State of Karnataka vs Vasavi Wood Industries

N. Kumar, J.—This revision petition is by the State against the order passed by the Tribunal holding that sale of a used car by the assessee was one time transaction and it was not his regular business and therefore, no tax is payable under the provisions of the Karnataka Value Added Tax Act, 2003 (for short, ''Act''). The assessee is a partnership concern, is a dealer in timber. After scrutiny of the deemed assessment concluded by Section 39(1) of the Act, the Assessing Officer brought sale of used car at Rs. 1,25,000/- to tax under Section 4(1)(b) at 12.5%. He observes that the motor vehicle being input tax restricted goods under Section 11(a)(2) of the Act, deduction or exemption or lower rate of tax is not applicable. In coming to the said conclusion, he relied on the judgment of Canara Overseas Limited, Bangalore v. State of Karnataka 2009(67) Kar. L.J. 161 (HC) (DB). He also levied penalty. The assessee challenged the said order before the First Appellate Authority under Section 62(1) of the Act. The Appellate Authority declined to interfere with the order passed by the Assessing Authority. Aggrieved by the same, the assessee preferred a second appeal to the Karnataka Appellate Tribunal. The Tribunal held, in order to attract levy of tax under the Act, pursuant to carrying of business in a particular commodity, it must depend upon volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods. A transaction must ordinarily be entered into with a profit motive. During the course of business, there must be continuous exercise of an activity, real, substantial, systematic or organised course of activity or conduct set with a purpose. As the assessee in the instant case is a dealer in timber, the sale of a used car by him was one time transaction and it was not his regular business. Therefore, the liability of tax on the sale of used car does not arise and therefore, the Tribunal set aside the order and allowed the appeal. Aggrieved by the said order the Revenue is in revision.

The learned Government Advocate assailing the impugned order submitted, Section 2(12) of the Act defines the "dealer":

"2. (12) "Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes.--

(a) an industrial, commercial or trading undertaking of the Government, the Central Government, a State Government of any State other than the State of Karnataka, a statutory body, a local authority, company, a Hindu undivided family, an Aliyasanthana Family, a partnership firm, a society, a club or an association which carries on such business".

Section 2(12)(b) defines a casual trader:

"2. (12)(b) A casual trader, a person who has, whether as principal, agent or in any other capacity, carries on occasional transactions of a business nature involving the buying, selling, supply or distribution of goods in the State, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration".

Therefore, even if the assessee do not fall within the definition of "dealer", he is a casual trader and therefore, the liability of tax under the Act is attracted and therefore, he submits, the order of the Tribunal is incorrect and it requires to be set aside. In support of his contention, he relied on judgment of Supreme Court in the case of State of Orissa Vs. M/s. Orissa Road Transport Co. Ltd. and Others, .

Per contra, the learned Counsel appearing for the assessee submitted the sale of Car is a solitary transaction and therefore, the assessee do not fit into the definition of "casual dealer" also.

The Apex Court while explaining the meaning of the words "casual dealer" in the aforesaid judgment has held as under:

"10. The decision of this Court in State of Gujarat Vs. Raipur Manufacturing Company Ltd., , cannot be made applicable here. In that case this Court considered the volume, frequency, continuity and regularity of transactions of purchase and sales being an important element in determining whether a business was being carried out apart from the element of profit making being there. Hence in the Orissa Sales Tax Act, 1947, the expression "dealer" includes a casual dealer. A casual dealer defined in Section 2(bb) is one who has occasional transactions of a business nature involving purchasing, selling, supplying or distributing goods, whether for commission, remuneration or otherwise. This means that even if a person did not have a systematic or an organised business involving regular transactions of purchases and sales he could still be regarded as a casual dealer if he entered into occasional transactions of a business nature involving purchases, sales etc. of the goods. In the cases cited by Mr. Misra there was no consideration of this aspect at all.

11...............

In The District Controller of Stores, Northern Railway, Jodhpur Vs. The Assistant Commercial Taxation Officer and Another, , this Court was concerned with a question whether the sales of unserviceable material and scrap by the Northern Railway, Jodhpur, was exigible to sales tax. The Rajasthan Sales Tax Act, 1954 (29 of 1954) had been amended and, like the Madras Sales Tax Act and the Orissa Sales Tax Act the definition of "business" had eliminated the profit making element and keeping this in view this Court held that the activity of the appellant in selling unserviceable material and scrap would be business within clause (i) of the definition of the word "business" introduced by the Amending Act. This Court held that even if it be assumed that the activity involved in selling unserviceable material and scrap-iron etc., may not amount to carrying on business in the normal connotation of that term, it would still be business within the meaning of the expression business occurring in the said Act. Such sales were, therefore, held to be exigible to sale tax".

In the aforesaid judgment, the undisputed facts are, the assessee''s main business was of running buses and providing transport facilities to the travelling public. Along with these services, the assessee has been disposing of unserviceable, old, obsolete and unutilized parts from its stores. These parts used to be disposed of at yearly intervals. The assessee did not get itself registered as a dealer under the said Act. According to it, no business was being carried on in respect of which any sales tax could have been levied. In that context, it was held, when the assessee is a business organisation whose activity is that of providing road transport. In the course of its carrying on the said business some obsolete parts, spare parts, etc., are not required by it. As a prudent business organization the said items, which were obviously used or intended for use in its business, are sold when there is no requirement for them. Therefore, such sales cannot even be regarded as occasional sales of a business nature which would make the assessee as a "casual dealer" within the meaning of that expression. Therefore, what follows from the aforesaid judgment is, the volume, frequency, continuity and regularity of transactions of purchase and sales being an important element in determining whether the business was carried out apart from the elements of profit making being there, occasional sales of a business nature would make the respondent, a casual dealer. In the instant case, the assessee is a dealer in wood and wood products. He is not selling cars occasionally every year. The car, which he has sold is a solitary transaction. It is nothing to do with the business, which is being carried on by him. It is not sale of business nature. There is no profit motive in the sale of the said car. Under those circumstances, the Tribunal was justified in setting aside the order passed by the Authorities holding the sale of a car as a solitary transaction would not make him a dealer or a casual dealer under the Act. Therefore, we do not see any merits in this petition. Accordingly, revision petition is dismissed.