AI Structured Summary
Not yet generated for this judgment
Judgment
P.P.S. Janarthanaraja, J.—The above tax case revisions are preferred by the assessee u/s 38 of the Tamil Nadu General Sales Tax Act
against the Order of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Chennai dated May 14, 2002 passed in STA. No. 1693/01
raising the following questions of law:
(1) Whether the Tribunal is correct in sustaining the tax on the transfer of materials involved in the construction of public toilets by the petitioner as
a social welfare organisation?
(2) Whether the Tribunal is correct in ignoring the fact that the petitioner is a social welfare organisation and not involved in any business
transaction nor involved in trade or commerce?
(3) Whether the Tribunal is correct in ignoring the judgment of the Supreme Court in the case of State of Tamil Nadu and Another Vs. Board of
Trustee of the Port of Madras,
The brief facts arising out of the tax case revisions are as under:
The relevant assessment years are 1988-89, 1989-90, 1993-94, 1994-95, 1995-96 and 1996-97, The petitioner/assessee is a charitable
organisation. The petitioner/assessee reported nil taxable turnover on the ground that they are charitable organisation functioning without profit-
motive. The assessing officer rejected the contention and was of the view that the petitioner/assessee comes within the definition of the word
dealer"". The assessing officer had found that the petitioner/dealer had undertaken civil work of construction of latrines, etc., making profit and was
of the opinion that the petitioner/assessee is a dealer and that their activities amount to ""business"" as defined u/s 2(d) of the TNGST Act, 1959,
There-fore, the assessing officer assessed the petitioner/assessee u/s 3B of the TNGST Act and held that it is a works contract. Further, the
assessing officer found that there is a deemed sale and also levied penalty. Aggrieved by that order, the petitioner/assessee filed appeals before the
Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the transactions would not fall under the definition ""business
or ""sale"" and that the assessee is not a ""dealer"" under the definition in section 2(d) of the Act and held that the turnover is not taxable under the
Sales Tax Act and consequently deleted the penalty. Aggrieved by that order, the Revenue filed appeals before the Appellate Tribunal. The
Tribunal held that the activity of the assessee would not come within the definition of ""business"". However, the Tribunal held that the assessee is a
dealer"" as per the definition contained in section 2(g) of the Act and set aside the order of the Appellate Assistant Commissioner and held that the
petitioner/dealer is taxable under the Tamil Nadu General Sales Tax Act. Aggrieved by that, the petitioner/assessee filed the present tax case
revisions.
The learned counsel appearing for the petitioner/assessee submitted that the Tribunal is wrong in allowing the appeal filed by the Revenue, which
is contrary to the facts and circumstances of the case. The assessee is a charitable organisation. The main object is to arrange for education of
Bhangis and their wards and provide welfare measures for the upliftment of the children, women and people belonging to the lower strata of the
society. It is further contended that the Tribunal ought to have appreciated that the petitioner/assessee undertook the activity of abolishing service
latrines and helped Government and local bodies including Corporations for construction of Sulabh Shauchalayas and for maintenance of the same
and, in turn, to reform the life of Bhangis, and therefore, the petitioner is a charitable organisation. There is no profit-motive and it is not carrying on
any business activity and further it was contended that the petitioner is not a dealer. It is further submitted that the Tribunal wrongly relied on
Explanation (1) to section 2(g) of the Act. The said Explanation is not applicable to the petitioner/assessee. Further, the counsel for the
petitioner/assessee relied on the judgment of this court in T. C. No. 1101 of 2006 dated November 12, 2011 Sri Velur Devasthanam
Vaitheeswaran Koil Dharmapuram Adhinam, Dharmapuram Mayiladuthurai Vs. The State of Tamil Nadu to support his proposition. Therefore, it
was contended that the order passed by the Tribunal is not in accordance with law and hence the same should be set aside.
The learned Government Advocate appearing for the Revenue submitted that the Tribunal has considered all the relevant materials on record
and came to a conclusion that the petitioner/assessee is a dealer and falls within the definition of Explanation (1) to section 2(g) of the Act and
therefore contended that the assessing officer rightly levied tax u/s 3B of the Act, The petitioner/assessee is carrying on works contract. Therefore,
the assessment made by the assessing officer is in accordance with law and the same was confirmed rightly by the Tribunal. Therefore, it was
contended that the order passed by the Tribunal has to be confirmed.
