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PETITIONER: GOVERNMENT MEDICAL STORE DEPOT, KARNAL

       Vs.

RESPONDENT: STATE OF HARYANA AND ANOTHER

DATE OF JUDGMENT05/08/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR 1902            1986 SCR  (3) 450  1986 SCC  (3) 669        JT 1986    62  1986 SCALE  (2)155  CITATOR INFO :  F          1991 SC1059  (4)

ACT:      Punjab General  Sales Tax Act, 1948, s. 2(d)-Dealer-Who is-Existence of  profit motive-Whether an immaterial factor- Government Medical Store Depot-Whether a ’dealer’.

HEADNOTE:      Pursuant to  s. 88  of the  Punjab Reorganisation  Act, 1966, the  Punjab General  Sales Tax  Act, 1948 continued as the law  in force  on and  from Nov.  1, 1966  even in those territories which  now comprise  the State  of Haryana.  The Punjab Act  was repealed  by the  enactment of  the  Haryana General Sales  Tax Act  1973 which came into effect from May 5, 1973.  Some Provisions of the Haryana Act came into force from an  earlier date,  among being  them the  definition of ’dealer’ set-forth in s. 2(c) of  that  Act  which  operated retrospectively with effect from Sept. 7, 1955.      The appellant,  Government Medical Store Depot, Karnal, set up  by the  Central Government, used to purchase medical stores and  hospital equipment  and supplied  them  only  to Government  hospitals,   Government   institutions,   health centres, dispensaries  and primary health clinics located in northern India on a ’no profit no loss’ basis.      On August  21, 1968,  the Excise  and Taxation  officer Karnal, after  giving an  opportunity to the appellant, held that the  appellant was  a dealer  under the  Punjab Act and proceeded to  make assessment  orders for  the years 1364-65 and 1365-66,  and also  passed penalty orders for each year. He also initiated assessment proceedings for the years 1966- 67 to  1968-69. The  appellant’s writ  petitions in the High Court challenging  the aforesaid assessment proceedings were dismissed.      Allowing the appeals by the appellant, ^      HELD: l.(i) The existence or absence of a profit motive is irrelevant  when identifying a ’dealer’ under the Haryana Act. No such 451 statement of immateriality is contained in the definition of the word  ’dealer’ under  the Punjab  Act as  applied to the

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State of Haryana. The definition of the word ’dealer’ in the Haryana Act  has been  framed only  for the  purpose of  the provisions of  that Act. The opening words of the definition under s.  2 make  it clear  that the  expressions defined by that section are the expressions as used in the Haryana Act. Wherever the  word ’dealer’  is used in the Haryana Act, one must turn  to the  definition contained  in s.  2(c) of that Act. Now, except for a few specified provisions, the Haryana General Sales  Tax Act  came into  force  on  May  5,  1973. Section 6,  its charging  provisions, commenced  to  operate from that  date. Section  6(1) of  the Haryana  Act declares that the  first year  of which the turnover is liable to tax under that  Act  is  the  year  "Immediately  preceding  the commencement of  this Act." It is obvious that s. 6 does not govern the  assessment years  which are the subject of these appeals. Therefore,  it is  immaterial  as  to  whether  the definition of the word ’dealer’ under the Haryana Act has to be read  retrospectively with  effect from  Sept.  7,  1955. Section 2(c)  relates to  the word ’dealer’ contained in the provisions of the Haryana Act, and the charging provision of the Haryana  Act did not operate during the assessment years with which  these appeals  are concerned. These appeals will be governed  by the  Punjab General Sales Tax Act, and it is s. 2(d) of that Act which must be looked to for ascertaining the definition  of the  word ’dealer’  in that  Act.  [455H; 456A-D]      1(ii) The definition of the word ’dealer’ under s. 2(d) of the Punjab Act does not treat the existence of the profit motive in  the business  as an  immaterial  factor  and  the burden is  on the  revenue to  show  that  the  transactions carried on  by the  appellant were  carried on with a profit motive. The  assessment proceedings which are the subject of these appeals  are therefore  quashed. Having  regard to the lapse of time, it is not right to remand the cases for fresh assessment proceedings. [457D-E]      2. Section  65 of  the Haryana  General Sales  Tax  Act repealed the  Punjab  General  Sales  Tax  Act.  Section  65 contains a  proviso that  such repeal  will not  affect  the previous operation  of the repealed Act or any right, title, obligation  or   liability  already   acquired,  accrued  or incurred thereunder.  The liability  incurred by a dealer in respect of the years under consideration in these appeals is a liability  incurred under  the charging provision, s. 4 of the Punjab  General Sales  Tax. To ascertain who such dealer is one  must read the definition of the word ’dealer’ in the Punjab General  Sales Tax  Act. No  reference is permissible for that  purpose to  the definition  in the Haryana General Sales Tax  Act. No doubt the further language in the proviso to s. 65 of the Haryana 452 General Sales  Tax Act  provides that  anything done  or any action taken  in respect of the liability incurred under the Punjab General  Tax Act  will be deemed to have been done or taken in  the exercise  of the  powers conferred by or under the provisions  of the  Haryana Act  as if  that Act  was in force on  the date  on which  such thing  was done or action taken. This  merely refers to the provisions enacted for the purpose of  enforcing the  liability and  realising the tax, and does not affect the position that the charge is under s. 4  of  the  Punjab  General  Sales  Tax  Act,  and  that  to appreciate who  the ’dealer’  mentioned therein is, one must turn to s. 2(d) of the Punjab Act. [456E-H; 457A]      Deputy Commercial  Tax  Officer,  Saidapet,  Madras  v. Enfield India  Ltd. Co-operative  Canteen, [1968] 21 STC 317 and Government Medical Store Depot, Gauhati v. The Supdt. of

