Supreme Court of India
GOVT, MEDICAL STORE DEPOT, GAUHATIversusTHE SUPDT. OF. TAXES, GAUHATI & ORS.
- Citation
- 1985 INSC 188
- Decided
- 29 August 1985
- Disposal
- Appeal(s) allowed
- Bench
- V D TULZAPURKAR
Holding
In the pre‑amended period where profit motive is essential, the depot’s "no profit‑no loss" transactions mean it is not a dealer under s.2(b) Central Sales Tax Act and therefore not liable to tax; the assessments are quashed.
Summary
The Central Government set up a Medical Store Depot in Gauhati to procure and supply medical stores to various government institutions on a "no profit‑no loss" basis. The depot did not apply for registration as a dealer under the Assam Finance (Sales Tax) Act, 1956 or the Central Sales Tax Act, 1956, claiming that its transactions lacked a profit motive. The Superintendent of Taxes nevertheless registered the depot under s.7(1) of the State Act and treated it as a dealer under s.2(b) of the Central Act, levying assessments. The depot challenged the registration and assessments before the Gauhati High Court, which held it was a dealer and dismissed the writ petitions. On appeal, the Supreme Court examined whether the absence of profit motive, in the pre‑amended period when profit motive was an essential element of "dealer", meant the depot was not liable to tax; finding that the revenue had not proved a profit motive, the Court allowed the appeals, quashed the assessments and held the depot not to be a dealer within the meaning of the statutes.
Issues considered
- Whether the Government Medical Store Depot qualifies as a "dealer" under s.2(b) Central Sales Tax Act, 1956 and s.2(d) Assam Finance (Sales Tax) Act, 1956 when its transactions are on a "no profit‑no loss" basis.
- Whether the tax authority could compulsorily register the depot without an application.
- Whether the assessments made under the State and Central Sales Tax Acts are valid.
- Whether profit motive is a necessary element of the definition of "dealer" for the pre‑amended period.
Legislation cited
- Assam Finance (Sales Tax) Act, 1956s. 2(d), s. 7(1)
- Central Sales Tax Act, 1956s. 2(b)
Subjects
sales taxdealer definitionprofit motiveregistrationCentral Sales Tax Act 1956Assam Finance (Sales Tax) Act 1956no profit no losstax liabilityassessment quashedSupreme Court
Judgment
I 739
GOVT, MEDICAL STORE DEPOT { GAUllATI
A
v.
THE SUPDT. OF. TAXES, GAUllATI & ORS.
AUGUST 29, 1985
[V .D. TULZAPURKAR, SABYASACHl MUKHAR.JL AND RANGANATH MISRA, JJ •] .
B
Assam Finance (Sales Tax) Act 1956, Central Sales Tax Act
1956 s .2(b) - Govenunent Medical Store Depot - Tr;msactions on
'no loss no profit' basis - Whether 'dealer' - Liability to Sales
Tax - Whether-arises.
The Central Govenunent in the Ministry of Health, Family
c
Planning and Urban Development set up s Medical Store Depot at
Gauhati for the purpose of procuring and supplyi.rig medical stores
to the Government institutions, both Central and State, as also
the Railway establishments located in ~sam, North Eastern
Frontier Areas, Nagaland; Manipur, Tripura and other neighbouring
D
places on payment.
The appellant-Depot.did not apply for registration on· the
ground that it was not a dealer within the meaning of section
2(b) of the Central Sales Tax, Act, 1956 and, therefore, was not
li&.ble to tax as the transactions were without any· profit"'m:>tiVe
and on the basis of 'No loss~ No. profit'. The Superintendent of
E
Taxes, however, got the appellant-Depot registered under ·•section
7(1) of the Assam Finance (Sales Tax) Act, 1956 and also tr..ated
it to be a dealer under the Central· Sales Tax Act 1956 · &rui ·on
that basis the Taxing Authority made .assessments.
The appellant challellged the demarufs' under Art·; 226 contend- ·F
ing that it was not a dealer and. that the certificate. of _regis-
tration issued to it without any appli:cation should be··cancelled
and the demands made should be ·quashed because the action of the
Taxing Authority in compulsorily registering it·was· bad and the
assessments W..re illegal. Tl)e High Court dismissed the Writ
Petition and held ·that. the appellant-Depot is a 'dealer' within
G
the m..aning of sec. 2(d) of the Central ·Sales Tax Act 1956 and·
that the Superint<!lldent of Taxes had jurisdiction to register it
and also to pass the impugned order of assessment.
