Bombay High Court
M/S. Bombay Telephone (Now vs The Commissioner Of Sales Tax on 27 April, 2012
Bench: J.P. Devadhar, M.S. Sanklecha
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agk IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SALES TAX REFERENCE NO.23 OF 2008
AND
SALES TAX REFERENCE NO.24 OF 2008
AND
SALES TAX REFERENCE NO.25 OF 2008
AND
SALES TAX REFERENCE NO.27 OF 2008
ig AND
SALES TAX REFERENCE NO.28 OF 2008
AND
SALES TAX REFERENCE NO.29 OF 2008
AND
SALES TAX REFERENCE NO.30 OF 2008
M/s. Bombay Telephone (now)
Mahanagar Telephone Nigam Limited,
Parel Telephone Complex, P.O. Lane,
Mumbai- 400 012. ..Appellant.
Versus
The Commissioner of Sales Tax,
Maharashtra State, Mumbai ..Respondent.
Mr.P V Surte with Mr.S P Surte for the appellant.
Mr.B B Sharma, Additional Government Pleader for the respondent.
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CORAM : J.P. Devadhar &
M.S. Sanklecha, JJ.
DATE : 27th April 2012
JUDGMENT (PER J.P. DEVEDHAR, J.)
1. In all these references, the common questions of law raised and referred by the Maharashtra Sales Tax Tribunal read thus :
a) Whether, on the facts and in the circumstances of the case and on true and correct interpretation of the provisions of Section 2(5A) of the Bombay Act as obtaining during the relevant assessment periods, the Tribunal was legally justified in holding that the applicant's activity of rendering telecommunication service constitutes a "Commerce" within the meaning of the term in the definition of "business" in the said section 2(5A) and that therefore the said activity constitutes 'business' for the purpose of the Bombay Act ?
b) Whether, on the facts and in the circumstances of the case and on true and correct interpretation of the provisions in Section 2(5A) and section 2(11) of the Bombay Act as obtaining during the relevant assessment periods, the Tribunal was legally justified in holding that the appellant is a 'dealer' carrying on business of buying or selling of goods and that therefore his sales of scrap material etc. effected during the said periods are liable to tax under the Bombay Act ?
2. The tax demand involved in all these appeals relate to the period from 1st April 1976 to 31st March 1984.
3. For the sake of convenience, we set out facts relevant to Sales Tax Reference No.23 of 2008. Counsel for the parties agree that the decision in Sales Tax Reference No.23 of 2008 would apply to all the remaining references.
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4. The applicant ('assessee' for convenience) originally a Department of the Central Government (now a Corporation with effect from 1st April 1986), is engaged in the activity of providing telecommunication facilities in India and abroad. While providing the aforesaid facilities, the assessee occasionally sold old telephones, directories and discarded materials not required by the assessee . Neither the main activity of providing telecommunication services nor the incidental activity of selling scrap materials were considered as a business activity and accordingly the assessee was not registered as a dealer under the Bombay Sales Tax Act, 1959 ('BST Act' for short).
5. As the expression "business" was to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture as per clause (5A) to Section 2 of the BST Act introduced with effect from 15th January 1975, the Sales Tax Officer was of the opinion that the transaction of selling the scrap materials was a business activity liable to tax. Accordingly, show-cause notices were issued for the period from 1st April 1976 to 31st March 1984 and subsequently, by treating the assessee as a unregistered dealer, assessment order under Section 33(6) of the BST Act was passed on 28 th March 1985 for the period from 1st April 1976 - 31st March 1977 whereby the demand of sales tax on sale of scrap effected during the aforesaid period was confirmed. Similar assessment orders were passed in the other years in question.
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6. On appeals filed by the assessee, the first Appellate Authority held that since the Central Government is included in the definition of the expression 'dealer' under Section 2(11) of the BST Act and since the expression 'business' under Section 2(5A) of the BST Act has been further amended by Maharashtra Tax Laws (levy, amendment & repeal) Act, 1989 ('1989 Act' for short) with retrospective effect from 16 th August 1985 to include any activity incidental or ancillary to the carrying on trade, commerce or manufacture or any adventure to be a business activity, the transaction of sale of scrap materials must be held liable to tax under the BST Act. Accordingly, the first appellate authority confirmed the demands finalized under the assessment orders in question.
7. On second appeals filed by the assessee, the Maharashtra Sales Tax Tribunal by its order dated 21 st December 2002 held that the main activity of providing telecommunication service constitutes business activity and, therefore, the ancillary activity of selling scrap would also constitute business activity and, hence, the assessee must be held to be a dealer under Section 2(11) of the BST Act liable to sales tax. Accordingly, all the appeals filed by the assessee were dismissed by the Tribunal. On reference applications filed by the assessee, the Tribunal has referred the aforesaid questions for the opinion of this Court.