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Taxes. Gauhati & Ors., [1985] 2 Scale 600, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos. 2815- 2819(NT) of 1977      From the  Judgment and  Order dated  18.10.1976 of  the Punjab &  Haryana High  Court in Civil Writ Nos. 1183, 1184, 1795, 1796 and 1797 of 1970.      O.P. Sharma,  L.K. Gupta and Miss A. Subhashini for the Appellant.      S.T. Desai,  J.D. Jain  and Ms. Kawaljit Kochar for the Respondents.      The Judgment of the Court was delivered by      PATHAK, J.  These appeals by special leave are directed against the  judgment and  order of the High Court of Punjab and Haryana  dismissing the  writ  petitions  filed  by  the appellant against  proceedings for  the assessment  of sales tax.      The appellant,  the  Government  Medical  Store  Depot, Karnal, is  a Depot functioning under the Assistant Director General (Stores)  who is  in charge  of the  Medical  Stores Organisation in the country under the Directorate General of Health Services,  Ministry of  Health, Government  of India, New Delhi.  It is a department of the Central Government and supplies medicines  and hospital  equipment manufactured  in India or imported from abroad to Government hospitals, 453 Government institutions,  Health Centres,  Dispensaries  and Primary Health  Units located  in northern  India,  some  of which are  run by local bodies such as Panchayats, Panchayat Samitis, Zila Parishads and Municipalities. It does not deal with private  hospitals and  individuals.  The  organisation works as  a public utility service on a ’no profit, no loss’ basis.  The   medical  stores  and  hospital  equipment  are purchased by the appellant and supplied to the hospitals and medical institutions,  after adding  a service  charge of 10 per cent on the cost of the indented stores.      During the  year 1956-57,  a question arose whether the activities of the appellant brought it within the definition of the  expression ’dealer’  as defined  in s.  2(d) of  the Punjab General  Sales Tax Act, 1948. The Excise and Taxation authorities took  the view  that the  appellant  was  not  a dealer because  the transactions  conducted by  it  did  not include an  element of  profit. By  a letter  dated July 15, 1957, the  appellant was informed by the Excise and Taxation Commissioner, Punjab,  that it  need not be registered under the Punjab General Sales Tax Act.      On August  21, 1968,  the Excise  and Taxation Officer, Karnal took  note of  a decision  of this  Court  in  Deputy Commercial Tax  Officer, Saidapet,  Madras v.  Enfield India Ltd. Co-operative  Canteen, [1968]  21 S.T.C. 317 and called upon the  appellant to  produce its  account books  for  the years 1965-66,  1966-67  and  1967-68  for  the  purpose  of assessment to  sales tax on the Medical Stores and equipment supplied by  it. The  appellant was  also  directed  to  get itself registered  as a  dealer under the Act. The appellant replied on  August 24,  1968 that it did not fall within the scope of  the definition  of ’dealer’, and it seems that the Government  of   India  in   the  Ministry  of  Health  also intervened in  the matter.  The Excise and Taxation Officer, however, continued  to maintain  that the  appellant  was  a dealer within the meaning of the Act.      The Excise  and Taxation  Officer  then  issued  formal

