M/S Kwality Biscuits (P) Ltd vs The State Of Karnataka on 26 August, 2010

[Cites 2, Cited by 0]

Karnataka High Court

M/S Kwality Biscuits (P) Ltd vs The State Of Karnataka on 26 August, 2010

Bench: N.Kumar, H.S.Kempanna

(3
sidu.1101'y z.1ppca.11 wi'111i1'"1 £1 period of iwo \VCC1{.S from the.
(late of 1'ec~.eip1 of 1.110 order in the writ p01i1'::i011.
Acc01'c1iz'1g,1_\,-2 1;1'1c z;1ssessec filed 2-111 appeal 13c:i'0;f(:..VV1V;l'1:§j.~Qoi11t.
C(_)n1mis$i(')1":c1' of C01mT1cr('ia] Taxes; [Ag);):j:fL§']' 4'
City I')ivis1'0n~«3. The Appellate A_1J.1.1.}"1,(_');'it',y_--'éii;ii(:s1;:   
tile sicies. dismissed the e1pp e;11   
},;;1sse(i by the    ',,, (;)1'd.{:;\§ cieitjﬁi
27.11.2008. The   anti "21}3.peg1;ﬁ 'oefcurc the
Ke11'ne1tiaka Appellate   the af"()1"e?s3-(.1ic1

two orders. '1_'I".:--é' 

 

&;aic1;_'e-113;»3'e'§.1i .;1i's'§f(.;...cta1T:.<sit") be dis1'11isscrd by

an   t,h()se (rirc1.1n1s1,a11<?es. 1110
 '-is bc€'l'c_;Y1:*'e _ f1fi:jS"{j t')'u 1* E: .'

3;' ..'V_I'41"u.-A-2 l'e.v£11V'1"} C'(,'1_4uC}Qi4I13iSt)l for the pa1't:ies subrmi the
sL1bje(.?t: m'-;mc;--. of i',A}'?__<-:é%c'  revision petitiions  c')1'11y the tax

 Ebgifaéxlﬁilriii {Dr t.I'i(év~--sari}side1'at'i_0n ;'cc:eivec.1 for the sale of

' V1i"1't.cV11r:c._:f:.2.,'12:1

 p1i_<);')e1'1',y only. in oiher words, the i11te1}.ec:t't,.1211

'pfxupe1'9i:y'_'(>w1"1(id by the  has b(fCf1"l sold for 2; sum of

E{S.1'Z3O=.f(:1'(;}'b. 21 sum 0'1" R-$.13 (trore 2.11" 10% is (_'.iz1in1c(i as

 Sz11<::§T1}§1.x. '1.'I';e c:p.1e.s:;t.im1 is w1'1et}'1.c1' t'.]"1c z:1sscss(-re: is; liable to

 p21y"_«1'1"1cr said tax on IP10 sale (T01181(..1€'ii'E:11II}(')1'} of i1'11c1}o('m2'=;l

§)mpc-:1.'t:i.cs. V



4. Sri.K.C3.Rag;§1'1a\.'z11'1 1cz.1.:'_mrd Sc1'1im* (..'()L.11"1sv1
a13pt=?.21..='i11g for the assscsscc <:0nt..cnclec1 thai. the S2110  of 2-1
$01116 ('()I'}('.t'.I'l'1 wI'ai('h i11c'h.1cies Elm 'trade mark. cicsizm, (:0 JV

ri§311t:. bLlSil'1C.'.SS as a wlmlc. The san1e could 1_1jé:)"i"i3r.§t'~i:§¥"U%tg31E

to fax Llrlcier the p'r0\.-'isi0ns of thy? AC1':;bt(:2{usEé=,the $a'id 

goods were not sold in the coL.u":5e r)'f?1};'e1<?i.e 0r ":T)uV<ff;iL1__1<:L'A:':sVs;aA of 
the  Secondly, 11:%_{:Q1'11:e1':c1€.d t1'1e'v_sé;iC..._11a.és 121M131')
place in the Stzlte of  I~.3t_:__1_'_1V§;_,:e1_1  Ca51':'-Cpxytlz-1. ? '1'11ere§ore.,

