JUDGMENT
N.D. Ojha, C.J.
1. This judgment shall also govern the disposal of M. C. C. Nos. 180 of 1986 and 181 of 1986.
2. The Tribunal constituted under the M. P. General Sales Tax Act, 1958 (hereinafter referred to as the Act) has referred the following question to this Court for its opinion under Section 44(1) of the Act:
Whether in the facts and circumstances of the case, the Tribunal was right in holding that unserviceable items of stores which comprised discarded assets like scrap, dyes, chemicals, broken iron hoops, obsolete machinery, coal ash, etc., were exigible to tax ?
3. The reference has been made at the instance of the assessee M/s. Hukumchand Mills Ltd., which is a public limited company duly incorporated under the Companies Act and is a registered dealer under the Act as well as under the Central Act. The Tribunal had decided three appeals relating to the calendar years 1974, 1975 and 1976, but since the question referred to above was the same in respect of all the three years, a common statement of the case was drawn up by the Tribunal. These three cases came up for hearing before a Division Bench of this Court which, by an order dated 27th July, 1985, referred them to a larger Bench. It is thus that these three cases have come up before this Bench.
4. Before dealing with the submissions made by learned Counsel for the parties, it would be useful to give in a nutshell the necessary facts. The assessee carries on the business of manufacture of cloth and yarn and was assessed to sales tax by the Assistant Commissioner of Sales Tax. The assessing authority found as a fact that the assessee had made sales of miscellaneous items such as discarded machineries, colours, chemicals, iron hoops and other materials. The case of the assessee in respect of sale of these materials was that these sales had not been made in the course of business of the assessee and consequently it could not be treated as a dealer in respect of sale of the said goods. According to it, these sales were casual sales and consequently were not liable to tax. The case set up by the assessee, however, did not find favour with the assessing authority and the transactions in question were held to be liable to tax. At this stage, it may be mentioned that cloth manufactured by the assessee, falls under the category of tax-free goods as contemplated by Section 10 of the Act, read with entry 6 of Schedule I to the Act.
5. Aggrieved by the order of the assessing authority, the assessee preferred appeals before the Deputy Commissioner of Sales Tax, Indore, which were dismissed. Second appeals filed by the assessee to the Tribunal also met with the same fate. After repelling the contentions raised by the assessee, the Tribunal held that unserviceable items of stores which comprise discarded assets like scrap, dyes, chemicals, broken iron hoops, obsolete machinery, coal ash, etc., were exigible to tax. However, as already pointed out earlier, the Tribunal referred the aforesaid question to this Court for its opinion.
6. It has been urged by learned Counsel for the assessee that since cloth which was being manufactured by the assessee, constitutes tax-free goods within the meaning of Section 10 of the Act read with entry 6 of Schedule I to the Act, the assessee could not be treated as a dealer and the sale of the aforesaid miscellaneous items were thus not exigible to tax, particularly when the assessee was not carrying on the business of sale of the aforesaid materials. In support of this submission, reliance was placed by learned Counsel for the assessee on State of M. P. v. Bengal Nagpur Cotton Mills Ltd, [1961] 12 STC 333 (MP) where it was held that the business of the dealer must be of selling or supplying the particular commodity sought to be taxed, otherwise he cannot be regarded as a dealer in relation to that commodity, and if he is not so regarded, he is not liable to be taxed under the Act for any sale of the commodity effected by him.
7. Suffice it to say, so far as this submission is concerned, that the decision in the case of Bengal Nagpur Cotton Mills Ltd. [1961] 12 STC 333 (MP) was rendered at a point of time before the insertion of the definition of the term "business" in Clause (bb) of Section 2 of the Act by the amending Act 16 of 1965. The said definition has further been amended but as incorporated by the 1965 amending Act, reads as hereunder : 2. (bb) '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 profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern. In view of the said definition, firstly, the motive to make gain or profit and the circumstance whether or not any profit accrued from such trade, commerce, manufacture, adventure or concern as contemplated by Sub-clause (i) of Clause (bb) of Section 2 of the Act, was not relevant. Likewise, the term "business" now, in view of Sub-clause (ii) of Section 2(bb), includes any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern as contemplated by Sub-clause (i) thereof. 8. It has not been disputed that sale of the various goods mentioned in the question referred to this Court, was made by the assessee. According to the Tribunal, sale of these goods came within the purview of "any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern" contemplated by Section 2(bb)(ii) of the Act inasmuch as these goods were directly connected with the running of the textile mills. In coming to this conclusion, the Tribunal, inter alia, placed reliance on a decision of this Court in Commissioner of Sales Tax, M.P. v. Project Automobiles [1978] 42 STC 279.
