Andhra HC (Pre-Telangana)
Rashtriya Chemicals & Fertilisers Ltd. vs State Of Andhra Pradesh on 5 July, 1988
Equivalent citations: [1990]76STC360(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, J.
1. In this Tax Revision Case filed by the Fertilisers Corporation of India, now called "The Rashtriya Chemicals & Fertilisers Ltd.", two questions arise for consideration, viz. :
"(i) whether during the relevant assessment years 1973-74 and 1974-75, the petitioner can be called a 'dealer'; and
(ii) assuming that the petitioner is a dealer, whether the transactions in question are exempt from tax ?"
2. So far as the second question is concerned, it is agreed by counsel for both the parties that it is concluded against the petitioner by the decision of this Court in T.R.C. No. 5 of 1985, dated 25th April, 1988 (See Jadhavjee Laljee v. State of Andhra Pradesh [1989] 74 STC 201). Thus, only the first question survives for consideration.
3. Fertilisers Corporation of India is one of the Corporations created by the Central Government to carry on "all kinds of business relating to fertilisers and chemicals", including distribution, transportation, buying and selling of fertilisers [vide clause 1(a) of the Memorandum of Association]. For the assessment year 1973-74 the petitioner filed a return disclosing the gross turnover of Rs. 67,44,358.92 and claimed total exemption in respect of the said turnover. For the assessment year 1974-75 the petitioner disclosed a gross turnover of Rs. 1,50,88,621.29. It again claimed total exemption for the said turnover. The assessing authority, however, rejected the petitioner's contention. For the assessment year 1973-74 it granted exemption in respect of turnover for an amount of Rs. 6,13,123.54 and brought the remaining turnover to tax. For the next assessment year no part of turnover was granted exemption. The appeals preferred by the petitioner were partly allowed, but dismissed so far as the controversy herein is concerned. The matter was then carried to the Tribunal, but without success.
4. During the relevant period, the expression "dealer" was defined in clause (b) of section 2 of the Act in the following words :
"'Dealer' means any person who carries on the business of buying or selling goods, and includes a Government which carries on such business;".
5. The contention of the petitioner is that carrying on business necessarily means "carrying on business with a profit-motive". In this case it cannot be said - it is argued - that the petitioner had any profit-motive in undertaking the distribution of fertilisers under the "seeding programme operations". The further contention is that, even if it is held that the general activity of the Corporation is "business", still, so far as the distribution of fertilisers under the "seeding programme operations" is concerned, it cannot be held to be a business, because the petitioner had no profit-motive in undertaking the said distribution.
6. So far as the petitioner-Corporation is concerned, it is undoubtedly created for the purpose of carrying on business in fertilisers, and it cannot be gainsaid that it does not have a profit-motive in undertaking the said activity. But what is particularly stressed by Mr. P. Venkatarama Reddy, learned counsel for the petitioner, is that this particular activity undertaken in connection with the implementation of the "seeding programme operations" does not fall within the expression "carrying on business" because the petitioner had no profit-motive in undertaking the said activity. For a proper appreciation of this contention, it is necessary to notice what precisely was the "seeding programme operations". The purport of the said programme is set out in paragraph 9 of the judgment of the Tribunal. It read thus :
"As mentioned earlier the Government of India imported during the relevant periods fertilisers from other countries and were allotting to the State Government quotas on a quarterly basis. For instance, through its letter No. 2-2-1973 dt. 23-6-1983, the Government of India intimated the State Government of the allotments of 30,500 tonnes of A.N.P. for Andhra Pradesh and advised that it may in turn be allotted to the domestic fertiliser manufacturers with 'seeding programme operations' for distribution in the State. It is explained by the learned Authorised Representative that the reference in the Government of India's advice was to the appellant-Corporation whose role in the distribution of these fertilisers within the State is described as 'seeding programme operations' for the reason that the appellant-Corporation was intended to take upon this work as an opportunity to develop and help grow its own marketing facilities in anticipation of its future selling of its own marketing fartilisers. In accordance with the instructions in the said letter, the State Director of Agriculture informed the Fertilisers Corporation of India the quantities to be despatched to various towns in Andhra Pradesh. In his letter dated 9th July, 1973, the State Director of Agriculture further informed the appellant-Corporation that the Ministry of Food and Agriculture has requested to reallot the quantity allotted to the State Government in favour of the Fertilisers Corporation of India for distribution in the State. The Director of Agriculture accordingly requested the appellant Corporation to make financial arrangements for the allotted quantities so as to enable the Director to issue despatch instructions as to the quantities meant for various distribution places in the State. The Fertilisers Corporation of India thereupon informed the Food Corporation of India the details of the remittances made and the quantities to be sent to the various distribution places in the State, as per the advice of the Director of Agriculture. For the year 1974-75 also the procedure of allotment and distribution of imported fertilisers was the same."