8. The question as to whether the telecommunication services ::: Downloaded on - 09/06/2013 18:28:30 ::: 5 str23-08+ rendered by the assessee amounts to carrying on business under the BST Act or not was not an issue raised or decided in the assessment orders passed in the years in question. Even the first appellate authority has only held that the incidental activity of selling the scrap amounts to 'sale' under the BST Act.
It was not the case of the Revenue before the Sales Tax Tribunal that the main activity of providing telecommunication services constitutes business activity. The fact that the Sales Tax Tribunal is empowered to enhance the assessment does not mean that the Tribunal can travel beyond the scope of the appeal especially when the Revenue is not even aggrieved by the assessment order. Therefore, the decision of the Tribunal to the extent it holds that the main activity of the assessee viz. providing telecommunication services constitutes business activity, being an issue not raised by any of the parties and not decided by the authorities below, the Sales Tax Tribunal was not justified in traveling beyond the scope of the Appeal and decide an issue which was not the subject matter of the appeal. Accordingly, while keeping the issue open, we hold that in the facts of the present case, the Tribunal was not justified in holding that the main activity of providing telecommunication services constitutes 'business' under the BST Act. The first question is answered accordingly.
9. The second question referred to us relates to the decision of the Tribunal in holding that the assessee is a 'dealer' carrying on the business of selling scrap materials and, hence, liable to pay sales tax in respect of such ::: Downloaded on - 09/06/2013 18:28:30 ::: 6 str23-08+ sales effected during the period 1st April 1976 to 31st March 1984.
10. Liability to pay tax under the BST Act is on the dealer whose turnover of sales or purchases during the year exceeds the relevant limits prescribed under the BST Act. Though the expression 'dealer' under Section 2(11) of the BST Act includes the departments of the Central / State Governments carrying on the business of buying or selling goods in the State of Maharashtra and the expression 'business' as per Section 2(5A) of the BST Act includes any trade, commerce or manufacture, the dispute was whether the departments of the Central / State Governments occasionally selling the scrap materials could be considered as dealers carrying on the business of selling the scrap materials under the BST Act. To put an end to the above controversy, the legislature inserted an Explanation to Section 2(11) of the BST Act by Maharashtra Act 25 of 1985 with effect from 16 th August, 1985.
As per the Explanation to Section 2(11) of the BST Act, the entities specified therein who were selling scrap materials were liable to be treated as deemed dealers to the extent of such disposals. Thus, by introducing the concept of deemed dealer with effect from 16 th August, 1985, the sales and purchases of scrap materials by the entities specified in the Explanation Section 2(11) of the BST Act were brought to tax under the BST Act. It is obvious that upto the date of introducing the deemed fiction, the sales / purchases of scrap materials by the entities covered under the Explanation to Section 2(11) of the BST Act could not be said to be covered under the BST Act.
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11. Even after the insertion of Explanation to Section 2(11) with effect from 16th August, 1985, disputes arose as to whether sale of scrap / discarded materials without any profit motive by the entities covered under the Explanation to Section 2(11) would constitute 'business' as defined under Section 2(5A) of the BST Act and if not, whether such sales and purchases can be subjected to tax under the BST Act.
12. To plug the loophole, the legislature by the 1989 Act once again amended the expression 'business' in Section 2(5A) of the BST Act with retrospective effect from 16th August 1985. As a result of the aforesaid amendment, the transactions of sale and purchase of scrap / disposal materials effected by the entities specified in the Explanation to Section 2(11) of the BST Act (which includes the assessee) became business transactions carried on by the deemed dealers liable to tax with effect from 16th August 1985.
13. In the present case, we are concerned for the period from 1 st April 1976 to 31st March 1984 i.e. prior to 16th August 1985 and, therefore, the Tribunal could not have applied the law applicable to the transactions brought within the purview of the BST Act with effect from 16 th August 1985 to the transactions carried on during the period prior to 16 th August 1985. In other words, when the legislature has expressly provided that with effect from 16th August, 1985, the transactions of selling the scrap / discarded ::: Downloaded on - 09/06/2013 18:28:30 ::: 8 str23-08+ materials by the entities specified in the Explanation to Section 2(11) of the BST Act shall be treated as business transactions carried on by a deemed dealer, it was not open to the Tribunal to hold that such transactions effected prior to 16th August 1985 were business transactions carried on by a deemed dealer and, hence, liable to tax under the BST Act.