the Act, 11215 no a1pp1i'(:z11TTi--<):'i-L;:+sz.i_'c1*:._Sa1e. 1.as1.1y. if was

crome1'1ded t:he_"izj1t.e1Ix:€E%tt.1aI: p1*<j'p_e_:*iy ,b"ei11§_jj{ an im.a.x1gib1e

prope;ft:y H  5;1_<')1_  as _t1éE'ine:c1 L.i1'"1Ci1€l' the Act and
t.1"1e1'<-:i'c>'r«e:. me Acft': Aims' ' mi' ";1}.)p1i(:E1t,iOl'1.

 .5. .Pé1* _ co.nft1'21 ',. the Eearned G<)ver11m<-am'. Ad\r()ce1f,(:

 5':'Li."p§).()Ei."'i'A(T',CiV"'H18 .i11'1}5i.{g11ewc1 <")1*c:1e2's.

  light of the af01'es2.1id facts 2:-mci rivai

c_:();1ie:'31'iz')1v1$ the p0i11t1s t:1'1at' arise for our conside1*a1"i.(m in

.' ..1»his }"t'?"2»'i:Si()l'1 pt?{.i1.i()I1 2111*. as unc.ie1' :v

 -Whether sale Qf intellectual _propertg,r ownc-3cI by the

-~assessce2--(jfor'npc1n.g (.zIrra<::I_;.s* payrnenr Q/" sales {cut u.ndc'>r the

I{cm1a1aIca Sales '.l'a.x Act" w1'2.c?u rm» asscssece is (1 dealer

E'/.



"   Awhollivsra dealer is defined under the Act.

8
under the Act carrying on business of sale of confectioneries

and biscuits, wheat products, jellies, jams and creams?
2) l/Vhen the sale of intellectual property has takertplace at

Calcutta, for such sale whether the Act is  " 

3) Whether the intellectual property as 

a goods as deﬁned under the Act'?  j; 
'7. Point No.3. :-

In order to appreciate thi_s contention it is necessary

to look. at the, Section_R1:»,_ the ;ctiargivn'giSection which reads

as un'c1'er':" A.

   or purchase of qoods --
{1)lll'E1,§eryVl'deaEe'r'shall pay for each year tax on
 his  tttrnouer at the rate of (twelve

_ A  at  point offrst sale.)

 of the above deﬁnition makes it clear, the

1ia}oi1it_\}  tax is on the dealer on his taxable turnover.

kc



Section 2[k) deﬁnes a 'dealer' as under:

"Dealer" means any person who carries_":on-hither V.
business of buying, selling, 
distributing goods, directlyVorpothertviseftuhgfheri 
for cash or for deferred  
commission, remuneration' ' . 2 or _ it other A   it '

consideration, and includes-

(0 the Central  _ and a State

Government other  C;(.:»uernnwnt of
Kainataka  o.n'_--such,b'usiness:

{ii}    to say, a person

euho  not been regularly engaged

  selling, supplying or

  but has in such year been

..«E,oceaszbnallyvhgggengaged, whether as principal or

V   the business of buying, selling supplying

    of such goods.

 Fn".ofd'er to have the correct meaning of the 'Dealer'

  i1nd.er the Act, in defining him as the words 'business' and

'goods' are used and those words are also defined under

V



11

attached to, or forming part of the land which

are agreed to be severed before sale or under the

contract of sale;

Similarly, 'sale' is also defined as .ur:1_§ier:_--'  

S2(1)(t) -- "Sale" with all'-./its grarlm:iatical.é"'

variation and cognate expxressiohns .medns"'*:eb'ery
transfer of the prQperty_.in:"good.s (other.__th§tn by
way of a mortgage,'  charge or
pledge) by one person  the course
of trade" or»,:bustness:.~*j"or  for deferred
 consideration, {and

ineluries, -e 

L') l'   transfer Vothertuise than in pursuance of
_.a contraetef property in any goods for cash,

"  deferred be  « V payment or other valuable

" -» _ V conside~ration;)

ii). . transfer of property in goods {whether as

"goods or in some other form) involved in the

V  execution of a works contract;

iii) a delivery of goods on hire purchase or any

system ofpayment by installments;