7. It is clear from the order of the Assistant Commissioner (C.T.) Appeals, that up to 1st August, 1974, a certain margin was provided to the petitioner. While fertiliser was supplied to the petitioner at the rate of Rs. 829 per tonne up to 9th September, 1973, and at the rate of Rs. 1,120 per tonne from 10th October, 1973, onwards, the petitioner was selling the same at Rs. 860 and Rs. 1,150 per tonne respectively, excluding sales tax. Thus the petitioner was provided, what is called "the distributor's margin". Of course, from 1st August, 1974, this margin was done away with, and the petitioner was supplying fertilisers at the same rate at which it was receiving them. From this fact it is clear that up to 1st August, 1974, at any rate, the petitioner was indeed receiving some profit - though the measure of that profit cannot be determined, and has not been determined in these proceedings. Accordingly, it cannot be said that the transactions undertaken by the petitioner under the aforesaid programme did not have profit-motive until 1st August, 1974. The assessment years concerned herein are 1973-74 and 1974-75, which means 1st April, 1973 to 31st March, 1974 and 1st April, 1974 to 31st March, 1975, respectively. On the above reasoning, only a part of the assessment year 1974-75 would survive for any real debate. It is argued by Mr. P. Venkatarama Reddy that from 1st August, 1974, the petitioner had no profit-motive, which is said to be evident from the fact that it was distributing fertilisers at the same rate at which it was receiving them. The question then arises : why was the petitioner-Corporation doing that ? The answer provided by the Corporation is that it was doing so with a view to get acquainted with the dealers and to establish contacts and network throughout the State, which would facilitate its future activity. Can it be said in such a situation that the petitioner had no profit-motive in undertaking the said activity ? It may be that no immediate profit was resulting from the said activity from 1st August, 1974; but the petitioner undoubtedly engaged itself in the said activity with a view to develop an infrastructure which would help it in earning profits in future. As repeatedly pointed out, what is material is the motive, i.e., profit-motive. It is not necessary that profit should actually result. In a given case, profit, may result, and in another case it may result in loss; in a third case there may be no profit and no loss. What is relevant is : with what motive a person is undertaking a particular activity ? It may also be seen that the main business of the petitioner was distribution and sale of fertilisers. The activity in question is not something else, but the very same activity; the only difference is that this was undertaken under a particular programme evolved by the Government. That, in our opinion, makes no difference. Instead of designating another Corporation or person, the petitioner was designated for distributing fertilisers under the said programme, and it was provided a certain margin in consideration of the services rendered by it till 1st August, 1974. We are, therefore, of the opinion that not only the distribution of fertilisers under the said programme up to 1st August, 1974, but even thereafter the said activity was undertaken by the petitioner with a profit-motive. The Tribunal was, therefore, right in holding that the petitioner was carrying on business while distributing fertilisers under the aforesaid programme during the relevant assessment years.