9. In State of Tamil Nadu v. Burmah Shell Oil Storage and, Distributing Co. of India Ltd. [1973] 31 STC 426, while dealing with the provisions of the Madras General Sales Tax Act it was pointed out by the Supreme Court that before its amendment in 1964, transactions which were incidental or ancillary to trade or commerce where there was no profit-motive, were not liable to tax, but sales after the amendment of 1964 on advertisement materials and scrap and canteen sales made by the assessee, were liable to sales tax in view of the amendment of definition of “business” in 1964 in Section 2(d) of the aforesaid Act. It was pointed out that the sale of scrap which consisted of spoilt drums, hose pipes, etc., was connected with the business of the company which being an oil company, had to use oil drums, hose pipes, jerry cans, etc., as part of its trading activity and any sale of these unserviceable goods as scrap, is a transaction connected with its trade or commerce.
10. In District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423 (SC), while dealing with the definition of the word “business” in Section 2 of the Rajasthan Sales Tax Act, 1954, as introduced with retrospective effect by the Rajasthan Taxation Laws (Amendment) Act, 1965, which is almost in pan materia with the definition of the term “business” in the Act, it was held that the activity of the assessee, namely, the Northern Railway, Jodhpur, in selling of unserviceable material and scrap iron, etc., would be “business” within Clause (i) of the definition of the word “business” introduced by the amending Act.
11. What was, however, strenuously urged by learned Counsel for the assessee was that since cloth which was being manufactured by the assessee was tax-free goods as indicated above, the assessee was not a dealer and consequently the sale of the various goods referred to above could not be exigible to tax. Reliance in support of this submission was placed on a decision of the Calcutta High Court in Cementation Patel (Durgapur) v. Commissioner of Commercial Taxes, West Bengal, Calcutta [1981] 47 STC 385 where it was held that if the main business of the person concerned is such that he cannot be held to be a “dealer” within the meaning of the sales tax statute in respect of such business, then the transactions connected with or ancillary to such business, though in the nature of sale, will not make the person concerned a dealer. In our opinion, this decision is clearly distinguishable inasmuch as the assessee’s main business in that case was that of a contractor who could not be said to be doing the business of selling goods and consequently he may not have fallen within the definition of the term “dealer”. It does not, however, appear to be so in so far as the assessee in the instant case is concerned.
12. The term “business” now stands defined in Section 2(bb) of the Act. Since the assessee has admittedly been carrying on manufacture of cloth, there is no doubt that it is carrying on business as contemplated by Sub-clause (i) of Section 2(bb) of the Act. It is also not disputed that the assessee sells the cloth manufactured by it. Cloth would apparently constitute “goods” as defined in Section 2(g) of the Act, the same being movable property not falling within any of the exceptions contained in the definition of the term “goods”. Since the assessee carries on business of selling cloth which constitutes “goods”, it is clear that the assessee falls within the definition of the term “dealer” as contained in Section 2(d) of the Act. That apart, from the order of the assessing authority attached as annexure B-3 to the statement of the case it appears that the assessee, apart from cloth, sells yarn also and in the year to which the aforesaid order relates it had sold yarn worth Rs. 1,04,52,562 and tax had been assessed on this sale–yarn, unlike cloth, not being tax-free goods. According to the definition contained in Section 2(t) of the Act, ignoring the proviso which is not relevant for purposes of these cases, turnover used in relation to any period, means the aggregate of the amount of sale price received and receivable by a dealer in respect of any sale or supply or distribution of goods made during that period, whether or not the whole or any portion of such turnover is liable to tax, but after deducting the amount, if any, refunded by a dealer to a purchaser in respect of any goods purchased and returned within the prescribed period.
