Patna High Court
The Union Of India (Uoi) Through The ... vs The State Of Bihar And Ors. on 22 June, 2004
Equivalent citations: 2004(2)BLJR1276, [2005]139STC142(PAT)
ORDER
Nagendra Rai and S.N. Hussain, JJ.
1. The Union of India though the Chief Commercial Manager, (Catering), East Central Railway, has filed the present writ application for quashing the demand notices issued under the provisions of the Bihar Finance Act, 1981 (hereinafter referred to as the Act) for the assessment years 1999-2000, 2000-2001 and 2001-2002 by the Commercial Taxes Officer, Patliputra Anchal, Patna to the Chief Commercial Superintendent (Catering), Patna, annexed as Annexure-1 series to the writ application, and the demand notices issued by the Commercial Taxes Officer, Lakhisarai to the Railway Catering Service, Kiul, Lakhisarai for the assessment years 1998-1999, 2002-2003 and 2003-2004 annexed as Annexure 2 series in pursuance of the assessment orders passed under Section 17 of the Act imposing sale tax in respect of sale of foodstuff by the Railway Catering Service to its employees and passengers; as well as restraining the respondent authorities from making recovery of the amount by taking recourse to the Special Mode of recovery as provided under Section 27 of the Act as a result of which part of the amount demand has been debited by the Reserve Bank of India from the petitioner's bank account to the respondent-authorities. It is also prayed that the Reserve Bank of India be restrained from debiting further amount at the instance of the respondent-sales authorities of the State of Bihar and the respondent-sales tax authorities of the State be also restrained from taking steps in pursuance of the demand notices.
2. The petitioner's case is that the Railways in general and the East Central Railway in particular are the properties of the Union of India. The Eastern Railway had catering department. Later on the East Central Railway has been created with effect from 1.10.2002 consisting of Danapur, Dhanbad, Mughalsarai, Sonepur and Sarnastipur divisions and it has acquired the assets and liability of the erstwhile Eastern Railway and North Eastern Railway with regard those divisions. The catering department supplies foodstuffs to its employees and passengers as passenger amenity service at different stations which includes its catering service at Patna Junction and Kiul Junction of the State of Bihar as well as other parts of the country. The goods are supplied to the railway employees and passengers on passengers amenity ground. It is not carried for the purpose of earning property. The same is done with a view to ensure basic travelling comfort/amenities to the railway users/passengers. Thus, East Central Railway is not a dealer within the meaning of Section 2(e) of the Act. This apart, the goods sold by the Railway are the property of the Union of India and as such it is exempted from all taxes imposed by the State or by any other authority within the State under Article 285(1) of the Constitution of India. Thus, on the aforesaid two grounds, no tax can be levied on sale of goods by the Catering Department of the Railway to its employees and passengers.
3. The stand of the State on the other hand is that the Railway Catering Services of the Railway supplies foodstuffs to its employees and passengers after receiving price of the same and thus it is a dealer within the meaning of Section 2(e) of the Act. it is further stated that the Catering Department of the Railway is registered under the Act and has also filed return. For some years, the assessment had been made and when the payments were not made, demand notices were issued. For other years, when the admitted taxes were not paid by the Railway, steps were taken for recovery of the same. Article 285(1) is not attracted in the present case as the tax under the Act is not levied on the property of the Union of India but the tax is imposed on the sale of goods which is not covered by Article 285(1) of the Constitution of India.
4. Learned counsel appearing for the petitioner raised two submissions, namely, that the East Central Railway which runs a Catering Services is not a dealer within the meaning of Section 2(e) of the Act and the goods sold by it is the property of the Union of the India and as such it is immune from taxation in view of the provisions contained under Article 285 (1) of the Constitution of India.
5. Learned counsel appearing for the State combatted both the submissions. He submitted that the petitioner sells foodstuffs etc to its employees and passengers for valuable consideration (price). The Explanation II of the definition of the dealer clearly provides that if the Government buys, sells or distributes goods, directly or otherwise, for case or for deferred payment or for commission, remuneration or for other valuable consideration, whether such sale is or is not in the course of business, it will be deemed to be a dealer for the purpose of the Act and in view of the said Explanation, the East Central Railway is a dealer. He further submitted that under Article 285(1), the State Government is debarred from imposing tax on the property of the Union of India or the income. In other words, there is ban on imposition of direct taxes on the property of the Union of India. The said Article does not prevent the State from imposing indirect taxes such as tax on sale of goods. Under the Act, the tax is not imposed on the goods but on the sale of goods and as such Article 285(1) of the Constitution of India is not a bar to impose tax on the sale of goods.
6. Learned counsel appearing for the petitioner relied upon the judgment of the Punjab and Haryana High Court in the case of Union of India v. The State of Punjab and Ors., reported in 1974 (34) STC page 394 and the judgment of the Apex Court in the case of State of Punjab and Ors. v. Union of India and Ors., reported in 1990 (Vol. 79) STC 437, affirming the aforesaid judgment of the Punjab and Haryana High Court.