Allowing the appeals to this Court,
H
I
740 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R. ~
llEUl: l. The High Court, on the materials placed before it,
A
went wroug in cliSlllissiog the writ petition. The Writ Petition
should bsve been allowed and the assessment should bsve been
quashed. [746 E-F]
2. In respect of the pre-amended period .when in the defini-
B tion of the term 'business' profit-motive was an ingredient, in
the absence of profit-motive tranaactions though satisfying the
requirement of volume, frequew:y, continuity and regularity,
would not constitute business so as to make a person carrying on
such transactiona a dealer. [744 H, 745-AJ
'l'be State of Gujarat v. Baipar !famfacturing eo. Ltd., 19
c s.T.c 1, llinduatan Steel Ltd. •· nae State of Ortaea, 25 s.T.c.
211, State of ADdhra Pndeab v. Abdall llaksb1 & Broa., 15 s.T.c,
644, State of r..u 11..iu v. ~ llilla Ltd. etc., 29 s.T.c.
290, .and 'l'be Joint Director of Foods, Vf9Ubepatm v. 'l'be State
of Andhra Pndeab, 38 s.T.c. 329, relied upon.
Deputy comercial Tax Officer, S.d dapet, Hadr8ll & Anr. v.
D Infield India Ltd. Co-operative c...reen Ltd., 21 s.T.c. 317 and
~ Medical Store Depot v. State of 1IHyllD& & Anr., 39
s.T.c. 114, in applicable.
ln the instant case, the appellant bad fran the very begin-
ning taken the stand tbst its transactions were without any
E
profit motive. The burden lay on the Revenue to show tbst these
tranaactions were carried on with profit motive, whether profit
was actually earned or not being of no material importance, and
no investigation bad been made by the respondent into this aspect
when it made. the assessments. Nor was the High court called upon
to record such a fincling on the basis of any material placed and
F the respondent remained satisfied by pleacling a bare denial to
the assertion in the writ petitions supported by the scheme and
its terms. [746 A-CJ
'l'be State of Gujarat v. Baipar Ham1factur1Ag eo. Ltd., 19
s.T.c. 1., relied upon.
G
CIVIL APPELLATE JURISDICTION Civil Appeal Nos • 17 48-17 57
of 1973.
From the Judgment and Order dated 26.6.1973 of the Gauhati
.High Court at Gauhati in Civil Rule Nos. 366-370 & 460-464 of
H
1969.
! GOVT. MEDICAL STORE v. SUPDT. OF TAXES [RANGANATH MISRA, J.J 741
A
Q,p, Sharma and R.N. Poddar for the Appellant.
B.B. Ahuja and S.K. Nandy for the Respondents.
The Judgment of the Court was delivered by
B
RANGANAII! MISRA, J, The short point raised in these
appeals by special leave directed against the ·judgment of the
Gauhati High Court is as to whether the assessee - appellant is
liable to be .taxed under the Assam Finance (Sales Tax) Act, 1956
('State Act' for short), and the Central Sales Tax Act, 1956
(Central Act). When assessments were completed under the two Acts c
in spite of the resistance of the assessee which took the stand
that it was not a dealer and, therefore was not liable to tax,
writ petitions were filed before the High Court challenging the
demands by contending that the appellant was not a dealer and the
certificate of registration issued to it without any application
on its behalf should be cancelled and the demands should be D
quashed. The appellant contended that the Central Government in
the Ministry of Health, Family Planning and Urban Development had
set up a Medical Store Depot at Gauhati for the purpose of
procuring and supplying medical stores to the Government institu-
tions, both Central and State, as also the Railway establishments
located in Assam,. North Eastern Frontier Areas, Nagaland,
Manipur, Tripura and other neighbouring places on payment. The E
Depot had been set up with a view to facilitating supply of
medical stores to the Government institutions and the motive in
locating the Depot was to function as a distributing centre for
the purpose of supply of medical stores. The appellant contended,
inter alia, before the High Court.
F
"That your petitioner does not carry on any business
in medical stores, namely, medicine, drugs, surgical
instruments and appliances, dressings and hospital
equipments, but merely supplies the said goods to the
institutions mentioned earlier on 'no profit - no
loss' basis. Your petitioner in recovering the ·value G
of the above-mentioned medical stores from the
institutions mentioned earlier, adds 10 per cent of
the purchase prices of such medical stores as Depart-
mental charges to -meet the administrative costs only.
That the supply of medical stores by the petitioner is H
neither its avocation nor profession and there is no
element or object of profit making in all its dealings
•
I
742 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.
.A
with the institutions mentioned earlier. The transac-
tions carried on by the petitioner Depot are not of
commercial nature and the Depot functions only as a
distribution centre with the sole object of ensuring
the supply of pure drugs and medicines at lesser
prices than available in the market to the Central and
B
State Government institutions within the State of
Assam and other neighbouring places."
