62 refers to disposal of goods not removed from premises of Board. Section 63 mentions how the sale proceeds are to be dealt with-in payment of liens, claims, other charges, demurrages, penalties etc. From the above provisions, in our opinion, it is clear that the Port Trust is not involved in any activity of ‘carrying on business’ and that unclaimed and unserviceable goods are sold in discharge of various statutory charges, items etc. and the sales of these items are also an infinitesimal part of the Port Trust’s main activities or services. No doubt, the sales of goods are in connection with, or incidental or ancillary to the main “non-business” activities, but they cannot be treated as ‘business’ without any plea by the State of Tamil Nadu that the Port Trust had an independent intention to carry on business in the sale of unserviceable/unclaimed goods. That is not the case of the Department in the show cause notice. Further from the counter-affidavits filed in the High Court it is clear that it is not the case of the State that there is any separate intention on the part of the Port-Trust, to carry on business in the unserviceable and unclaimed goods. Its contention has been that the main activities of the Port Trust amounted to “carrying on business” and that these sales, even if they were incidental, fell within the meaning of the word ‘business’. The argument fails in view of our finding that the main activity is not one amounting to ‘carrying on business’. (Paras 41 to 43)

Judgment

M. Jagannadha Rao, J. — Leave granted.

2. This appeal is preferred by the State of Tamil Nadu and the Commercial Tax Officer, Harbour-I, Assessment Circle, Chennai against the Judgment of the High Court of Madras in Writ Appeal No. 1015 of 1994 dated 10.12.1996. By that Judgment, the Division Bench allowed the appeal and set aside the Judgment passed by the learned Single Judge in Writ Petition No. 5509 of 1994 dated 30th March, 1994. The learned single Judge had dismissed the writ petition No. 5509 of 1994 filed by the first respondent, the Board of Trustees of the Port Trust of Madras (hereinafter called the ‘Port Trust’) and by the Judgment under appeal, the writ petitions stood allowed and the notices issued by the Second appellant, the Commercial Tax Officer on 1.9.1993 and 8.2.1994 stood quashed.

3. The facts are as follows:

The Madras Port Trust is now a major Port Trust governed by the provisions of the Major Port Trusts Act, 1963 (earlier it was governed by an Act of 1905). It provides services of landing, shipping or transhipping, receiving, shifting, transporting, storing or delivery of goods brought into the premises of the Port Trust. Goods are brought into the Port Trust and delivered to the importee/consignee or their cleaning Agents etc. Goods are also exported through the Port Trust by means of its services. In the case of uncleared or abandoned goods, the Port Trust brings them for sale in public auction after the approval of the customs authorities. Before 1959, the Sales Tax Authorities in Madras sought to assess the Port Trust to sales tax under the Madras General Sales Tax Act (Act 9 of 1939) in respect of charges collected for water supplied by the Port Trust to ships. At that time, the Port Trust was governed by the Madras Port Trust Act (Act 2 of 1905). A Division Bench of the High Court of Madras in Trustees of the Port of Madras v. State of Madras1 held by Judgment dated 27-11-1959 that the Port Trust was not constituted for the purposes of “carrying on any business” of buying and selling with a view to make profit and that while supplying water to the ships that called at the Port, it was only discharging a statutory duty imposed upon it by the statute and was not a “dealer”, within the meaning of `dealer’ in Section 2(b) of the Madras General Sales Tax Act, 1939. At that time Section 2(b) which defined the word “dealer” stated that a dealer would be any person who carried on the business of buying or selling goods. The definition did not say that it was not relevant whether the said person was carrying on business with or without profit motive. In other words, profit motive was treated, at that time, as an essential element of business. The High Court, therefore, held that inasmuch as the Port Trust was performing certain statutory functions and rendering duties without any intention to make profit, it was not a `dealer’ within the definition of the said expression.

4. The above said statute of 1939 was replaced by the Tamil Nadu General Sales Tax Act, 1959. It contained a definition of “business” in Section 2(d) and a definition of “dealer” in Section 2(g). The definitions were amended from time to time. Section 2(d) which defined “business” did not initially state that the motive to gain or profit was not relevant. But the said sub-clause 2(d) was substituted by a new clause by the Madras Act 15 of 1964 which included within the said definition of “business”, the activity of carrying on business whether or not such business was carried on with a motive to make gain or profit. After the said amendment of 1964 the matter in regard to the Madras Port Trust again went before the Madras High Court in State of Madras v. Trustees of Port of Madras2. The dispute in that case related to the sale of unclaimed and unserviceable goods by the Madras Port Trust through auctioneers. The question raised was whether the Port Trust was a department of the Central Government and whether the Port Trust

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1999 Supreme(SC) 386

Cases Referred (31)