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Allahbad High Court
V.G.OAK,SATISHCHANDRA
Swadeshi Cotton Mills Co. Ltd. - Appellant
Versus
Sales Tax Officer - Respondent
Decided On : 03/25/1964
SALES TAX - Liability - Canteen maintained by Mills and University - Whether liable to pay sales tax - U.P. Sales Tax Act, 1948 (U.P. Act XV of 1948), Ss. 2(c), 2(h), 3.
Fact of the Case:
Two Mills maintained canteens for their workmen and Aligarh Muslim University maintained dining halls for its resident students. The Sales Tax Officer issued notices to the Mills and the University to pay sales tax on the sale of food in the canteens and dining halls, respectively. The Mills and the University filed writ petitions challenging the notices.
Finding of the Court:
The Court held that the Mills were liable to pay sales tax on the sale of food in the canteens as they were carrying on the business of buying and selling goods, even though the canteens were run on a no-profit basis. However, the University was not liable to pay sales tax on the fee charged by it from students for covering the expenditure over dining halls as the University was not carrying on the business of buying and selling goods.
Issues: Whether the Mills were liable to pay sales tax on the sale of food in the canteens?
Ratio Decidendi: The Court held that the Mills were liable to pay sales tax on the sale of food in the canteens as they were carrying on the business of buying and selling goods, even though the canteens were run on a no-profit basis. The Court relied on the definition of "dealer" in Section 2(c) of the U.P. Sales Tax Act, 1948, which includes any person or association of persons carrying on the business of buying or selling goods in Uttar Pradesh. The Court also held that the University was not liable to pay sales tax on the fee charged by it from students for covering the expenditure over dining halls as the University was not carrying on the business of buying and selling goods. The Court relied on the definition of "sale" in Section 2(h) of the Act, which means any transfer of property in goods for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge.
Final Decision: The Court dismissed the writ petitions filed by the Mills and allowed the writ petition filed by the University.
OAK, J. : I have read the judgment prepared by my learned brother Satish Chandra, J. I agree that the sale of food in the canteens maintained by the two mills is liable to tax under the U.P. Sales Tax Act, 1948 (hereafter referred to as the Act); but the fee charged by Aligarh Muslim University to cover expenditure on dining halls is not liable to sales tax.
2. Section 3 is the charging provision, Under S. 3, every dealer has to pay a tax on his turnover. The term "Dealer" has been defined in cl. (c) of S. 2 :
"Dealer" means any person or association of persons carrying on the business of buying or selling goods.....
Admittedly, the two mills are engaged in various operations in order to earn profit. The two companies carry on the business of buying and selling goods. There is no doubt that the two Companies are dealers as defined by the Act.
3. The question has been raised whether the activity of the mills in so far as they sell food in canteens constitutes business. It is true that the mills are under an obligation to maintain the canteens. But that circumstance does not alter the fact that this particular operation is a part of the general activity of the two mills in manufacturing goods. Maintaining canteens should be considered as a part of the general business of the mills. It is true that the mills do not earn a profit from the canteens as such. But that does not alter the fact that food is sold in the canteens. Profit is not an essential element of sale. A sale at cost price is also a sale. The stand taken by the respondents is further supported by Cl. (aa) of S. 2 :
"Business of buying or selling includes such business carried on without the motive of making profit".
Clause (aa) of S. 2 makes it clear that, although the canteens show no profit, this particular activity can be treated as business of buying or selling. The two mills are, therefore, liable to pay sales tax for the sale of food in the canteens.
4. Dining halls maintained by Aligarh Muslim University are on different footing. The University is not engaged in any commercial activity. The University is an educational institution. Its activities are predominantly academic. Before an association of persons is called upon to pay tax under S. 3, it has to be established that the association of persons is a 'dealer' as defined in cl. (c) of S. 2 of the Act. The association of persons must run a business of buying or selling goods. The question, therefore arises, "does the University carry on the business of buying or selling goods ?"
5. A casual sale of a single article will not imply that a person carries on the business of buying or selling goods. If a man sells old newspapers in order to get rid of rubbish lying in the house, it cannot be said that he carries on the business of buying or selling goods. It is true that Cl. (aa) of S. 2 has enlarged the scope of the expression "business of buying or selling". But even Cl. (aa) of S. 2 has not fundamentally altered the concept underlying the term "business". The word 'business' usually connotes some commercial activity. Every human activity cannot be termed 'business for purposes of Cl. (c) of S. 2 of the Act. As already pointed out, Aligarh Muslim University is engaged in academic activity. It is not engaged in business according to the usual sense of the term. Supply of food to students in dining halls is incidental to the general academic activity of the University. The incidental provision of food in dining halls does not imply that, the University carries on the business of buying or selling goods. The University is not a 'dealer', as defined in Cl. (c) of S. 2. The University is not, therefore, liable to pay sales tax on the fee charged by it from students for covering the expenditure over dining halls.
6. Opposite party No. 1 at first passed an ex parte order (Annexure-A) on 26-10-1962. That ex parte order was set aside. Another order (Annexure-B) in the same terms was passed on 13-3-1963. Since the ex p
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