 \



12

iv) a transfer of the right to use any goods for

any purpose (whether or not for a spectJ'icd"»v.
period) for cash, deferred payment 
valuable Consideration:    ll

After understanding the meaning of '4'I3ea_ler':.e lit -- 

is necessary to understand the l'meaning,,--".1ofthe'; Word,

Taxable Turnover' referred to'-in-rgthe.Sect--ion_: 'threads'

as under:

S2{1}{u--1) __-- "Taxal;l_e .'ll._ltL:rno*ver5f_'urneans the
t'r1rnover:_"o~}*;««g:,gg;;'hicli_t a;dle:aler:'slhall__'ll3felliable to pay

tax   such deductions
from  such manner as
n1_ay._ presVcrtbed;V,.___b-ut shall not include the
turnovepr "or sale in the course of

_ .tnt'er§State»tr,ade_ orcommerce or in the course of
fiegcport of goods out of the territory of India or
  inbthe:"course of import of the goods into the

 V. terrrtt,orgv'cj" I ndia;

For" aiproper understanding of 'taxable turnover', it is

A also-..gnecessary to know the meaning of the word 'total

l"turr1over' and 'turnover' as deﬁned under the Act, which

  ..._.reads as under:

{u-2) -- "Total turnover" means the aggregate

turnover in all goods of a dealer at all places ofl
5

'F





per:-;()11 must ('.d1'l'_V on t'1'1c. i)1.isii1es$ of SL'}1i11§,§
ihosc-r g;0()ds. })}"'i(.'E:' \'\-*'}'](?1'L"()§' is s(.)1i;3;11i 10 be
i1'1(?1i1(1o(i in 1"11c': i'1:1'm)\='m". In other worclss. _1.I1_p
must c2'u'i*y on the b1I.Si1'}L'.SS of SLT11i1.7g'Z_;::."%'1> "
ct0mm(3ciiiy before his i.uri"10v(:*.1' fom1__;'_'éé.1}£:f 
that C01'nm0<'1ii'y  E'<'1,XE-1i.)1L'I. As })()i'1}_1_.¢5('i~..V.(:)ii.Ai."~iriyA
this Cour': in Si.2:11"e ()i'A11(1};'ii'é'i Fl"E1§1LiS1'1:
Abdul I3akhi and B1*<.)s.. 2.1  ':i',() :i1?';.£%_:"21.."gi:7-A
must. be c1'1g_§age(.1 in  Vof*0'3r
sclliiig 01' supp1yi1'1g  'i'2i}-9:_uA€'>§f.}')ifﬁgssion
"'bu.~3i1'1eSS" i.ii1().i,iig~hﬁ.  izixirlg
si,z:1i;L1i:es. is 21 xifiiifgi' 'Off --ir11po1"t.. in

t.E1XiI'1g si'_2i'{:;_.1i'cs;.'"Vii?"is: 1._1Stfd._i1'1'.E.hV{?»i'sc1'1s€: 01 em

.(}(."L"f.{E._}V).2:'1i,i 0 ii ¢.i::, or  1"C)rt-',5 S-.i~:).1:1 v°whi(>1i1 (')(?(".'L11)i('TS the

7:;_ini1--:'--.', ,§1'ii€:¥_1tiQlT~Jéllld'1£lb01l1' of 21 p(:rs()n,

11()2i_z1izi1Ey'wiiii t<'l'.}--'-€'ﬁ'>"(")':§'_].(::"(..jtVI of making proi'ii.. To

-- ..l'€",fs';E1I;('i E111 .2,1'(',1i.\7=i.i{yw'c1S b11si11Css i'.hc1"c.'. n1'1_.1si be a

(':.£'?i1::_s;c. r__)i"'t'ic-;ilii'1gs. eit.}'1c1" 211(_%1.i.1z-my (.:c'>1'1t:im.1c("1 or