The appellant did not apply for registration in view of its ·
stand but the Superintendent of Taxes got the appellant regis-
tered under s. 7(1) of the State Act with effect from December 1,
1965, and also treated it to be a dealer under the Central Act.
c Assessments followed ·under both the Acts overruling appellant's
stand whereupon the writ petitions as indicated were filed.
Before the High Court the appellant reiterated its stand
that as it was not a dealer within the meaning of s. 2 (b) of the
Act, the action of the Taxing authority in compulsorily register-
ing it was bad and the assessments were illegal. Before the High
u
Court appellant produced a letter written by it to the Superin-
tendent of Taxes dated September 30, 1966, wherein it had been
stated :
"The supply price is fixed on the basis of cost of
acquisition plus departmental charges consistent with
E
the overheads fixed absolutely on the principles of
'No loss-No profit'. The formula of rate fixation and
the levy of departmental charges are approved by the
Government of India, who also watch and if required,
revise such fixations annually to enforce the ruling
principles of 'No loss-No profit."
F
It had been the consistent stand of the appellant from the very
beginning that the transactions were without any profit motive
and on the basis of 'No loss-No profit', aru:1, therefore, unless
the respondent found that the transactions had been ·carried on
with a view to_ making profit it would not constitute business and
G
the appellant cannot be held to be a dealer liable to tax under
the two Acts. The High Court referred to the definition of dealer
in s. 2 ( b) which requires business of buying or selling of goods
t.o be carried on. Certain decisions of this Court were placed
before the High Court in support of the appellant's stand that
without p[ofit motive the transactions would not constitute
Ii
· business even if there was frequency, volume, certainty an~
regularity. The High Court, however, held:.
GOVT. MEDICAL STORE v. SUPDT. OF TAXES tRANGANATH MISRA, J • J 743
A
"It is difficult to hold that the Government of India
in this case is absolutely regardless of the question
of possibility of profit rather than loss. The very
formula 'No profit-No loss clearly points to earning
of some profit and certainly not incurring of loss in
the course of the transactions which are organised, B
systematic and regular. The very fact the Government
keeps a watch and if required revJ.ses the formula of
rate.. fixation and the levy of departmental charges
would also go to show that the Government never
intended net co earn minimwn of profit in these trans-
.- actions of sales," c
and proceeded to dismiss the writ petitions by saying
"Be that as it may, for the reasons given by us and in
view of the principles of law settled by the Supreme
Court, we are clearly of the opinion that the peti- lJ
tioner Depot is a 'dealer' within the meaning of
section 2(b) of the Act and, therefore, the Scperin-
tendent of Taxes had jurisdiction to register it and
also. to pass the impugned order of assessment. We are
also clearly of the opinion that the petitioner is
carrying on the business of selling goods. Both the
subuiissions of the learned counsel for the petitioner.,
E
therefore, fail."
In lbe State of Gujarat v. Raipur Manufacturing Co. !.t;d. , 19
s.t.c. 1, this Court held :
"Whether a person carries on business in a particular
F
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. By
the use of the expression ·'profit motive' it is not
intended that profit must in fact be earned. Nor does
G
the expression cover a ~ere desire to make some
monetary gain out of a transaction or even a series of
transactions. It predicates a motive which per.vades
the whole series of transactions effected by the
person in the course of his activity ••• "
H
In Hindustan Steel Ltd. v. 1be State of Orian, 25 S.T.C.
211, the same question came up for examination. Hindustan Steel
Ltd., the . app_ellant_,"~ was. -pi:-oc~ing c~ent, bri~ks, ai:Ld iron
744 SUPREME COURT REPORTS [1985] SUPP.2 S.C.R.
A materials and was supplying the same from its stores to contrac-
tors working under it by recovering the cost price along with a
further sum to cover handling expenses. It took the stand before
the Sales Tax authorities that the supplies to contractors on
recovery of price together with the extra sum did not constitute
business. This Court referred to its earlier decision in the
B case of State of Andhra Pradesh v. Abdul Bakshi & Bros., 15
S.T.c. 644, where it had said:
"The expression 'business' though extensively used is
a word of indefinite import. In taxing statutes it is
used in the sense of an occupation, or profession
which occupies . the time, attention and labour of a
c person, normally ·with the object of making profit. To
regard an activity as business there nrust be a course
l of ~ealings, either actually continued or contemplated
to be continued with a profit-motive, and not for
sport or pleasure
and held
.D "If the company agreed to charge a fixed percentage
above the cost price for storage, insurance and rental
charges, it may be reasonably inferred that the
company did not ' carry on business of supplying
materials as a part Of business activity with a view
· to making profit."