13. The words “whether or not the whole or any portion of such turnover is liable to tax” in the definition of the term “turnover” are significant. In view of these words, even though the assessee may not be liable to pay tax on sale of cloth, the same falling within the term “tax-free goods” under Section 10 read with entry 6 of Schedule I to the Act, the aggregate of the amount of “sale price” [which term stands defined in Section 2(o) of the Act], received and receivable by the assessee on sale of cloth manufactured by it, shall constitute turnover. The only effect of the cloth being declared tax-free under Section 10 of the Act would be that while determining the amount of “taxable turnover” as defined in Section 2(r) of the Act, the sale price of cloth shall be deducted from the turnover.
14. Section 17 of the Act which deals with returns, inter alia, provides that every registered dealer shall furnish returns in such forms, in such manner, for such period, by such dates and to such authority as may be prescribed. Rule 15 of the Rules framed under the Act prescribes, inter alia, that return by registered dealer (assessee is admittedly a registered dealer) shall be furnished in form VIII. This form contains various serial numbers. S. No. 1 of Part A contemplates mentioning of gross turnover in respect of sales of goods during the period under return less cost of freight, etc., mentioned under Clause (b) of item 1. At S. No. 2 is to be mentioned the amount of turnover. At S. No. 3, on the other hand, are to be mentioned the various amounts of deductions. One such item is deduction on account of sales of goods exempted under Section 10 of the Act. At S. No. 4 are to be mentioned deductions under Section 50, whereas at S. No. 5 is to be stated the total deduction claimed at S. Nos. 3 and 4. S. No. 6 is to contain taxable turnover which is to represent the balance after deducting the amount at S. No. 5 from the amount of turnover mentioned at S. No. 2. At S. No. 7 is to be stated the ratewise break up of taxable turnover. Rest of the three S. Nos. are not relevant for the instant cases.
15. If a registered dealer enters into any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern within the meaning of Sub-clause (ii) of Section 2(bb) of the Act (containing the definition of the term “business”) as contemplated by Sub-clause (i) thereof, the sale price of the goods falling in this category will obviously constitute turnover of the dealer and will have to be mentioned in the return. Consequently, the assessee of the present cases was under an obligation to file a return stating its gross turnover, viz., sale price of cloth and yarn manufactured by it plus sale price of goods which are subject-matter of a transaction under Sub-clause (ii) of Section 2(bb) of the Act. From this gross turnover, the sale price of cloth under Section 10 read with entry 6 of Schedule I to the Act would be deducted and the balance amount would constitute the taxable turnover of the assessee.
16. Section 4 of the Act deals with incidence of taxation. Sub-section (1) of this section contemplates that every dealer whose turnover during the period of 12 months immediately preceding the commencement of this Act exceeds the limit specified in Sub-section (5) shall, from such commencement, be liable to pay tax under this Act on his taxable turnover in respect of sales or supplies of goods effected in Madhya Pradesh. Sub-section (5) of Section 4 deals with the limit for purposes of Section 4. There is an explanation attached to Sub-section (5) which contemplates that for purposes of limits specified in various sub-clauses of Sub-section (5), the turnover shall include the aggregate amount for which all goods are sold or supplied irrespective of the fact whether or not they are exempted from payment of the tax.
17. On the facts of the instant case, therefore, we are of the opinion that the assessee was, during the relevant years, a dealer within the meaning of the Act and was bound to file return in the manner stated 0above. Of course, while determining the taxable turnover of the assessee, the sale price of cloth which constitute tax-free goods, was to be deducted. Learned Counsel for the assessee also placed reliance on two decisions of this Court in Commissioner of Sales Tax, M.P. v. Ratlam Strawboard Mills Pvt. Ltd. [1983] 16 VK.N 123 and Commissioner of Saks Tax, M. P. v. Central India Machinery Manufacturing Co. Ltd. [1984] 17 VKN 159 where the decision of the Calcutta High Court in Cementation Patel v. Commissioner of Commercial Taxes [1981] 47 STC 385 was noted and distinguished on the ground that the main business of the assessee in that case was such that he could not be held to be a dealer in respect of such business. As already pointed out above, the assessee in the Calcutta case was a contractor obviously not falling within the definition of the term “dealer” inasmuch as his main business in the very nature of things, was not of selling any goods.