.c;<)~;:1ieii1p1ai.eci to be C.om.im1c2ci with 2: pro1'i'£.-

i11.t')1..i_\re}v' Liigid not for spc)1*t. or plcasiirc. W hc=?i.he1*

;_.a.~ ~p§rj'?'r"s(')i'i (.'a1'1'ics on E::>i.i.~si1'1c-;t$.<; in a [)E11'{i(T11}E'i.I' .,

'jg':(5:..:1m1.()('iii.y must dcpcncl upori the \-'()}l.11'1](.'...

i"1*c:qL1L?11<:y._ (éoni:im.1.ii'y z11'1ci 1'egu1z;11'ity of
tm11sa(ri.i('):"1s of [')Ul'(IT}']E1S(' z:ir1(.1 52-iinr in. 21 <*.}a1s:5 of
goods éilld ilic {l'Ei1'1S2-1(.'1]'()l"1§n' imist 01'('Ii11zi1'il_\--' be
01'H.L'1'L'.C1 into with :1 ;).ro.£'ii--1'1'1oi.ivo. By 1:119 1.150 of
i,1'1<: uxpi'cssic')1"1 "}..)1*(')i"ii'w1'n0tivc" it is 1101' i1"1i(:11.c'ic2(:_}

iiiaé pmiii l1]i..l."51. in 130.1 be 0;.i1'1'1<~('1. Nm' (.io(.*.s



It is Clear from il1e:"sc cases 11'1e:1V1,' €(.x..
a11.11'i131..1te 2111 im'ent.i01T1 to <.:2.1rry on  
sellilyg g-_§0(.>ds it  not sL1f:'E"iCie;*1H. 
2=1ssess;c.e was (.'e'1r1'yi:1g 01'}....1)1.14si1"1g*é§$'"
Commodity a1'1d he: ciispigscg-;.. g).f   pjf:i-r._j.<.=

2-uiiclcs ciisc:arc.i<-acl. sur5_)l'L.:s (.)'i'A 1.13servici.>21b1c3." 

7.2. T116? Sup1'e1'nc Cotﬂrufti' also l"i'£1'_C;i .'c'll1 ]oCC21:.~r.i()I1 to

drsfine the word.   'i~!._1 e_ "(>..:.'1se of "l'l'1c District
Controlier of Stores, IA\.?e.=i1.k'1Ve31'1r1AR21i'l{vay; :¢.Jf..)C1l'1}'3L1I' -- vs ~ The

ASE-3iS1.a111. _C_(i>11'jf1'1'1e1't_:i;1l 'l'2'1_>_<;;11}i(V)'1'1 VV"C)V'{"i'i.(:(:>.1" anal A1'1.oi:l1<:*1'

repori:.c:'d*is.-1_ 'E'2:1x.»C2asc:é§"'J<ai'V.37 1976 Page 423 held as
u11('fC1* *:_~ "

_ 2 .'V'Wr;-3 :tf"fj_irA1A:'s:  (.lt.(3 c1ct"iuiI.y of £110 appellam
 Vivrf the V."s'(3vlI.f;_';_';:_;_".qf' ur'1ser'uic:e3ai3Ic mc1{.erx'al and
 et.c., would be "bu.sz'nc>ss" u>i.[Iu'n

VV '  the dej]'1'ru'.tior1 Qf 111.9 1.L>0rci. "bu$ir1es;:3
ir;_I.r9dLﬁ{_Lz.€:ed by the (m1er1din_q Act. T I10 word

.. '';1V);.L:.§i4r1e>..«;s'' C.L(1(.TC)f'diI'lg 1.0 ciause (I) Q/" Ina:
c lE;f/iI'1iti():'1 would iI1(1'.Zud.r3 any I.r(.z.d.e, con"1n'1(3r(:c.

'« or rr1cu11,g_/"acture or c.'u1g_,r a.d.w3r'xiur'e or c:c)nce>n1 in
iI'1cnat.urc.> of trade, c:0n'unerc.?e or r'r1arug./"actLire
u..=l1e2z.'f1e?r' or nor" 1'1. is carricci on u..vz'II'1 rnotiim-2 Io
rnalce gain. or' profit. So 91.2011 'if H be ussurr1.ec;1

1.