E
In State of Tamil Nadu v. Thirumagal Mills Ltd. etc., 29
S.T.C. 290, this Court took a similar view with reference to the
pre-amended definition of 'dealer' and 'business' under the Tamil
Nadu Sales Tax Act.
F In The Joint Director of Foods, Visakhapa,tnam v. The !/tate
of Andhra Pradesh, 38 S.T.C. 329, this Court again pointed out:
''We may hasten to mention that the ordinary concept of
business has the element of gain or profit, whose
absence negatives the character of the activity as.
G business in section 2(b) of the Central Act. A person
becomes a dealer only if he carries on business and
the Central Government can be designated as 'dealer'
.only i:f there if profit-motive."
On th~ basis of these authorities the position is clear that
H in respect of the pre-amended period when in the definition of
GOVT. MEDICAL STORE v. SUPDT, OF TAXES [RANGANATil MISRA, J.] 745
A
the term 'business' profit motive had not been omitted, in the
absense of prof! t-moti ve transactions though satisfying the
requirement of volume,. frequency, continuity and regularity,
would not constitute business so as to make a person carrying on
such transactions· a dealer.
B
Reliance was placed by counsel for the respondents on two
decisions - one of this Court and other of the Punjab &Haryana
High Court. In Deputy Coomerclal Tax Officer, Saidapet, Madras &
Anr. v. Enfield India Ltd. Co-operative Canteen Ltd., 21 S.T.C.
317, the question for Consideration was whether a members'
Co-operative Society supplying refreshments was a 'dealer' under
the Tamil Nadu Sales Tax Act. In the definition of 'dealer', the
explanation specifically brought in a co-operative society and
expressly provided. that whether or not in the course of business
if it supplied goods to its members it became a dealer. Keeping
the said definition in view the decision went in favour of the
Revenue. That would pot be an .authority relevant for our present
D
purpose.
In Government Medical Store Depot v. State of Baryana &
Anr., 39 S.T.C. 114, the very appellant was the assessee in
respect of its Depot located at Karnal. On the facts placed
befoie the .Court, the following conclusion was reached after
referring to the judgment of this Court in the case of The Joint
E
Director of Foods, Visakhapatnam:
"The aforesaid observations apply with full vigour to
the instant case and we have no hesitation in holding
that the petitioner Depot .was a 'de.aler' within
section 2(b) of the Central Sales Tax Act and also
F
under s. 2(d) of the Act."
Obvi6usly, .this was a dec~sion on the facts available on record
and cannot be relied upon for the factual determination of the
question in.dispute before us.
G
In the Raipur Manufacturing Co. 's case (supra) this Court
had clearly said :
"It may be pointed out that the burden of proving that
the Company was carrying on business of• selling coal
lay upon the Sales Tax Authorities and if they made no .
H
investigation and have come to the conclusion merely
because of the frequency and the volume of the sales,
the inference cannot be sustained."
746 SUPREME COURT REPORTS [1985] SUPP.2 S.C.R.
A
In the instant case, as already shown, the appellant had
from the very beginning taken the stand that its transactions
were•without any profit motive. The burden lay on the Revenue to
show that these transactions were carried on with profit motive,
B whether profit was actually earned or not being of no material
importance, and no investigation had been rr~de by the respondent
into this aspect when it made the assessments. Nor was the High
'
Court called upon to record such a finding on the basis of any
material placed and the respondent ren~ined satisfied by pleading
a bare d~nial to the assertion in the writ petitions supported by
c the scheme and its terms. Mr. Ahuja for the respondent strenuous-
ly pleaded that the matters should go back and the respondents
would be given an opportunity of determining the question as to
whether the transactions had been carried on with any profit
motive. We are concerned with the years 1965-68. About two
D decades have already rolled by. We may point out that at the
instance of Mr. Abuja we bad called upon the appellant to produce
its record and appellant's counsel on the subsequent date
reported that the records were not available to be produced. In
these circtilDstances, we do not think it proper to remand the
matters to give the respondent an opportunity of determining the
E question of profit motive.
The High Court, in our view, on the materials placed before
it, went "-r"ng in dismissing the writ petitions. The legal
position being Bettled as indicated by several decisions of this
Court, the writ petitions should have been allowed and the
F assessments should have been quashed. We accordingly allow ·the
appeals, and while reversing the decision of the High Court in
respect of the periods specified above, quash the assessments. We
make it clear that quashing of these assessments would not
bperate as a bar to respondent going into the matter again in
respect of. any subsequent period in accordance with law and our
G
judgment must be confined· to the facts of the case as. available
on record for the per:f od in question. Parties are ditected to
bear their respective costs throughout.
A.P.J. Appeals allowed.
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