18. Reliance was also placed by learned Counsel for the assessee on Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290 where it was held by the Supreme Court that if a person is not liable for payment of tax at all at any time, the collection of tax from him with a possible contingency of refund at a later stage will not make the original levy valid ; because if the sales or purchases are exempt from taxation altogether, they can never be taken into account at any stage for the purpose of calculating or arriving at the taxable turnover and for levying tax. In our opinion, that decision does not, in any manner, advance the argument of learned Counsel for the assessee that the assessee in the instant case, was not a dealer at all vis a vis its main business inasmuch as cloth constituted tax-free goods, nor from the said case can this proposition of law be deduced that the assessee in the instant case was not liable to file any return giving its gross turnover. What has been laid down in the said case is that for purposes of finding out the taxable turnover and levying tax, sales or purchases which are exempted from taxation altogether, cannot be taken into consideration. We have already held above that while determining the taxable turnover of the assessee, the sale price of cloth which constitutes tax-free goods, shall have to be deducted from its gross turnover.
19. Learned Counsel for the assessee then placed reliance on State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC) where dealing with the definition of “taxable goods” in the Madras General Sales Tax Act, 1959 in connection with such goods being brought to charge under Section 7-A of that Act, it was held by the Supreme Court that the words “the sale or purchase of which is liable to tax under the Act” qualify the term “goods” and exclude by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under Section 8 or Section 17(1) of the Act. The goods so exempted–not being taxable goods–cannot be brought to charge under Section 7-A. In’ our opinion, this decision too, like the decision in the case of Bhawani Cotton Mills Ltd. [1967] 20 STC 290 (SC), does not advance the submission made by learned Counsel for the assessee.
20. Reliance was also placed by learned Counsel for the assessee on the decision of the Supreme Court in State of Madras v. K.C.P. Ltd. [1969] 23 STC 173 where while dealing with the words “in aid of manufacturing process” used in an earlier decision of the Supreme Court in State of Andhra Pradesh v. Abdul Bakshi and Bros. [1964] 15 STC 644, it was held that these words have to be read in the context in which they were used in that case and could not be taken to mean that even a part of a manufacturing plant will become a salable commodity if it is found to be unusable or no longer required. In our opinion, in view of the language of Sub-clause (ii) of Section 2(bb) of the Act which is more comprehensive, even this decision is of no help to the assessee. For the same reason, even the decision of the Gujarat High Court in Commissioner of Sales Tax, Gujarat State, Ahmedabad v. K.B. Mehta & Co., Ahmedabad [1971] 28 STC 47 and the decision of the Bombay High Court in the case of Commissioner of Sales Tax v. D.V. Save [1975] 36 STC 47 are also distinguishable.
21. Reliance was then placed by learned Counsel for the assessee on a decision of the Andhra Pradesh High Court in the Base Repair Organisation (Now Naval Dock Yard), Visakhapatnam v. State of Andhra Pradesh [1983] 53 STC 223. On the facts of that case, it was held that the Naval Dock Yard was not a dealer. In view of our finding that on the facts and circumstances of the instant case, the assessee was a dealer, this decision is also distinguishable.
22. Lastly reliance was placed on the Full Bench decision of this Court in Govindji Jamunadas v. Commissioner of Sales Tax, M.P. [1983] 53 STC 120 where it was held that iron hoops which are steel strips of different sizes rivetted and painted and used for tying bales of cloth, are declared goods falling within Section 14(iv)(d)(iv) of the Central Sales Tax Act, 1956, and are taxable at 3 per cent under entry 5 of Part I of Schedule II of the M. P. General Sales Tax Act, 1958. So far as this case is concerned, suffice it to point out that the question as to under which entry and at what rate are iron hoops taxable is not a question which has been referred to us for our opinion and in regard to the question which has been referred to us, this decision seems to be of no assistance.