} 1.511 1"i'1.e ac: 1' iuilg 1' r'uJc)lu¢.>d I I 1 sell 1' I IQ

(d) of section 2 of the Act, which deﬁnes the expression "business", as it stood at the relevant time. "

7.4. Following the aforesaid judgement a, of the Andhra Pradesh High"""Co1.1rt'l..A int 'ease'g of COROMANDAL FERTILISERS Liimrso V/dsv_-$A'i"£3.,'i'Fi and other connected cases,"rtep-sorted in l2 1999 91, held as under» . _' V _ "22. In orde'r_s'tol'hi'gl1ligl*it.theV issue which we proposevto a3:l'di'es}'s ou_I'"sel\}esV extenso, it is the Act ordains that 'in goods for valuable "in the course of trade or " 'businessflvidie "section 2(l)(n)]. This is so beeozuse thewincidence of tax falls on a dealer _ on the business of buying, selling, ' or distributing goods" [vide section A sale by a person who carries on the it business of buying, selling, ete., and a sale in the course of business are the twin indispensable requirements to attract the charge of tax under the APGST Act. The crucial question then is whether these requirements are satisfied. Is there an element of business 24> fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive pervades the Whole series of transactions effected by the person in the courseuiof activity. In actual practicVe,""th.eA may be easily discern,ib1e"e..je' transactions; in othe/rsy__.it W'o_u1d haye it inferred from a revieVy"e<s.ofi»the attendant upon_:*'the tra'n's*a_:ction"

70. We areaview that transfer of v..goo«;_:'1s"__iI1 7 ' process of

-cement manufacturing udriittd iyhitherto by the petitioner- A. ..Comt5a*ay'does'v.not tantamount to "business" sfyfiithsin thVe'm--ea'ni11g of section 2(1](bbb) of the the sale is not "in the course of The charge to tax is therefore not attraiczted under the APGST Act.

Foilowing the judgements, the Madhya Pradesh

-' Court in the case of STI INDIA LTD. V/s "idcoMM1ss1oNER OF COMMERCIAL TAX AND omens reported in (2009) 20 VST 37 (MP) has held as under 1w \éA/ 2.1 "The transaction in question. though results in sale of movable properties upon closure of the business, but by no stretch of imagination or reasoning, it could be said~.t"o., have taken place during the business of the petitioner as dealer_,pl_A"I.n'ti'1~is connection, it is necessary""to'<keepp ,ir1_x'1r1_iI1(i~f} the charging section and'; "

"dealer" in the act. Section the the? charging section. It eriiloinls dealer covered by the tax under the turnover.

Expression__"dea'1er"~ eiause (h) of sectio1i_2 _tiie4"AC:t.ﬁ 'oi°"the definition lvwoiiidVshowl"thlat__a---person is a dealer within the niyeaningilof 'Act, when he carries on

-- the busiriess of buying or selling of goods for c.ons_ideratio.n..e'paid or payable in future.

required is that sale or purchase ."mlu~Sct fjtalke place during the course of business of buying or selling in View of " definition of "Dealer" in clause (h) of section is 2 of the Act. "During the course of business"

postulates a continuous exercise of an activity. It also connotes some real, substantial and systematic or organised course of activity or conduct set with a purpose. In taxing statures. it is used in the \\/I sense of an whole time occupation or profession of a person which requviVre.si*._ continuous attention and labour. To an activity as business, there belt:

course of dealings either..aet1iallyl or contemplated. In facts'-._an{;l' :3 A of the case as foundfby the".as'sessi.ng and the Additional Coaiinissiorier,"-tb=ere.:

a sale of movable assets-Kg_:but».,it coluld. be said that sa1e"'--'i}vgasl'-- course of business. to the Act."

