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PETITIONER: GOVT. MEDICAL STORE DEPOT, GAUHATI

       Vs.

RESPONDENT: The SUPDT. OF TAXES, GAUHATI & ORS.

DATE OF JUDGMENT29/08/1985

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH TULZAPURKAR, V.D. MUKHARJI, SABYASACHI (J)

CITATION:  1985 AIR 1748            1985 SCR  Supl. (2) 739  1985 SCC  (4) 239        1985 SCALE  (2)600  CITATOR INFO :  RF         1986 SC1902  (12)

ACT:      Assam Finance  (Sales Tax)  Act 1956, Central Sales Tax Act  1956   s.2(b)  -   Government  Medical  Store  Depot  - Transactions on ’no loss no profit’ basis - Whether ’dealer’ - Liability to & Sales Tax - Whether arises.

HEADNOTE:      The Central  Government  in  the  Ministry  of  Health, Family Planning and Urban Development set up a Medical Store Depot at  Gauhati for the purpose of procuring and supplying medical stores  to the Government institutions, 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 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 liable  to tax  as the transactions were without any  profit-motive ant on the basis of ’No loss - No profit’. The  Superintendent  of  Taxes,  however,  got  the appellant-Depot registered  under section  7(1) of the Assam Finance (Sales  Tax) Act,  1956 and  also treated it to be a dealer under  the Central  Sales Tax  Act 1956  and on  that basis the Taxing Authority made assessments.      The appellant  challenged the  demands under  Art.  226 contending that it was not a dealer and that the certificate of registration  issued to it without any application 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 were illegal. The High Court  dismissed the  Writ Petition  and held  that the appellant-Depot is  a ’dealer’  within the  meaning of  sec. 2(d) of  the  Central  Sales  Tax  Act  1956  and  that  the Superintendent of  Taxes had jurisdiction to register it and also to pass the impugned order of assessment.      Allowing the appeals to this Court, 740 ^      HELD: l. The High Court, on the materials placed before

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it, went  wrong in  dismissing the  writ petition.  The Writ Petition should  have been allowed and the assessment should have been quashed. [746 E-F]      2. In  respect of  the pre-amended  period when  in the definition of  the  term  ’business’  profit-motive  was  an ingredient, in  the absence  of  profit-motive  transactions though satisfying  the  requirement  of  volume,  frequency, continuity ant  regularity, would not constitute business so as to  make a person carrying on such transactions a dealer. [744 H, 745-A]      The State  of Gujarat v. Raipur Manufacturing Co. Ltd., 19 S.T.C 1, Hindustan Steel Ltd.v. The State of Orissa a, 25 S.T.C. 211,  State of Andhra Pradesh v.Abdul Bakshi & Bros., 15 S.T.C.  644, State of Tamil Nadu v. Thirumagal Mills Ltd. etc., 29  S.T.C.  290,  and  The  Joint  Director  of  Food, Visakhapatnam v. The State of Andhra Pradesh, 38 S.T.C. 329, relied upon-      Deputy commercial  Tax Officer,  Saidapet, Madras  Anr. Enfield India  Ltd. Co-opertive  Canteen Ltd., 21 S.T.C. 317 and Goverment  Medical Store  Depot v.  State of  HarYana  & Anr.. 39 S.T.C. 114, in applicable.      In the  instant case,  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, whether profit  was actually  earned  or  Dot  being  of  no material importance,  and no  investigation had been rade 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 remained satisfied by pleading a bare denial to the  assertion in  the writ  petitions supported  by  the scheme and its terms. [746 A-C]      The State  of Gujarat v. Raipur Manufacturing Co. Ltd., l9 S.T.C. l., relied upon.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeal Nos. 1748- 1757 of 1973.      From the  Judgment ant  Order dated  26.6.1973  of  the Gauhati High  Court at  Gauhati in Civil Rule Nos. 366-370 & 460-464 of 1969. 741      O.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      RANGANATH MISRA,  J. The  hort 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 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 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

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medical stores  to the Government institutions, 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 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 center for  the purpose  of supply  of medical  stores.  The appellant contended, inter alia before the High Court.           "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  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  neither  its  avocation  nor           profession and  there is  no element  or object of           profit making in all its dealings 742           with  the   institutions  mentioned  earlier.  The           transactions carried  on by  the petitioner  Depot           are  not   of  commercial  nature  and  the  Depot           functions only  us a  distribution center 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  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 registered 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. 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 registering it was bad and the assessments were illegal. Before  the High  Court appellant produced a letter written by it to the Superintendent 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  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." 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’,  and, therefore, unless the respondent found that the transactions had been  carried on   with a view to making profit it would not constitute  business and 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

