1. Dispute over whether auctioning unclaimed or unserviceable goods by a statutory port authority constitutes carrying on business, making it a dealer under the Tamil Nadu General Sales Tax Act. (Para 2 , 3 , 4 , 5 , 9 )
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1999 Supreme(SC) 391
SUPREME COURT OF INDIA
State of Tamil Nadu
Versus
BOARD OF TRUSTEE OF THE PORT OF MADRAS
Decided on : March 26, 1999
If a body's primary activity is not 'business,' incidental sales are not taxable unless the revenue proves an independent intention to conduct business in those specific transactions. Port Trusts, performing statutory duties, are not established for carrying on business, making their incidental sales of unclaimed goods non-taxable.
Headnote:
SALES TAX - Dealer - Port Trust - Whether a dealer - Whether sales of unserviceable or unclaimed goods by Port Trust liable to sales tax - Held, No - Port Trust not established to carry on business - Sales of unserviceable or unclaimed goods in discharge of various statutory charges, items etc. and the sales of these items are also an infinitesimal part of the Port Trusts main activities or services - Sales not exigible to tax.
Fact of the Case:
The Madras Port Trust is now a major Port Trust governed by the provisions of the Major Port Trusts Act, 1963. It provides services of lending, 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 Clearing 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.
Finding of the Court:
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.
Issues: Whether the Port Trust was established to carry on business.
Ratio Decidendi: The main activity of the Port Trust is not one amounting to carrying on business.
Final Decision: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. State contends statutory functions can be business and incidental sales are taxable; Port Trust argues its primary activities are non-commercial statutory duties, rendering incidental sales non-taxable. (Para 5 , 6 , 24 )
3. The court distinguished between entities whose main activity is business and those whose main activity is not, noting that incidental sales for the latter require independent business intent. (Para 13 , 14 , 15 , 17 , 22 , 23 , 29 , 35 , 36 )
4. Where the main activity is not business, incidental sales are not taxable unless the revenue proves an independent intention to conduct business in those specific transactions. (Para 29 , 35 , 36 )
5. Appeal dismissed; notices quashed as the statutory body is not a dealer for the auction of unclaimed or unserviceable goods. (Para 44 , 46 )
6. Does the absence of a profit motive prevent an activity from being classified as business under sales tax statutes?
No. If the statute explicitly excludes profit motive from the definition of business, the activity can be classified as business regardless of whether a profit motive exists or profit actually accrues. (Para 10 , 13 , 14 , 15 )
7. Are sales of scrap or unserviceable goods taxable if the entity's main activity is already classified as business?
Yes. If the main activity is business, transactions connected with, incidental, or ancillary to that business are taxable, even if those specific sales lack a profit motive. (Para 21 , 22 , 23 )
8. Are incidental sales taxable when the entity's primary activity is not a business?
Normally, no. Such sales are presumed non-business unless the revenue proves an independent intention to conduct business in those specific incidental activities. (Para 29 , 35 , 36 )
9. Does the performance of statutory duties automatically preclude an entity from being a dealer?
Not necessarily, but if the entity was not established to carry on business and the sales are infinitesimal compared to its statutory services, it is not a dealer. (Para 38 , 39 , 40 , 43 )
Judgment
M. JAGANNADHA RAO, J.
( 1 ) 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 30/03/1994. 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 lending, 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 Clearing 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 Madras, (1960) 11 STC 224, 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 abovesaid 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 Madras, (1974) 34 STC 135 : (1975 Tax LR 1269 ). 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 d