Heard the learned counsel on either side and perused the documents available on record. The petitioner/assessee organisation was founded by
Dr. Bindeshwar Pathak in the year 1970. The assessee is the largest, nationally and internationally recognised, pan-India social service outfit with
35,000 volunteers on the rolls who work to promote human rights, environmental sanitation, health and hygiene, non-conventional sources of
energy, waste management and social reforms through education, training and awareness campaign. It has developed a scavenging free two-pit
pour-flush toilet (Sulabh Shauchalaya) safe and hygienic on-site human waste disposal technology; a new concept of maintenance and construction
of pay and use public toilets popularly known as sulabh complexes with bath, laundry and urinal facilities being used by about ten million people
everyday and generation of biogas and bio-fertilizer produced from excreta-based plants, low maintenance waste water treatment plants of
medium capacity for institutions and industries. The head office of this organisation is located at south of Gandhi Maidan, Patna. Clause 3 of the
memorandum of association deals with aims and objects of the organisation. There are about 34 objects and certain relevant objects alone are
extracted hereunder:
The aims and objects of the organisation will be as follows:
(1) To plan and arrange for imparting theoretical and practical training to the masons, Government employees, public servants, citizens and villagers
in the aims and objects of the organisation.
(2) To carry out necessary research and effect improvements in the organisation.
(3) ....
(4) To render co-operation and held to all the municipalities notified area committees, corporations, other connected organisations and
Government Departments all over the world in abolishing the system of service latrines and assisting in the installation of Sulabh Shauchalayas in its
place. To train Government employees in this work with the cooperation of the Departments concerned.
(6) To try to End out total, easy and practical solutions to many problems, like those of public health, personal health, manure, food, economic
problem, the problem of Bhangis and of unemployment by providing, for public and general use, the Sulabh Shauchalayas System and by giving
wide publicity to it, to arrange demonstration-cum-training camps and to boost agricultural output with the help of manures.
(viii) To make easily available materials such as water-seal, pan, etc., required for its constructions, to arrange for contractors and to prepare
materials for the Shauchalayas on no-profit-no-loss basis and to construct the Shauchalayas on contract basis.
(ix) To render co-operation and help to the Government in ensuring proper use of Government loans and grants.
(xiv) To open branches at different places for wide publicity of the Sulabh Shauchalayas system.
(xv) To construct and get constructed houses for the Bhangis. To make all efforts to improve the living conditions of the Bhangis. To ensure jobs to
these Bhangis and their children who have been relieved from the course of cleaning service latrines, to arrange for education of Bhangis and their
wards and to give them various kinds of vocational training. To make other necessary efforts for improving the lot of Bhangis.
(xvi) To work for all-round development of women, children and the uneducated. To construct and get constructed hostels with the help of local
bodies of different towns, the Central and the State Government for accommodation to working women. To open schools in different towns for the
education of the women, folk, to arrange for their training in weaving, sewing, embroidery, typing and various other vocations so that they may
stand on their own foot and earn their livelihood.
(xviii) To open training centres for sanitary inspectors to whom training in different subjects connected with sanitation may be given in addition to
training in the Sulabh Shauchalayas system. To open job-oriented colleges for the unemployed youths and to impart them training in different
subjects such as typing, accountancy, etc. Clause 7 of the memorandum also states that all income property of the organisation will be utilised for
fulfilment of the objects of the organisation.
From the reading of the above it is clear that the assessee is a charitable social service organisation. However, it is pertinent to note that the
Government has also recognised the same and entrusted the construction of latrines to the petitioner/assessee. In G.O.Ms. No. 105, Municipal
Administration and Water Supply Department dated April 15, 1996, the Special Officer has stated that he inspected works implemented by
Sulabh International and found them of good quality and entrusted the work to Sulabh International for 30 years. The Sales Tax Appellate Tribunal
considered the case law and the facts of the present case and came to the conclusion that the assessee is a dealer as per section 2(g) of the Tamil
Nadu Genera] Sales Tax Act. In respect of the definition of ""business"" the Tribunal in paragraph 12 of its order has held that the
petitioner/assessee is a charitable society. In so explaining, the Tribunal, in paragraph 12, has held that whether or not in the course of business, the
society''s activity shall be deemed to be a dealer. Paragraph 12 reads as follows:
We have examined all the contentions raised on both sides by referring to so many decisions. The term ''dealer'' and ''business'' as per the
Bombay Sales Tax Act has been interpreted by the honourable Supreme Court in the case of Commissioner of Sales Tax Vs. Sai Publication