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requires business  of buying  or  selling  of  goods  to  be carried on.  Certain decisions  of this  Court  were  placed before the  High Court  in support  of the appellant’s stand that  without  profit  motive  the  transactions  would  not constitute business  even if  there was  frequency,  volume, certainty and regularity. The High Court, however, held: 743           "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,  systematic and           regular. The  very fact  the  Government  keeps  a           watch and  if required revises the formula of rate           fixation and  the  levy  of  departmental  charges           would also  go to  show that  the Government never           intended not  to earn  minimum of  profit in these           trans actions of sales," 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 petitioner Depot is a ’dealer’ within the           meaning of section 2(b) of the Act and, therefore,           the Superintendent  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 submissions of the learned           counsel for the petitioner, therefore, fail."      In The  State of  Gujarat v.  Raipur Manufacturiug  Co. Ltd., 19 S.T.C. 1, this Court held :           "Whether  a   person  carries  on  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. By the use of           the expression  ’profit motive’ it us not intended           that profit  must in  fact be earned. Nor does the           expression  cover  a  mere  desire  to  make  some           monetary gain  out of  a  transaction  or  even  a           series of  transactions. It  predicates  a  motive           which pervades  the whole  series of  transactions           effected by  the  person  in  the  course  of  his           activity..."      In Hindustan  Steel Ltd.  v.  The  State  of  Orissa,25 S.T.C. 211  the sames.  question came  up  for  examination. Hindustan Steel  Ltd., the  appellant, was procuring cement, bricks and iron 744 materials and  was supplying  the same  from its  stores  to contractors 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  case of State of Andhra Pradeah v. Abdul Bakahi & 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

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         labour of  a person,  normally with  the object of           making profit.  To regard  an activity as business           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 and held :           "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."      In Stste  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.      In The  Joint Director  of Foods,  Visakhapatnam v. The State 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 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 if there if profit-           motive."      On the basis of these authorities the position is clear that in  respect of  the  pre-amended  period  when  in  the definition of 745 the term  ’business’ profit  motive had not been omitted, in the absense  of profit-motive 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.      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  Commercial  Tax  Officer, Saidapet, Madras  & Narc. 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  Tamilnadu 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 not be an authority relevant for our present purpose.      In Government Medical Store Depot v. State of Haryana & Anr., 39  S.T.C. 114, the very appellant was the assessee in respect of  its repot located at Karnal. On the facts placed before the Court, the following conclusion was reached after referring to  the judgment  of this Court in the case of The Joint 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 ’dealer’           within section  2(b) of  the Central Sales Tax Act           and also under s. 2(d) of the Act." Obviously, this  was a  decision on  the facts  available on record  and   cannot  be   relied  upon   for  the   factual determination of the question in dispute before us.

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    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 investigation and have come to           the conclusion merely because of the frequency and           the volume  of the  sales, the inference cannot be           sustained." 746      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, whether profit was actually earned or not being  of no  material importance,  and no investigation had been  made 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 remdined  satisfied by  pleading a  bare denial to  the assertion  in the writ petitions supported by the scheme  and its  terms. Mr.  Ahuja  for  the  respondent strenuously 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 decades  have already  rolled by. We may point out  that at  the instance  of Mr. Ahuja we had called upon the  appellant to  produce its  record and  appellant’s counsel on the subsequent date reported that the record were not available  to be produced. In these circumstances, we do not think  it proper  to remand  the  matters  to  give  the respondent an  opportunity of  determining the  question  of profit motive.      The High  Court, in  our view,  on the materials placed before it,  went wrong in dismissing the writ petitions. The legal  position   being  settled  as  indicated  by  several decisions of this Court, the writ petitions should have been allowed and  the 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 operate as a bar to  respondent going into the matter again in respect of any  subsequent  period  in  accordance  with  law  and  our judgment must  be confined  to the  facts  of  the  case  as available on  record for the period in question. Parties are directed to bear their respective costs throughout. A.P.J.                                      Appeals allowed. 747