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notices to  the appellant  for the production of its account books for  the years 1964-65 to 1968-69, and after giving an opportunity to  the appellant  to be  heard, he proceeded to make assessment  orders dated  March 25,  1970 for the years 1964-65 and 1965-66, and also passed penalty orders for each year under the Punjab General Sales Tax Act as well as under the Central  Sales Tax  Act. He  also  initiated  assessment proceedings for the years 1966-67, 1967-68 and 1968-69. 454      The appellant  filed five  writ petitions  in the  High Court of  Punjab and  Haryana,  challenging  the  assessment proceedings pertaining  to the  assessment years  1964-65 to 1968-69 respectively  taken under  the Punjab  General Sales Tax Act  and the  Central Sales  Tax Act. The writ petitions were dismissed  by the  High Court  by a common judgment and order dated  October 18,  1976. The High Court held that the appellant was  a dealer  notwithstanding  that  it  was  not carrying on a business for earning profit.      Learned counsel  for the  appellant contends  that  the appellant is not a dealer because the activity carried on by it is  pursued without  any motive  of earning  profit  and, therefore, it  cannot be  described as  a  business.  It  is pointed out  that the  definition of the word ’dealer’ in s. 2(d) of  the Punjab  General Sales Tax Act is different from the definition  of that  word in  s.  2(c)  of  the  Haryana General Sales  Tax Act.  While the Haryana Act states that a person is a dealer whether or not he is inspired by a profit motive in  carrying on  his business,  no such  statement is contained in  the definition  under the  Punjab Act.  It  is urged that  these appeals are governed by the Punjab General Sales Tax Act and not by the Haryana General Sales Tax Act.      When the  Punjab  General  Sales  Tax  Act,  1948,  was enacted it applied to the territories of the State of Punjab as that  State was  constituted on the partition of India on August  15,   1947.  The  State  of  Punjab  so  constituted continued in  existence until it was again partitioned under the Punjab  Reorganisation Act,  1966 with  effect from  the appointed day,  November 1,  1966. The  Punjab General Sales Tax Act,  which had operated in the territories constituting the  original  State  of  Punjab  up  to  October  31,  1966 continued as  the law  in force on and from November 1, 1966 even in  those territories  which now comprised the State of Haryana.  This   was  pursuant  to  s.  88,  of  the  Punjab Reorganisation Act, 1966. Its continuance was subject to any change in  the law  effected by the Haryana Legislature. The Haryana Legislature  could permit  the Punjab  General Sales Tax  Act   to  continue  in  force  subject  to  legislative modifications made  by it  in that  law.  Alternatively,  it could supersede  and repeal  the Punjab  Act by  enacting an independent  Haryana   Act  to   replace  it.   The  Haryana Legislature amended the Punjab Act from time to time. It did so, for  instance, by  the Punjab General Sales Tax (Haryana Amendment and  Validation)  Act,  1969.  Later,  the  entire Punjab Act  was repealed  by the  enactment of  the  Haryana General Sales Tax Act, 1973, which came into effect from May 5, 1973. Some provisions of the Haryana Act came into 455 force from  an earlier date, among being them the definition of ’dealer’  set forth in s. 2(c) of that Act which operated retrospectively with effect from September 7, 1955.      The present  appeals are  concerned with the assessment years 1964-65  to 1968-69,  and the question is whether they are governed  by the  definition of  the word ’dealer’ in s. 2(d) of  the Punjab  Act or  by s.  2(c) of the Haryana Act. During that  period s.  2(d)  of  the  Punjab  Act,  in  its

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application to  the  State  of  Haryana,  defined  the  word ’dealer’ as follows:           S.2(d). "Dealer"  means  any  person  including  a           Department of  Government who in the normal course           of  trade   sells  or  purchases  goods  that  are           actually delivered  for the purpose of consumption           in the  State of  Haryana irrespective of the fact           that the  main place of business of such person is           out side  the said State, and where the main place           of business  of any such person is not in the said           State, ’dealer’  includes  the  local  manager  or           agent of such person in Haryana in respect of such           business."      Section 2(c)  of the  Haryana General  Sales  Tax  Act, however, defines the word ’dealer’ in the following terms:           S. 2(c).  "dealer" means  any person  including  a           department of  Government who  carries on, whether           regularly or  otherwise,  trade  whether  with  or           without a  profit motive,  directly or  otherwise,           whether for  cash, deferred  payment,  commission,           remuneration or  other valuable  consideration, of           purchasing, selling, supplying or distributing any           goods  in   the  State,   or  importing  into,  or           exporting out of the State any goods, irrespective           of the  fact that  the main  place of  business of           such person  is outside  the State  and where  the           main place  of business  of such  person is not in           the State,  includes the local manager or agent of           such person  in  the  State  in  respect  of  such           business." It is  apparent that  the existence  or absence  of a profit motive is  irrelevant when  identifying a ’dealer’ under the Haryana Act. No such statement of immateriality is contained in the  definition of the word ’dealer’ under the Punjab Act as applied to the State of Haryana. 456      What is important to note is that the definition of the word ’dealer’  in the  Haryana Act  has been framed only for the purpose of the provisions of that Act. The opening words of the  definition section,  s. 2,  make it  clear that  the expressions defined  by that  section are the expressions as used in the Haryana Act. Wherever, the word ’dealer’ is used in  the  Haryana  Act,  one  must  turn  to  the  definition contained in  s. 2(c)  of that  Act. Now,  except for  a few specified provisions, the Haryana General Sales Tax Act came into  force   on  May  5,  1973.  Section  6,  its  charging provision, commenced to operate from that date. Section 6(1) of the Haryana Act declares that the first year of which the turnover is  liable to  tax  under  that  Act  is  the  year "immediately preceding  the commencement of this Act." It is obvious that s. 6 does not govern the assessment years which are  the   subject  of   these  appeals.  Therefore,  it  is immaterial for  our purposes that the definition of the word ’dealer’  under   the   Haryana   Act   has   to   be   read retrospectively with effect from September 7, 1955. Because, as we have pointed out, s. 2(c) relates to the word ’dealer’ contained in  the provisions  of the  Haryana  Act  and  the charging provision of the Haryana Act did not operate during the assessment years with which these appeals are concerned. These appeals  will be  governed by the Punjab General Sales Tax Act,  and it is s. 2(d) of that Act which must be looked to for  ascertaining the  definition of the word ’dealer’ in that Act.      It may  be mentioned  that s. 65 of the Haryana General Sales Tax  Act repealed  the Punjab  General Sales  Tax Act.