8. Mr. P. Venkatarama Reddy brought to our notice certain decisions in support of his contention, to which a brief reference would be in order. The first decision is in State of Gujarat v. Raipur Manufacturing Co. Ltd. . In this case, the assessee was carrying on the business of manufacturing and selling cotton textiles. During the relevant assessment year it disposed of certain miscellaneous old and discarded items, such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags, etc. The question was whether the turnover relating to sale of the said articles is exigible to sales tax under the Bombay Sales Tax Act. The Act defined "dealer" in section 2(6) as "any person who carries on the business of selling goods in the State of Bombay, whether for commissioner, remuneration or otherwise .........". The Supreme Court observed first that "To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive .......". It was held that merely because a person is carrying on business of selling a commodity, it cannot be inferred from sale by him of another commodity in the course of that business that he is carrying on business in that other commodity also. (It is this observation in particular which is strongly relied upon by the learned counsel for the petitioner). On the facts of that case the Supreme Court held that, in disposing of miscellaneous old and discarded items, the company could not be said to have been carrying on business of selling those items of goods. It was observed that before calling the said activity to be business, it must be established that the assessee had an intention to carry on business in that commodity. A person who merely sells goods which are unserviceable or unsuitable for his business, it was held, does not, on that account, become a dealer in those goods unless he has an intention of carrying on business in such goods. We do not think that the principle of this decision has any application herein. As pointed out by us hereinbefore, the main business of the petitioner-Corporation was distribution and sale of fertilisers, and the activity in question was equally the sale and distribution of fertilisers. The only difference is that this particular activity was relatable to a distinct programme evolved by the Government. In our opinion, this circumstances makes very little difference, more particularly when up to 1st August, 1974, a margin was provided to the Corporation by way of consideration for the services rendered by it. This not a case where some discarded material was sold as in the case before the Supreme Court, which could not have been termed as the business of the assessee therein. Moreover, in that case it was not found that the said selling of discarded items was being done in a systematic manner. Even if it is held that one must look to this particular activity under the "seeding programme operations" as a distinct activity, even then we are not satisfied that there was no profit-motive, as explained hereinbefore.
9. Counsel for the petitioner then relied upon the decision of the Supreme Court in Joint Director of Food v. State of Andhra Pradesh . In that case, the Joint Director of Food, Visakhapatnam - an officer of the Central Government - was proposed to be treated and taxed as a "dealer". It was pointed out that while according to the definition of "dealer" in section 2(b) of the Central Sales Tax Act, 1956, a person will be a dealer only if he carries on business with a profit-motive, the requirement of profit-motive was absent under the Andhra Pradesh General Sales Tax Act. Evidently, the Court was referring to the definition of "dealer" in the Central Act before it was amended by Act 103 of 1976, doing away with the requirement of profit-motive. It was held that inasmuch as the Joint Director of Food, Visakhapatnam, had no profit-motive in undertaking the distribution of essential commodities, he cannot be treated as a "dealer" under the Central Act, though he would be a "dealer" for purposes of the State Act.
10. Reliance is also placed upon the decision of the Supreme Court in State of Jammu & Kashmir v. Caltex (India) Ltd. , for the proposition that under the sales tax law what is exigible to tax is each transaction of sale and, therefore, one must look to individual sales of purchases of goods effected during the relevant period and determine their exigibility to tax. It is not difficult to agree with the learned counsel that merely because a person is a dealer, all the activity undertaken by him should not automatically be treated as business activity with a profit-motive, and that it may be necessary to distinguish his activity from commodity to commodity and determine the liability to tax separately. But, as we have pointed out hereinbefore, the main activity and the activity in question herein are both of the same character, viz., distribution and sale of fertilisers. We, therefore, do not think that the said principle advances the case of the petitioner in any manner.
11. For the above reasons, we find no grounds warranting interference in this Tax Revision Case under section 22 of the Andhra Pradesh General Sales Tax Act.
12. Tax Revision Case, accordingly, fails and is dismissed. No costs. Advocate's fee Rs. 150.
13. Petition dismissed.