23. Learned Counsel for the assessee then raised another question which does not appear to have been raised before the Tribunal in the manner in which it has been raised before us, viz., that the old or obsolete machinery which was sold, constituted capital assets of the assessee and it is only the Parliament which could tax capital assets and consequently sale price of such a capital asset could not be taxed under the Act. In so far as this submission is concerned, it may be pointed out that entry 86 of List I of the Seventh Schedule to the Constitution relied on by counsel for the assessee deals with “taxes on the capital value of assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies”.
24. The sales tax which has been levied in the instant case, is not a tax on capital value of the assets, but a tax on “sale or purchase of goods other than newspapers subject to the provisions of entry 92-A of List I” which falls under entry 54 of List II of the Seventh Schedule. The term “goods” has been defined in Section 2(g) of the Act and it is not the case of the assessee that the obsolete machinery fell within the definition of the term “goods” so defined. Indeed in the absence of a specific plea having been raised in this behalf, the nature of the obsolete machinery at the time of sale is not at all known. For aught we know, it may just have been a junk.
25. Speaking broadly all property whether movable or immovable, exclusive of agricultural land, would fall within the term “assets” as used in entry 86 of List I of the Seventh Schedule to the Constitution. In that broader context, the goods, as defined in Section 2(g) of the Act, would also constitute assets within the meaning of the said term as used in entry 86 aforesaid, and in that context, if the view is taken that the sale proceeds of the goods would constitute the capital value of those goods, no State Legislature would be entitled to enact a law in regard to levy of sales tax on goods.
26. Entry 86 of List I of the Seventh Schedule which deals with taxes on the capital value of the assets and entry 54 of List II of the Seventh Schedule to the Constitution which deals with taxes on sale or purchase of goods other than newspapers subject to the provisions of entry 92-A of List I operate in different fields. The sale price of goods which in the broader context would constitute assets, cannot, therefore, be treated as capital value of the assets for purposes of entry 86 of List I, but shall have to be treated as sale price of goods for purposes of taxation under entry 54 of List II.
27. In this context, the decision of this Court in the case of Commissioner of Sales Tax v. Project Automobiles [1978] 42 STC 279 is of significance. In that case, the assessee, who was a distributor of Ambassador cars and a registered dealer in automobiles and their accessories, had sold an Ambassador car which had been purchased for its office use. Technically speaking, this car had to be treated as a capital asset and not as stock in trade, the same not having been purchased for sale as a part of business, but having been purchased for office use. It was held that the sale of such a car was not only incidental, but also ancillary to and connected with the business of the assessee within the meaning of Section 2(bb) of the Act and consequently, the sale of the car was taxable. To illustrate, wealth-tax would fall within entry 86 of List I, the same being a tax on the capital value of the assets. Wealth-tax cannot obviously be levied by the State Legislature. In view of the decision in the case of Project Automobiles [1978] 42 STC 279, we are of the opinion that on the facts of the instant case, tax on the sale price of the obsolete machinery had rightly been assessed.
28. As regards coal ash, in our opinion, the Tribunal has rightly held that coal is converted into coal ash after it is burnt in boilers and that in this way, coal undergoes a manufacturing process before becoming coal ash and is in fact a by-product of coal so that coal and coal ash cannot be treated as exactly the same goods.
29. In view of the foregoing discussion, our answer to the question referred to us in these three cases is that in the facts and circumstances of the case, the Tribunal was right in holding that unserviceable items of stores which comprised discarded assets like scrap, dyes, chemicals, broken iron hoops, obsolete machinery, coal ash, etc., were exigible to tax. In other words, our answer to the aforesaid question is in the affirmative in favour of the Revenue and against the assessee. In the circumstances of the case, however, there shall be no order as to costs.