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Section 65  contains a  proviso that  such repeal  will  not affect the  previous operation  of the  repealed Act  or any right, title,  obligation  or  liability  already  acquired, accrued or  incurred thereunder. The liability incurred by a dealer in  respect of the years under consideration in these appeals  is   a  liability   incurred  under   the  charging provision, s.  4,  of  the  Punjab  General  Sales  Tax.  To ascertain who such dealer is one must read the definition of the word  ’dealer’ in  the Punjab  General Sales Tax Act. No reference is  permissible for that purpose to the definition in the  Haryana General  Sales Tax Act. No doubt the further language in  the proviso  to s.  65 of  the Haryana  General Sales Tax  Act provides  that anything  done or  any  action taken in  respect of the liability incurred under the Punjab General Sales  Tax Act  will be  deemed to have been done or taken in  the exercise  of the  powers conferred by or under the provisions  of the  Haryana Act  as if  that Act  was in force on  the date  on which  such thing  was done or action taken. This  merely refers to the provisions enacted for the purpose of enforcing the liability and realising the tax and does not  affect the  position that the charge is under s. 4 of the  Punjab General  Sales Tax Act, and to appreciate who the 457 ’dealer’ mentioned  therein is,  one must turn to s. 2(d) of the Punjab Act.      It will  be noticed  that the  definition of  the  word ’dealer’ in  s. 2(d)  of the  Punjab Act  does not treat the existence  of   a  profit  motive  in  the  business  as  an immaterial factor.  In Govt. Medical Store Depot, Gauhati v. The Supdt.  of Taxes, Gauhati & Ors, [1985] 2 SCALE 600, the question was whether a Government Medical Store Depot set up at Gauhati  by the  Central Government  in the  Ministry  of Health, Family  Planning  and  Urban  Development,  for  the purpose of procuring and supplying medical stores to Central and State  Government institutions  could be  made liable to sales tax  under the Assan Finance (Sales Tax) Act, 1956 and under the  Central Sales  Tax Act,  1956. The appellant, the Government Medical  Store Depot,  took the  stand  that  the supply of medical stores to the Government institutions were without any  profit motive,  on the  basis of  "no loss,  no profit", and  unless it  was found that the transactions had been carried on with a view to making a profit the appellant could not be held to be a ’dealer’ liable to tax. This Court observed that  in the  definition of  ’business’ the  profit motive had  not been omitted, and therefore without anything more it  could not be said that the person carrying on those transactions was  a dealer.  The Court  rested the burden on the Revenue  to show that the transactions carried on by the appellant were  carried on with a profit motive. In the end, inasmuch as  the appeals  before it  were concerned with the years 1965-66  to 1967-68 having regard to the lapse of time the Court,  while allowing  the  appeals  and  quashing  the assessments, did  not think  it fit  to remand the cases for fresh assessment proceedings.      We  think  we  should  do  likewise.  Accordingly,  the appeals are  allowed, the  judgment and  order of  the  High Court are set aside and the assessment proceedings which are the  subject   of  these   appeals  are   quashed.  In   the circumstances of the case, there is no order as to costs. M.L.A.                                      Appeals allowed. 458