Delhi High Court
Panacea Biotech Ltd. vs Commissioner Of Trade And Taxes & Ors. on 14 December, 2012
Author: S.Ravindra Bhat
Bench: S. Ravindra Bhat, R.V. Easwar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON: 03.12.2012
PRONOUNCED ON: 14.12.2012
+ WP (C) No. 4717/2011 & CM No.9555/2011
PANACEA BIOTECH LTD. ..... Petitioner
Through: Shri Rajesh Mahna with Mr. Ruchir Bhatia
and Mr. Ankit Singh, Advocates
Versus
COMMISSIONER OF TRADE
AND TAXES & ORS. ..... Respondents
Through: Sh. Vineet Bhatia, Advocate
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT
%
1. The writ petitioner is a public limited company is engaged in
the business of manufacturing and sale of pharmaceutical products
registered with the Department of Trade and Taxes. It has been
purchasing goods based on the strength of the Registration
certificate. It impugns the determination of the respondent
authorities that the consideration it received for the sale of its cars,
should be included in its total turnover for the relevant assessment
year.
WP(C) No. 4717/2011 Page 1
2. The Sales Tax Officer (Assessing Authority, the third
Respondent), for the assessment year 2004-05, demanded tax to the
extent of `. 1, 51, 967 under the Delhi Sales Tax Act 1975 ("the
local Act") and `.7,73,082 under the Central Sales Tax Act 1956
by an order dated 28.03.2006 on the sale of car made by the
Petitioner in the F.Y. 2004-05. The respondent asserted that these
articles were used in the connection of running the business itself
and when the vehicle has ceased to serve the desired purpose, the
same were sold, after claiming depreciation. The Petitioner filed
two revision petitions, under Section 43(5) of the local Act read
with Rule 36(6) of the Delhi Sales Tax Rules 1975 and another
under Section 9 (2) of the Central Sales Tax Act 1956 read with
abovementioned provisions of the Delhi Sales Tax Act and Rules)
under Joint Commissioner, Trade and Taxes (i.e. the second
Respondent) on the basis of the abovementioned two orders. The
second Respondent issued the impugned order on 16.05.2007
which is alleged by the petitioner The petitioner filed a review
application to the Additional Commissioner (Appeals) which again
reiterated the demand of tax regarding the sale of a car vide an
order dated 07.04.2011.
3. The impugned assessment order argues the petitioner, was
passed without paying heed to two previous orders of the Appellate
Tribunal i.e. Powertron Products (2001-02) [41 DSTC J-3] (dated
21.05.2002) and reiterated in L & T Finance Ltd (2003-04) [43
DSTC J-182] (dated 15.12.2004):
WP(C) No. 4717/2011 Page 2
"Coming back to the facts the appellant has
purchased the car, falling within notification u/s 5 on
which the tax has been paid in Delhi to our
satisfaction in accordance with the said notification.
Hence, the same cannot be taxed again in the hands of
the appellant. The tax is deleted."
4. The petitioner's contention in the present appeal is that the
impugned orders are unsustainable. It is contended that the
impugned orders do not disclose any reasons why the two orders
by the Tribunal with the same material facts are inapplicable to its
case and why it is treated discriminatorily. The petitioner relied on
a number of judgments in support of its contentions. In the case of
Morarji Bros. (I&E) Pvt. Ltd v. State of Maharashtra 1995 (99)
STC 117, the Bombay High Court held that:
"In the view of the above, we are of the clear opinion
that the sales of three used motor cars by the assessee, who
was a dealer carrying on business of manufacturing, selling
and supplying of chemicals, did not amount to sale by a
dealer within the meaning of section 3 read with clauses (11)
and (5A) of Section 2 of the Bombay Sales Tax Act, 1959."
The petitioner also relies on Base Repair Organisation (Now Naval
Dockyard), Vishakhapatnam v. State of A.P. [(1983) 53 STC 223]
cited in the State of Tamil Nadu v. Board of Trustees of the Port of
Madras ([1999] 114 STC 520). In Base Repair Organisation, the
Naval Dockyard was established for repairing and servicing ships
of the Navy. It was obliged by section 46 of the Factories Act to
run a canteen to cater to the needs of its employees and the canteen
was run on no-profit no-loss basis. It was held that the sales in the
WP(C) No. 4717/2011 Page 3
canteen were not liable to sales tax. The Andhra Pradesh High
Court held as follows:
"It should be noticed that the canteen is not only
being run in discharge of a statutory obligation, but
that it constitutes an infinitesimal and insignificant
part of the entire activity of the assessee. Having
regard to the nature of the functions and the purpose
for which the canteen sub serves the main object and
purpose of the assessee, and is an integral and
inseparable part of it, it would be unrealistic to
separate the said activity and treat it as a business."