7. Learned counsel appearing for the State in support of his submission on the other hand relied upon the judgment by the nine Judges Bench of the Apex Court in the case of Re Sea Customs Act, (1878) Section 20(2), reported in AIR 1963 SC 1760 and the Constitution Bench judgment of the Apex Court in the case of New Delhi Municipal Council v. The State of Punjab and Ors., reported in 1997 (7) Supreme Court Cases 339.
8. Before proceeding to consider the submissions, it will be appropriate to refer the relevant provisions of the Act.
9. The dealer has been defined under Section 2(e) of the Act which runs as follows :
2 (e) "dealer" means any person who carriers on (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods, directly or indirectly, for cash, or for deferred payment, or for commission, remuneration or valuable consideration and includes--
(i) a local authority, a body corporate, a company, any cooperative society or other society, club, firm, Hindu Undivided Family or other association of persons which carries on such business;
(ii) a factor, broker, commission agent, Declared agent, or any other mercantile agent, by whatsoever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of buying, selling supplying or distributing, goods belonging to any principal whether disclosed or not; and
(iii) an auctioner who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether the officer of the intending purchaser is accepted by him or by the principal or a nominee of a principal.
Explanation I.--Every person who acts as an agent, in the State of Bihar or a dealer residing outside the State of Bihar and buys, sells, supplies or distributes, in the State or acts on behalf of such dealer
(i) a mercantile agent as defined in the Sale of Goods Act, 1930 (3 of 1930); or (ii) an agent for handling of goods or documents of title relating to goods; or
(iii) an agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or payment, And every local branch or office in the State of Bihar of a firm registered outside the State of Bihar or a Company or other body corporate, the principal office, or headquarters whereof is outside the State of Bihar shall be deemed to be a dealer for the purposes of this Act.
Explanation II.--A Government which whether or not in the course of business, buys, sells or distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act.
10. The goods have been defined under Section 2(h) and sale and sale price have been defined under Sections 2(t), (u) of the Act which run as follows :
2 (h) "goods" means all kinds of movable property, including livestock, and all materials, commodities and articles [(as such or in some other form)] but excluding electricity, newspapers, actionable claims, stocks, shares or securities;
Explanation I.--Materials, commodities and articles attached to or forming part of an immovable property which are agreed to be served under the contract of sale shall be deemed to be goods within the meaning of this clause.
Explanation II.--Materials, commodities and articles sold or supplied as such or in some other form in execution of works contract shall be deemed to be goods within the meaning of this clause;
2(t) "sale" means any transfer of property in goods for cash or deferred payment or other valuable consideration but does not include a mortgage or hypothecation of or a charges or pledge on goods, and includes--
xx xx xx xx xx xx (u) "sale price" means the amount payable to a dealer as valuable consideration in respect of the [sate or supply of goods].
Explanation I.--Sale price shall include any amount charged by the dealer for anything done in respect of the goods at the time of, or before, delivery thereof to the buyer.
Explanation II.--Sale price shall not include the cash discount allowed by the dealer according to the ordinary trade practice, if shown separately. It shall also not include the cost for transport of the goods from the seller to the buyer, provided such cost is separately charged to the buyer."
11. From conjoint reading of the aforesaid provision, it is clear that the goods include all kinds of movable property except electricity, newspapers, actionable claims, stocks, shares or securities; and when the property in goods is transferred for case or deferred payment or other valuable consideration, the same amounts to sell and the amount payable to a dealer as a valuable consideration in respect of the sale of supply of goods is a sale price. Dealer means the person who carries on the business (whether regularly or otherwise) of buying, selling, supplying or distributing goods, directly or indirectly, for cash, or for deferred payment, or for commission, remuneration or valuable consideration. According to Explanation I., the Government has also been included within the definition of dealer and according to the said Explanation if the Government whether in the course of business or otherwise, buys, sells or distributes goods, directly or otherwise, for cash or for deferred payment or for other valuable consideration shall be deemed to be a dealer for the purpose of this Act.
12. Railway admittedly sells the goods as defined under the Act for price or valuable consideration and as such according to Explanation II of the definition of dealer, it will be deemed to be a dealer as defined under the Act. It is immaterial whether the sale of goods takes place in the course of business or not.
13. At this stage, it will be relevant to refer the decisions relied upon by the learned counsel for the petitioner.
14. In the Union of India (supra) the Punjab and Haryana High Court held that Northern Railway Departmental Catering was not a dealer within "the meaning of Section 2(d) of the Punjab General Sales Tax Act, 1948 on the ground that it was supplying/selling foodstuffs at the canteen on no profit no loss basis and as such transaction was not amenable to sales tax. For coming to the aforesaid conclusion it relied upon two decisions of the Supreme Court in the case of State of Tamil Nadu v. Sri Thirumagal Mills Ltd. and Anr. reported in AIR 1972 SC 1148 and in State of Andhra Pradesh v. H. Abdul Bakshi and Brothers, reported in AIR 1965 SC 531. It also held that the goods sold at the canteen belong to the Railway and as such in view of the provisions contained in Article 285(1) of the Constitution of India sales by the Government are immune from taxation under the State law. The said judgment has been upheld by the Supreme Court in the case of State of Punjab and others (supra).