Fund, . The honourable Supreme Court has held that the definition ''dealer'' in section 2(11) of the Bombay Sales Tax Act clearly indicates that in
order to hold a person to be a dealer he must carry on business in respect of transactions incidental or ancillary thereto. If the main activity is not
business, then, any transaction incidental or ancillary would not normally amount to business unless an independent intention to carry on business in
the incidental or ancillary activity established. In such cases the onus of proof lies on the Department. In section 2(g) the definition of ''dealer''
opens with the word that ''dealer'' means any person who carries on the business of buying, selling or distributing the goods, etc. Then, the
definition elaborates the point by including local authority, casual trader, various types of brokers, commission agents, local branch, works
contract, hire purchases, lease and hotels. There is an Explanation clause added to include a society, club or firm whether or not in the course of
business buys, sells, supplies or distributing goods from or to its members for cash for deferred payment or any other parries would have deemed
to be a dealer. We have examined whether this organisation falls under any of these categories. As per the Societies Registration Act, 1960, the
organisation is registered as a charitable society. In explaining a society whether or not in the course of business, its activity shall be deemed to be a
dealer. This explanation is applicable in the present case. As the case laws cited by the learned Authorised Representative may not be applicable
to the present case since the entry in the Tamil Nadu General Sales Tax Act is different. As per the definition of the ''dealer'', section 2(g) provided
in the Explanation in a society whether or not in the course of business, buys or supplies for cash shall be deemed to be a dealer only. We do admit
that this charitable society has done the construction of the latrine not in the course of business but even if it is not done in the course of business it
becomes a dealer for the purpose of the Act. We quite agree with the argument of the learned State Representative in this regard and contents
raised in the grounds of appeal.
From the reading of the above, it is clear that there is a specific finding by the Tribunal that the assessee is a charitable society doing construction
of latrines not in the course of business. However, the Tribunal held that the assessee falls within the definition of Explanation (1) to section 2(g) of
the Act. The Revenue has not filed any appeal against the order of the Tribunal against that portion of the order of the Appellate Tribunal, i.e., not
carrying business. Section 2(d) and section 2(g) of the Act reads as follows:
2(d) ''business'' includes:--
(i) any trade, or 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.
Section 2(g) ''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....
Explanation (1).--A society (including a co-operative society), club or firm or an association which, whether or not in the course of business, buys,
sells, supplies or distributes goods from or to its members for cash, or for deferred payment, or for commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for the purpose of this Act.
Explanation (2).--The Central Government and State Government which, whether or not in the course of business, buy, sell, supply or distribute
goods, directly or otherwise for cash, or deferred payment, or for commission, remuneration or other, valuable consideration, shall be deemed to
be a dealer for the purpose of this Act.
From the reading of the above definition of ""business"" and considering the objects of the assessee, it is not in dispute that, the assessee is not
earning on business. Before us, no argument, is advanced in respect of the same. In view of the same, the assessee''s activities would certainly not
fall within the definition of ""business"" u/s 2(d) of the Act.
The only question that survives for consideration is as to whether the assessee could be considered as a ""dealer"". Explanation (1) to section 2(g)
is relied on by the Tribunal and held that the assessee is a dealer. From the reading of Explanation (1), it is clear that a society including a
cooperative society, club or firm or an association which, whether or not in the course of business, buys, sells, supplies or distributes goods from
or to its members for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a
dealer for the purpose of this Act. It is a deeming provision. It is obligatory on the part of the Revenue to prove that there is a transaction between
the assessee-society and its members. Deeming provision shall be construed strictly. In the present case, the petitioner/society is not involved in
distributing the goods from or to its members. There is no finding by the Appellate Tribunal to the effect that there is transaction between the
petitioner-society and from or to its members. There is no satisfaction of any ingredients in the said Explanation 1.
The scope of Explanation as well as proviso is considered in the judgment in S. Sundaram Pillai and Others Vs. `R. Pattabiraman and Others,
and held in paragraph 53 as follows:
Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is--
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which
it seems to subserve,
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the
purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the court in interpreting the true
purport and intendment of the enactment, and''
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act
by becoming an hindrance in the interpretation of the same.