5. The second Respondent relied on two judgments of Madras
High Court and the Supreme Court respectively to come to its
order. Firstly, in the State of Tamil Nadu v. Thermo Electrics
(1977 39 STC 317 Mad), the Madras High Court held:
"...if an assessee is a dealer, with reference to the
business carried on by him, every transaction of sale,
whether it is of capital asset or a stock-in-trade would be
liable to be included in the turnover of the assessee."
In State of Tamil Nadu v. Burmah Shell Oil Storage and
Distributing Co. of India Ltd and Others (AIR 1973 SC 1045), the
Supreme Court held that sale of scrap, periodically unserviceable
oil drums, rubber hoses, jerry cans, rims, unserviceable pipe
fittings and old furniture etc. are parts of its trading activity and
any sale of these unserviceable goods as scrap is a transaction
connected with trade/commerce/business of the company and the
turnover of this commodity is liable to tax.
WP(C) No. 4717/2011 Page 4
6. The definition of "business" is to be found in Section 2 (c)
of the Delhi Sales Tax Act, 1975. It reads as follows:
(c) "business" includes:-
(i) any trade, commerce or manufacture or any adventure or
concern in the nature of trade, commerce or manufacture,
whether or not such trade, commerce, manufacture,
adventure or concern is carried on with a motive to make
gain or profit and whether or not any gain or profit accrues
from such trade, commerce, manufacture, adventure or
concern, and
(ii) any transaction in connection with, or incidental
ancillary to, such trade, commerce, manufacture, adventure
or concern."
"Dealer" on the other hand, means "any person who carries on
business of selling goods in Delhi..." by virtue of Section 2 (e).
The expression "turnover" has been defined as follows (Section 2
(o)):
(o) "turnover " means the aggregate of the amount of sale
price receivable, or if a dealer so elects, actually received by
a dealer in respect of any sale of property in goods, made
during any prescribed period in any year after deducting the
amount of sale price, if any, refunded by the dealer to a
purchaser in respect of any goods purchased and returned
by the purchaser within the prescribed period;
PROVIDED that an election as aforesaid once made shall
not be altered except with the permission of the
Commissioner and on such terms and conditions, as he may
think fit to impose..."
WP(C) No. 4717/2011 Page 5
7. An issue somewhat similar to the present one arose for
consideration for the first time, before in the Supreme Court in
State of Gujarat v. Raipur Manufacturing Co. Ltd AIR 1967 SC
1066. That case arose under the Bombay Sales Tax Act 1953, the
disposal by a company carrying on the business of manufacturing
and selling cotton textiles of its miscellaneous old and discarded
items such as cans, boxes, cot-ton ropes, rags etc., was held by the
Court not to be carrying on the business of selling these items of
goods. The Supreme Court held that:
"But the question is of intention to carry on business of
selling any particular class of goods. Undoubtedly from the
frequency, volume, continuity and regularity of transactions
carried on with a profit motive, an inference that it was
intended to carry on business in the commodity may arise.
But it does not arise merely because the price received by
sale of discarded goods enters the accounts of the trader and
may on an overall view enhance his total profit, or indirectly
reduce the cost of production of goods in the business of
selling in which he is engaged. An attempt to realize price by
sale of surplus unserviceable or discarded goods does not
necessarily lead to an inference that business is intended to
be carried on in those goods, and the fact that unserviceable
goods are sold and not stored so that badly needed space is
available for the business of the assessee also does not lead
to inference that business is intended to be carried on in
selling those goods. The contention on behalf of the State in
respect of the first part of the turnover for 1964-65 therefore
fails.
With respect to the second part of the turnover the
question whether the amendments in 1964 to the definition of
"business" and "casual trader" are directly applicable has to
be considered. It will be observed that under the definition of
WP(C) No. 4717/2011 Page 6
"business" even commercial transactions carried on without
a motive to make gain or profit, or whether or not any profit
accrues from such activity are included in that definition.
The amended sub clause (ii) also includes with that
definition transaction in connection with or incidental or
ancillary to such trade, manufacture or adventure or
concern. The question is, whether the word "such" in sub-cl.
(ii) of cl. (d) of s. 2 refers to the trade etc. defined in sub-cl.
(i). It was contended before the Madras High Court that it is
not so and that incidental or ancillary activity must partake
the nature of 'business in its generic sense. In Dy. Commr. of
Commercial Taxes v. Thirumagal Mills Ltd. (supra) a Bench
of that Court had held that notwithstanding the amendment
the presence or absence of profit will not make any
difference. According to it what has to be considered is that
the activity should be of a commercial character and in the
course of trade or commerce and accordingly the definition
of 'business' in the second clause was still one invested with
commercial character inasmuch as the reference was to
"any transaction in connection with or incidental or
ancillary to any trade, commerce, manufacture, adventure or
concern'. It was observed that unless the transaction is
connected with trade that is to say, it has something to do
with trade or has the incidence or elements of trade or
commerce it will not come within the definition."