15. From the aforesaid judgment it is not clear that definition of dealer under the Punjab General Sales Tax Act, 1948 contained a similar provision as contained in Explanation II of the definition of dealer under the Act. Though the sale of foodstuff was made by the Canteen but the said transaction was held not liable to sales tax on the ground that the activities carried out by the Railway was not a business involving profit motive. Explanation II appended to the definition of dealer under the Act provides that even the Government is not engaged in any business but it sells the goods for valuable consideration then it will be deemed to be a dealer and as such the petitioner cannot take help of the aforesaid decision in support of his submission. The Railway Catering Department of the East Central Railway is selling foodstuffs (goods) for price or valuable consideration not only to its employees but to the passengers and as such it is a dealer within the meaning of Section 2(e) of the Act.
16. So far second point is concerned, Article 285(1) of the Constitution of India as follows :
"285. Exemption of property of the Union from State taxation.--(1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempted from all taxes imposed by a State or by any authority within a State."
17. No doubt, the Apex Court in the case of State of Punjab and others (supra) upheld the judgment of the Punjab and Haryana High Court in the case of Union of India (supra) and held that, once the goods are purchased by the Railway and sold by it then such goods belong to the Railway and such sales were immune from taxation under the State Law. It appears that the judgment rendered by nine Judges Bench of the Apex Court in In re, Sea Customs Act (1878), (supra) was not pointed out.
18. In re, Sea Customs Act (supra), the question for consideration was with regard to scope and interpretation of Article 289 of the Constitution of India relating to immunity granted to the States in respect of Union taxation. Dealing with the said matter, the Apex Court also considered the scope of Article 285 of the Constitution of India and held that Article 285 would exempt all property of Union from all taxes on property levied by State or any authority within the State. The aforesaid Article is concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. In this connection, it is useful to refer paragraph 16 of the judgment.
"Further it must not be forgotten that Articles 285 and 289 are successors of Sections 154 and 155 of the Government of India Act, though there are differences in detail between them in particular Clause (2) of Article 285, which corresponds to the proviso to Section 154 seems in our opinion to make it clear by the change in the language, that Clause (1) of Article 285 when it speaks of all takes in referring to taxes on property of which Clause (2) definitely permits continuance provided such property of the Union immediately before the commencement of the Constitution was liable or was treated as liable to such tax. As to Article 289(1), a change has been made in the words, for Section 155(1), which corresponded thereto, provided that the Government of a Province shall not be liable to Federal taxation in respect of lands or buildings. Article 289 on the other hand refers not only to lands and buildings, but to all property of a State, whether movable or immovable and exempts it from Union taxation. Even so, we find no warrant for interpreting Clause (1) of Article 289 as if it exempts all property of a State from all Union taxation. We are therefore of opinion reading Article 289 and its complementary Article 285 together that the intention of the Constitution--makers was that Article 285 would exempt all property of the Union from all taxes on property levied by a State or by any authority within the State while Article 289 contemplates that all property of the States would be exempt from all taxes on property which may be leviable by the Union. Both the Articles in our opinion are concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. The contention therefore on behalf of the Union that these two Articles should be read in the restricted sense of exempting the property or income of a State in one case and the property of the Union in the other from taxes directly either on property or on income as the case may be, is correct."
19. In paragraph 25 of the judgment, the Apex Court further held that "though both excise duty and sales tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax."
20. Thus, the Apex Court in the aforesaid case held that the tax on sale of goods is indirect tax and not a direct tax on the property of the Union of India and such bar under Article 285 of the Constitution of India is not attracted. The view taken by the Apex Court In re Sea Customs Act, (1978), (supra) has been affirmed by nine Judges Bench of the Apex Court in the case of New Delhi Municipal Council (supra).
21. In the case of Collector of Customs and Anr. v. State of West Bengal and Anr., reported in (1999) 1 SCC 192, the question as to whether the sale made by the Collector of Customs of the goods confiscated under the provisions of the Customs Act for non-payment of excise duty is hit by Article 285 of the Constitution of India came up for consideration before the Apex Court. In support of the contention, the judgment rendered by the Supreme Court in the case of State of Punjab and others (supra) was relied upon. Relying upon the judgments of the Supreme Court in the case of See Customs Act, (1878), (supra) and New Delhi Municipal Council, (supra); the Apex Court held that the tax on sale was not hit by Article 285 of the Constitution. With regard to the case of State of Punjab and others, (supra), the Apex Court held that no real argument was advanced before the Court in the said case and the judgment of a larger bench in See Customs Act case (supra) was not pointed out. Thus, the Apex Court held that the sales tax is an indirect tax and as such Article 285 (1) is not a bar in imposing tax on the sale of goods by the Union of India through its Customs Department.
22. The second submission advanced on behalf of the petitioner is also devoid of any substance as the tax is imposed on the act of sale of goods regarding which bar under Article 285 (1) of the Constitution of India does not operate.
23. In the result, there is no merit in this writ application and the same is dismissed.