14. The aforesaid reasoning is further fortified by Section 30 of the 1989 Act. Section 30(1) of the 1989 Act provides that notwithstanding any judgment, decree or order of any Court or Tribunal to the contrary, any assessment, reassessment levy or collection of tax in respect of any sales or purchases effected by any dealer during the period commencing from 1 st January, 1960 till the date of commencement of the 1989 Act shall be deemed to be valid and effective as if such assessment, reassessment, levy or collection had been made under the BST Act as amended by the 1989 Act.
15. Section 30(4) of the Maharashtra Act IX of 1989 relevant for the purpose herein reads thus:-
"30(4) When any dealer or person has effected any sales or purchases during the course of business and the dealer or person effecting such sales has not collected and paid any tax under the Bombay Sales Tax Act only on the ground that such sales were not effected by him with a motive to make gain or profit and no such tax could have been levied or collected if the amendments made in the Bombay Sales Tax Act by the Amendment Act had not been made, then notwithstanding anything contained in the Bombay Sales Tax Act, the dealer or person excepting the dealers covered by the Explanation to clause (11) of section 2, shall not be liable to pay tax under the Bombay Sales Tax Act, as amended by the Amendment Act in respect of any sales or purchases of any goods ::: Downloaded on - 09/06/2013 18:28:30 ::: 9 str23-08+ during the said period."
16. Thus, Section 30(1) of the 1989 Act on the one hand seeks to validate the demands confirmed during the period from 1 st January, 1960 till the commencement of the 1989 Act as if the said demands have been confirmed under the provisions of BST Act as amended by the 1989 Act.
Section 30(4) of the 1989 Act on the other hand grants immunity from payment of tax if sales and purchases during the aforesaid period were effected without collecting tax on the ground that such sales were not effected with a motive to make gain or profit and that no such tax could have been levied or collected if the amendments made in the BST Act by the 1989 Act had not been made.
17. It is relevant to note that Section 30(4) of the 1989 Act specifically denies the immunity from payment of tax to the deemed dealers covered under the Explanation to Section 2(11) of the BST Act. The reason for such exclusion is that the main object of the 1989 Act was to amend the expression 'business' in Section 2(5A) of the BST Act with retrospective effect from 16th August 1985 so as to tax the deemed dealers covered under the Explanation to Section 2(11) of the BST Act with effect from 16 th August 1985. In other words, the 1989 Act by amending the expression 'business' in Section 2(5A) of the BST Act with retrospective effect from 16 th August, 1985 seeks to tax the sale of scrap materials by the deemed dealers covered under Explanation to Section 2(11) of the BST Act with effect from 16 th August, ::: Downloaded on - 09/06/2013 18:28:30 ::: 10 str23-08+ 1985 even if such sales were effected without any profit motive. To put it differently, on account of the amendment to the expression 'business' with retrospective effect from 16th August 1985, the deemed dealers covered under the Explanation to Section 2(11) are liable to pay tax under the BST Act on sale of scrap materials effected after 16 th August 1985 even if such sales were effected without any profit motive. Thus, the Explanation inserted to Section 2(11) on 16th August 1985 read with the amendment to the expression 'business' with retrospective effect from 16 th August 1985 and Section 30(4) of the 1989 Act, make it abundantly clear that the entities covered under the Explanation to Section 2(11) are liable to pay tax on sale of scrap materials with effect from 16 th August 1985, even if such sales were effected without any profit motive. In the present case, we are concerned with the sale of scrap materials effected by the assessee prior to 16 th August 1985. Since the assessee, prior to 16 th August 1985 was neither a dealer covered under Section 2(11) of the BST Act nor the sale of scrap materials effected by the assessee prior to 16 th August 1985 were covered under the expression 'business' as defined under the BST Act, the Tribunal was not justified in confirming the demand of tax in respect of the sales of scrap materials effected prior to 16th August 1985.
18. Strong reliance was placed by the counsel for the Revenue on the decision of the Apex Court in the case of the District Collector of Stores V/s.