8. "Ancillary" according to the Concise Oxford English
Dictionary (10th ed.) means something providing support to the
primary activities of an organisation; something which is additional
or subsidiary. In Board of Trustees of the Port of Madras ([1999]
114 STC 520), the Supreme Court held:
"If the main activities are "business" then the sales in
connection with or incidental or ancillary thereto need not
have been intended as a business or commercial activity.
Their mere connection with or being incidental or ancillary
WP(C) No. 4717/2011 Page 7
to something else which was "business" was sufficient to
include such sales in the main business."
9. The leading case (Raipur Manufacturing Co. Ltd) is based
on the definition of "business" in S.2 (d) (g) prior to it being
amended in 1992 in Tamil Nadu General Sales Tax Act 1959 i.e.
when it did not include connected, ancillary or incidental sales. The
judgment by Shah, J. held that the definition of "business" did not
exclude profit motive nor did it include sales "in connection with"
the main activity. The textile mill's main activity did indisputably
amount to "carrying on business" but in regard to the incidental
sales of "unserviceable or discarded" goods, it was held that these
sales were intended only for reduction of the space and to save
accommodation and were not so integrated with (or connected
with) the main business even if they were of considerable volume
and frequency.
10. The other argument of the petitioner rests on the fact that
when the vehicles/cars were purchased the said items were taxable
at first point i.e. w.e.f. 29.03.1996 to 02.09.2001 therefore
accordingly purchases were made after payment of tax. Since the
tax had been paid at the time of purchase, the sale of said vehicles
cannot be taxed in view of provisions of Section 5 of the Delhi
Sales Tax Act 1975 whereunder notification No. F. 4 (67)/95 Fin.
(G) (i) dated 29.03.1996 was issued. The said notification was
withdrawn on 03.09.2001. Thereafter, sale of cars/vehicles became
taxable at last point in notification No. F. 101 (69) 2001 - FIN
(A/Cs) 2318-26 dated 03.09.2001 no protection/saving clause was
WP(C) No. 4717/2011 Page 8
provided/incorporated in respect of cars/vehicles which were
purchased under the first point regime and were sold (after use)
during the last point regime from levy of tax.
11. Sales tax is an indirect tax. It is leviable on transfer of goods.
It is, however, well-settled that while construing a taxing statute
one has to look merely at what is clearly said. [See speech of
Viscount Simon referred to in State of West Bengal v. Kesoram
Industries Ltd. and Ors. [2004]266 ITR 721 (SC), wherein it was
noticed:
"105. Justice G.P. Singh in Principles of Statutory
Interpretation (8th Edn., 2001) while dealing with general
principles of strict construction of taxation statutes states:
A taxing statute is to be strictly construed. The well-
established rule in the familiar words of Lord Wensleydale,
reaffirmed by Lord Halsbury and Lord Simonds, means: The
subject is not to be taxed without clear words for that
purpose; and also that every Act of Parliament must be read
according to the natural construction of its words. In a
classic passage Lord Cairns stated the principle thus: If the
person sought to be taxed comes within the letter of the law
he must be taxed, however great the hardship may appear to
the judicial mind to be. On the other hand, if the Crown
seeking to recover the tax, cannot bring the subject within
the letter of the law, the subject is free, however apparently
within the spirit of law the case might otherwise appear to
be. In other words, if there be admissible in any statute, what
is called an equitable construction, certainly, such a
construction is not admissible in a taxing statute where you
can simply adhere to the words of the statute. Viscount
Simon quoted with approval a passage from Rowlatt, J.
expressing the principle in the following words: In a taxing Act one has to look merely at what is clearly said. There is WP(C) No. 4717/2011 Page 9 no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. (at p. 635)"
12. In the present case, the main business of the petitioner is manufacture and sale of pharmaceutical products and the vehicles are used by it in the course of business (as written by Respondent No.-2 in the impugned order (Annexure A-1)). This may lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. But the selling of used cars cannot by any stretch of the imagination be characterized as "ancillary" or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products. They were purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them. These cars were then sold. Their sales, in a sense are twice removed from the business of the assesse. They cannot be called "incidental" or "ancillary" to the manufacture and sale of pharmaceutical products, which the assesse is engaged in.
WP(C) No. 4717/2011 Page 10
13. This court also notices that the vehicles had already been taxed once under the first point tax regime then in cases of transactions which are redundant and cannot be considered under the definition of "business" as they were aimed mainly to get rid of old vehicles which are carried on by persons in normal course of their lives as well and previous orders of the Appellate Tribunal have also been in favour of the petitioner itself, the levy of sales tax on an already taxed vehicle with little relation to the business will give rise to an anomaly.
14. In view of the above discussion, it is held that the view taken by the respondents, regarding inclusion of the sales transaction of the cars in question, in the turnover of the petitioner, is unsustainable in law. The impugned orders are consequently quashed; the writ petition is allowed. In the circumstances, there shall be no order as to costs.
S. RAVINDRA BHAT (JUDGE) R.V. EASWAR (JUDGE) DECEMBER 14, 2012 WP(C) No. 4717/2011 Page 11