'Z._ théelliability to pay tax u / s.5 of thea_Ac_t, be carrying on the business of buying,' and distributing goods. A person tola'~dealer' engaged in the business of buying » sellingorsupplying goods. A person is a dealer within . the Act, when he carries on the business of buyinglorlselling of goods for consideration paid or payable Ainlfiiture. What is required is that sale or purchase must 'take. place during the course of business of buying or selling in View of deﬁnition of "Dealer" in clause [h] of section 2 of the Act. The expression "business" though i./A extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the se,nsei'o_f an occupation. or profession which occupiesl"'th_g.,__ftirrie, attention and labour of a person. n0rmal.ly"Vk*ll?_1". ﬁl€"Q'l>_§'é?C'i. of making proﬁt. To regard an actiV'i'tyV as._businescs_ there must be a course of dealing---'.5_,:gp4"'E3f1_iiher'~ contemplated to be continueci..iifirth"appprofit-=motiiire, and not for sport or pleasurejdlperson carries on business in Vstldepend upon the volume, llwand regularity of transactionslipoﬁf and*~sale in a class of goods and the be entered into with a proi'1t;rnoti've." .f'Dul1-'._ing"the course of business" postulates

3 "continuous exercise of an activity. It also connotes some it and systematic or organised course of ac-t__iVit_y ~or£'.conduct set with a purpose. In taxing statures. it is used in the sense of an whole time occupation or ' fproiession of a person which requires continuous attention

---and labour. The expression "carrying on business"

requires something more than mere selling or buying. it is not merely the act of selling or buying makes a person \\/i dealer but the object. of the person who carries on t.he activity is important to attract. levy of saies ta:»;.i"~.._yf'*'.Sale"

means every transfer of the property in person to another in the course..of__tracie"'orfic.us~iness.Vfor cash or for deferred payni'entf_"*o'r :'~Oth_e1" u:vali'1L'%1ble if consideration. A sale by .a"rperson Vwho'f..Vca:rries -'on the business of buying, selling, Vetrcﬁaritip a saie in the course of business are the _ requirements to attract the must be construedgvvithp paynient is to be exacted from the isfxnotfclearly and unequivocally requiredhy p 7.8. a"vperson in the course of carrying on a 'f V' isprequired to dispose of what may be called his i"i2r_<.ed* his discarded goods acquired in the course oi'-..the_.bii_sjiness, an inference that he desired to carry on the husiness of selling his fixed assets or discarded goods

-..Vw.o1.i'id not ordinarily arise. But no test is decisive of the intention to carry on the business. in the light. of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised. Even in W

-as transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, advertisverlnent or concern constitutes 'business', but such should have a direct nexus with the prnain' "b'usi'ne"ss ea1'r__'iecl on by the dealer.

7.9. In this backgroundsif this case to consider ;.vyhethper:VVsale"--.oAf in'te'll_:ectu;al property attracts the payment' the Act, the first question to:, the assessee is carrying supplying and distrilfjutiria If the answer is no, then there we have to find out when theyassesseel is"; carrying on the business of sale and pi:-rch.ase"i--of biscuitsv. confectionery, wheat products, jams. whether the sale of intellectual property could_.~b_ej..- considered as a transaction which is in ,connection with or incidental to or ancillary to the lvhaforesaid business. If it is incidental, ancillary or in connection with the said business even though it is not the main business, there exists a tax liability. But, if it is not incidental or connected or ancillary to that trade there is \.\x/ no liability to pay such tax. The assessee is thepcowner of this intellectual property. rights, trade marks, and copy rights. In order to sell their intellectual property. 'Therefore, this cannot be sold in the course assessee is not in the oi this intellectual property intellectulal property rights are acquired Li period of time by hardwork. It__is-- a are trading in the course ofg'thlei<r it is not possible to hold that' "in the business of selling and pijoperty rights or that the sale of ' inte1l_ectuai--.property-._iis~*incidental or connected with and "V..._,Inari'ufa(:tu.re sale of business of biscuits, confectioneri.es', wheat products, jams, jellies and creams. 'Illi.elllflndii:1i§s'lrecorcled by the authorities is exfacie illegal and th.e__ilaforesaid sale would not attract liability under the l."li."Act.r.--The orders passed by the authorities imposing the _M_1ifability is liable to be set aside. Accordingly it is set aside. R/..

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Karnataka High Court

M/S Kwality Biscuits (P) Ltd vs The State Of Karnataka on 26 August, 2010

Bench: N.Kumar, H.S.Kempanna