After taking into consideration the principles enunciated in the above judgment, in respect of Explanation, in the present cases, the assessee
cannot be held as a dealer as per Explanation 1 since there is no transaction between the assessee and its members. This court in an unreported
judgment in the case of Sri Velur Devasthanam Vaitheeswaran Koil, Dharmapuram Adhinam, Dharmapuram, Mayiladuthurai v. State of Tamil
Nadu rep. by the Deputy Commissioner, Commercial Taxes, Tricky Division, Trichy-1, (T.C. (R). No. 1101 of 2006 dated November 12, 2011)
considered the provision of ""business"" as well as the scope of ''''dealer"" and also considered various apex court judgment and in paragraphs 12 to
16, held as follows (para 16 at pages 242-247 in 53 VST):
In fact, the said judgment in Tirumala Tirupati Devasthanam Vs. The State of Madras and Another, , came to be referred with approval
impliedly by the apex court in Commissioner of Sales Tax Vs. Sai Publication Fund, , wherein the apex court elaborately has discussed about the
various terms relating to the Bombay Sales Tax Act, including business, dealer, etc., and referred to a catena of judgments and held that to term a
person as a dealer there must be a profit-motive. It is useful to extract paragraphs (11) to (17) of the said judgment hereunder (pages 295-300 in
126 STC):
No doubt, the definition of ""business"" given in section 2(5A) of the Act even without profit-motive is wide enough to include any trade,
commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and any transaction in connection with or
incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not
business, then any transaction incidental or ancillary would not normally amount to ""business"" unless an independent intention to carry on ""business
in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on ""business"" connected
with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce, etc., ordinarily
incidental or ancillary activity may not come within the meaning of ""business"". To put it differently, the inclusion of incidental or ancillary activity in
the definition of ""business"" presupposes the existence of trade, commerce, etc. The definition of ""dealer"" contained in section 2(11) of the Act
clearly indicates that in order to hold a person to be a ""dealer""'', he must ""carry on business"" and then only he may also be deemed to be carrying
on business in respect of transaction incidental or ancillary thereto. We have stated above that the main and dominant activity of the trust in
furtherance of its object is to spread message. Hence, such activity does not amount to ""business''''. Publication for the purpose of spreading
message is incidental to the main activity which the trust does not carry as business. In this view, the activity of the trust in bringing out publications
and selling them at cost price to spread message of Saibaba does not make it a dealer u/s 2(11) of the Act.
This court in State of Tamil Nadu and Another Vs. Board of Trustee of the Port of Madras, after referring to various decisions in regard to
''business'' and ''carrying on business'' in paras 15 and 16 (paras 13 and 14 in 114 STC) has stated thus:
Now the definition of ''business'' in section 2(d) and in most of the sales tax statutes is an inclusive definition and includes ''trade or business or
manufacture, etc'' This itself shows that the Legislature has recognized that the word ''business'' is wider than the words ''trade, commerce or
manufacture, etc.'' The word ''business'' though extensively used is a word of indefinite import in taxing statutes, it is normally used in the sense of
an occupation, a profession--which occupies time, attention and labour of a person, normally with a profit-motive and 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 State of Andhra Pradesh Vs.
Abdul Bakhi and Bros., Even if such profit-motive is statutorily excluded from the definition of ''business'', yet the person could be doing
''business''.
The words ''carrying on business'' require something more than merely selling or buying, etc. Whether a person ''carries a 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 Board of Revenue and Others Vs. A.M. Ansari and Others, Such profit-
motive may, however, be statutorily excluded from the definition of ''business'' but still the person may be ''carrying on business''.
Further in para 30 (para 28 in 114 STC) of the same judgment, it is stated thus:
In our view, if the main activity was not ''business'', then the connected, incidental or ancillary activities of sales would not normally amount to
''business'' unless an independent intention to conduct ''business'' in these connected, incidental or ancillary activities is established by the Revenue.
It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part of the
main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not ''business'' and the
onus of proof of an independent intention to do ''business'' in these connected, incidental and ancillary sales will rest on the Department. If, for
example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course
the case would fall under the first category referred to earlier.
(emphasis supplied)
In the case on hand, the Revenue neither contended nor proved that in sale of publications the trust had an independent intention to do business
as incidental or as an ancillary activity.
This court in the aforementioned judgment further examined the cases to find out if the main activity was not ""business"". In para 32 (para 30 in
114 STC), reference is made to the case of the Bombay High Court in The State of Bombay Vs. The Ahmedabad Education Society, . In that
case, the educational society was entrusted with the task of founding a college and for that purpose it was to construct buildings therefor. It was
held that it could not be said to be ""carrying on business"" merely because for the above purposes, it established a brick kiln and sold surplus bricks
and scrap at cost price without intending to make profit or gain. Having regard to its main activities and its objects, it was held that the educational
society was not established ""to carry on business"" and the sale of bricks was held not excisable to sales tax. Chagla, C.J. pointed out that it was
not merely the act of selling or buying, etc., that constituted a person a ""dealer"" but the ""object"" of the person who carried on the activities was
important. It was further stated that it was not every activity or any repeated activity resulting in sale or supply of goods that would attract sales tax.
If the Legislature intended to tax every sale or purchase irrespective of the object of the activities out of which the transactions arose, then it was
unnecessary to state that the person must ""carry on business"" of selling, buying, etc.