The Assistant Commercial Taxation Officer reported in 37 STC 423 (S.C.) ::: Downloaded on - 09/06/2013 18:28:31 ::: 11 str23-08+ and a decision of this Court in the case of Controller of Stores V/s. The Commissioner of Sales Tax reported in 12 MJJ 88 (Bom.). The decision of the Apex Court in the case of the District Controller of Stores (supra) is, in our opinion, distinguishable on facts, because, in that case the liability to pay sales tax on sale of unserviceable materials and scrap etc was for the period subsequent to the retrospective amendment to the definition of the expression 'business' in Section 2 of the Rajasthan Sales Tax Act, 1954 by the Rajasthan Taxation Laws (Amendment) Act 1965, whereas, in the present case, we are concerned with the period prior to the amendment of the expression 'business' in Section 2(5A) of the BST Act by Maharashtra Act IX of 1989. The Apex Court in the aforesaid case has clearly held that even if it be assumed that the activity involved in selling the unserviceable material and scrap etc would not amount to carrying on business in the normal connotation of that term, it would be 'business' within the amended definition of the expression 'business'. Therefore, in the facts of the present case, since the tax demand relates to the period prior to the amendment of the expression 'business' in Section 2(5A) of the BST Act by Maharashtra Act IX of 1989, the aforesaid decision of the Apex Court would not be applicable to the facts of the present case.
19. Similarly, the decision of this Court in the case of Controller of Stores (supra) does not support the contention of the Revenue, because, in that case, this Court has merely followed the decision of the Apex Court in ::: Downloaded on - 09/06/2013 18:28:31 ::: 12 str23-08+ the case of District Controller of Stores (supra), which as noted earlier is distinguishable on facts. Moreover, this Court in the case of Controller of Stores (supra) has not considered the effect of Section 30(4) of the Maharashtra Act IX of 1989. Thus, both the aforesaid decisions relied upon by the counsel for the assessee do not support the case of the Revenue.
20. The Maharashtra Sales Tax Tribunal has declined to apply Section 30(4) of the Maharashtra Act IX of 1989 to the facts of the present case on the ground that the assessee was covered by the expression 'business' as introduced by clause 5A Section 2 of the BST Act with effect from 15 th January 1975. We see no merit in the above reasoning because, firstly, if the sale and purchase of scrap materials without any profit motive effected by the entities specified under the Explanation to Section 2(11) of the BST Act were covered under the definition of 'business' as introduced with effect from 15 th January 1975, then there was no need to amend the definition of the expression 'business' by Maharashtra Act IX of 1989. If the reasoning adopted by the Tribunal is accepted, then, the amendment to the definition of the expression 'business' by Maharashtra Act IX of 1989 becomes otiose or redundant and such a reasoning which renders the legislative amendment otiose or redundant cannot be accepted. Secondly, when the statute specifically provides that the amendment to the expression 'business' in Section 2(5A) of the BST Act by Maharashtra Act IX of 1989 shall apply retrospectively from 16th August 1985 it would not be proper to apply the ::: Downloaded on - 09/06/2013 18:28:31 ::: 13 str23-08+ said amendment for the period prior to 16 th August 1985. Thirdly, Section 30(4) of the Maharashtra Act IX of 1989 expressly denies exemption from payment of tax if not collected on sale of scrap materials effected by deemed dealers covered by the Explanation to Clause (11) of Section 2 of the BST Act with effect from 16th August 1985. Obviously, the bar under Section 30(4) of the 1989 Act would not apply for the period prior to 16 th August 1985, because, the entities specified in the Explanation to Section 2(11) were treated as deemed dealers with effect from 16 th August 1985 and not for the period prior thereto. Therefore, if the assessee covered by the Explanation to Section 2(11) had sold the scrap materials prior to 16 th August 1985 without collecting tax on the ground that the sales were not effected with a profit motive and, hence, not taxable, then, as per Section 30(4) of the 1989 Act, the assessee is not liable to pay tax in respect of the sale of scrap materials effected during the period prior to 16th August 1985.
21. In the present case, the specific case of the assessee was that selling the scrap materials was not the business of the assessee, that the Telegraph Act, 1885 under which the telecommunication services were rendered by the assessee specifically bars the assessee from carrying on any business activity and that the assessee has not collected tax on sale of scrap materials during the period in question. It is only at the insistence of the Sales Tax Authorities the assessee has applied for and obtained registration with effect from 31st January 1985. Therefore, in the absence of any material ::: Downloaded on - 09/06/2013 18:28:31 ::: 14 str23-08+ to the contrary, the contention of the assessee that during the period in question tax has not been collected and paid on sale of scrap materials on the ground that such sales were not effected with a motive to make gain or profit could not be rejected and consequently the benefit of Section 30(4) of the Maharashtra Act IX of 1989 could not be denied to the assessee.
22. In the result, the second question referred to us in Sales Tax Reference No.23 of 2008 is answered in the negative i.e. in favour of the assessee and against the Revenue. Similar questions raised in the remaining references are also answered accordingly.
23. All the references are disposed of in the above terms with no order as to costs.
(M.S. Sanklecha, J.) (J.P. Devadhar, J.)
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