In para 33 (para 31 in 114 STC) of the same judgment, this court has referred to various decisions to consider whether one is a ""dealer"" or
carries on ""business"" and the nature and object of activity. The said para reads thus:
In Girdharilal Jiwanlal Vs. The Assistant Commissioner of Sales Tax (Appeals), Nagpur and Another, relied on for the respondent-Port Trust
the Bombay High Court held that an agriculturist did not necessarily fall within the definition of a ''dealer'' u/s 2(c) of the C. P. & Berar Sales Tax
Act (21 of 1967), merely because he sold or supplied commodities. It must be shown that he was carrying on a business. It was held that it must
be established that his primary intention in engaging himself in such activities must be to carry on the business of sale or supply of agricultural
produce. The High Court held that there was ''nothing to show that the petitioner acquired these lands with a view to doing the business of selling
or supplying agricultural produce. According to the assessee, he was principally an agriculturist who also deals in cotton, coal, oil-seeds and
groundnuts'',
(emphasis supplied)
He was having agriculture for the purpose of earning income from the fields but there was nothing to show that he acquired the lands with, the
primary intention of doing business of selling or buying agricultural produce. This decision was approved by this court in Deputy Commissioner of
Agricultural Income Tax and Sales Tax, Quilon Vs. Travancore Rubber and Tea Company, , and it was held that where the only facts established
were that the assessee converted latex tapped from rubber trees into sheets and effected a sale of those sheets to its customers, the conversion of
latex into sheets being a process essential for transport and marketing of the produce, the Department had failed to prove that ''the assessee was
formed with a commercial purpose. The Allahabad High Court in Swadeshi Cotton Mills Co. Ltd. Vs. Sales Tax Officer and Another, was dealing
with a batch of cases where different bodies were running canteens. One of the cases concerned Aligarh Muslim University which was maintaining
dining halls where it was serving food and refreshments to its resident-students. It was held, referring to observations of this court in University of
Delhi and Another Vs. Ram Nath, that it was incongruous to call educational activities of the University as amounting to ''carrying on business''.
The activity of serving food in the dining hall was a minor part of the overall activity of the University. Education was more a mission and avocation
rather than a profession or trade or business. The aim of education was the creation of a well-educated, healthy, young generation imbued with a
rational and progressive outlook of life. On this reasoning, it was held that Aligarh University was not ''carrying on business'' and the sale of food at
the dining halls was not liable to tax. Likewise after the amendment of the definition of ''business'' question arose in The Indian Institute of
Technology Vs. The State of Uttar Pradesh and Another, with respect to the visitor''s hostel maintained by the Indian Institute of Technology
where lodging and boarding facilities were provided to persons who would come to the institute in connection with education and the academic
activities of the institute. It was observed that, the statutory obligation of maintenance of hostel which involved supply and sale of food was an
integral part of the objects of the institute. Nor could the running of the hostel be treated as the principal activity of the institute. The institute could
not be held to be doing business. Similarly, in the case of a research organization, in Deputy Commissioner (C.T.) Vs. South India Textile
Research Association, which was purchasing cotton and selling the cotton yarn/cotton waste resulting from the research activities, it was held that
the institute was solely and exclusively constituted for the purposes of research and was not carrying on ''business'' and these sales and purchases
abovementioned could not be subjected to sales tax. Likewise, in State of Tamil Nadu Vs. Cement Research Institute of India it was held that the
institute was an organisation the objects of which were to promote research and other scientific work, that the laboratories and workshops were
maintained by the organization for conducting experiments, and that though the cement manufactured as a result of research was sold, it could not
be considered to be a trading activity within section 2(d) of the Tamil Nadu General Sales Tax Act, 1959. Again in Tirumala Tirupati Devasthanam
Vs. The State of Madras and Another, the dispute arose with regard to the sales of silverware, etc., which are customarily deposited in the hundis
by devotees. It was held by the Madras High Court that the Devasthanam''s main activities were religious in nature and these sales were not liable
to tax. (No doubt, the case related to a period where the profit-motive was not excluded by statute). We are of the view that all these decisions
involve the general principle that the main activity must be ''business'' and these rulings do support the case of the respondent-Port Trust.
(emphasis supplied)
After taking into consideration the above principle enunciated in the above unreported judgment, we are of the view that the assessee cannot be
subjected to Tamil Nadu General Sales Tax Act. Therefore, we answer the questions of law in favour of the assessee and against the Revenue.
Accordingly, we set aside the order of the Tamil Nadu Sales Tax Appellate Tribunal and the tax case revisions are allowed. No costs.