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PETITIONER: STATE   OF  TAMIL  NADU  AND  ANOTHER

       Vs.

RESPONDENT: BOARD OF TRUSTEE OF THE PORT OF MADRAS

DATE OF JUDGMENT:       26/03/1999

BENCH: M. JAGANNADHA RAO, & S.N. PHUKAN.

JUDGMENT:

M.JAGANNADHA RAO,J.

             Leave granted.

             This appeal is preferred by the State of Tamil          Nadu  and  the Commercial Tax Officer, Harbour-  I,          Assessment  Circle, Chennai against the Judgment of          the  High Court of Madras in Writ Appeal No.1015 of          1994  dated  10.12.1996.   By  that  Judgment,  the          Division Bench allowed the appeal and set aside the          Judgment passed by the learned Single Judge in Writ          Petition  No.5509  of 1994 dated 30th March,  1994.          The  learned  single Judge had dismissed  the  writ          petition  No.5509  of  1994   filed  by  the  first          respondent, the Board of Trustees of the Port Trust          of Madras (hereinafter called the ‘Port Trust’) and          by  the  Judgment under appeal, the writ  petitions          stood  allowed and the notices issued by the Second          appellant,  the Commercial Tax Officer on  1.9.1993          and 8.2.1994 stood quashed.

             The facts are as follows:

             The  Madras  Port  Trust is now a  major  Port          Trust  governed by the provisions of the Major Port          Trusts Act, 1963 (earlier it was governed by an Act          of  1905).   It  provides   services  of   landing,          shipping  or  trans-shipping, receiving,  shifting,          transporting,  storing or delivery of goods brought          into  the  premises of the Port Trust.   Goods  are          brought  into  the Port Trust and delivered to  the          importee/consignee  or  their cleaning Agents  etc.          Goods  are also exported through the Port Trust  by          means of its services.  In the case of uncleared or          abandoned  goods,  the Port Trust brings  them  for          sale  in  public auction after the approval of  the          customs  authorities.   Before 1959, the Sales  Tax          Authorities  in  Madras sought to assess  the  Port          Trust  to sales tax under the Madras General  Sales          Tax  Act  (Act  9 of 1939) in  respect  of  charges          collected  for water supplied by the Port Trust  to          ships.   At that time, the Port Trust was  governed          by  the  Madras Port Trust Act (Act 2 of 1905).   A          Division  Bench  of  the High Court  of  Madras  in          Trustees of the Port of Madras vs.  State of Madras

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        [1960  (11)  STC 224](Mad) held by  Judgment  dated          27.11.1959  that the Port Trust was not constituted          for  the purposes of "carrying on any business"  of          buying  and selling with a view to make profit  and          that while supplying water to the ships that called          at  the  Port, it was only discharging a  statutory          duty  imposed upon it by the statute and was not  a          "dealer", within the meaning of ‘dealer’ in Section          2(b) of the Madras General Sales Tax Act, 1939.  At          that  time  Section  2(b) which  defined  the  word          "dealer"  stated that a dealer would be any  person          who  carried  on the business of buying or  selling          goods.   The definition did not say that it was not          relevant  whether  the said person was carrying  on          business  with or without profit motive.  In  other          words,  profit motive was treated, at that time, as          an  essential element of business.  The High Court,          therefore, held that inasmuch as the Port Trust was          performing   certain   statutory    functions   and          rendering  duties  without  any intention  to  make          profit, it was not a ‘dealer’ within the definition          of the said expression.

             The above said statute of 1939 was replaced by          the  Tamil  Nadu General Sales Tax Act,  1959.   It          contained  a  definition of "business"  in  Section          2(d)  and a definition of "dealer" in Section 2(g).          The  definitions  were amended from time  to  time.          Section  2(d)  which  defined  "business"  did  not          initially  state that the motive to gain or  profit          was not relevant.  But the said sub-clause 2(d) was          substituted by a new clause by the Madras Act 15 of          1964  which included within the said definition  of          "business",  the  activity of carrying on  business          whether  or not such business was carried on with a          motive  to  make  gain or profit.  After  the  said          amendment  of  1964  the matter in  regard  to  the          Madras Port Trust again went before the Madras High          Court  in State of Madras vs.  Trustees of Port  of          Madras  [(1974) 34 STC 135] (Mad).  The dispute  in          that  case  related  to the sale of  unclaimed  and          unserviceable  goods  by  the   Madras  Port  Trust          through  auctioneers.   The   question  raised  was          whether  the  Port  Trust was a department  of  the          Central Government and whether the Port Trust was a          ‘dealer’  and its activity of selling the unclaimed          and unserviceable goods could be subjected to sales          tax.   It was held by a Division Bench of the  High          Court of Madras in the above cited case in State of          Madras  vs.  Trustees of Port of Madras [(1974)  34          STC  135],  that even though the sales in  question          related to the assessment years 1964-65 and 1965-66          and  were  effected  after  the  amendment  of  the          definition  "business"  by Madras Act 15  of  1964,          still  the above said transactions of sale were not          liable  to  sales  tax inasmuch as the  Port  Trust          could  not be treated as a ‘dealer’ carrying on the          business  of  selling,  supplying  or  distributing          goods  as a commercial venture in the course of the          exercise of its statutory duties.  It was also held          that   the   Port  Trust   was  a  statutory   body          constituted  by the Madras Port Trust Act, 1905 and          though  it  was subject to certain control  by  the          Central  Government,  it could not be treated as  a          department  of  Central  Government so as  to  come

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        within  Explanation 2 read with Section 2(g) of the          Act  of  1959  nor was the Port Trust liable  as  a          local  authority within the meaning of ‘dealer’  in          section  2(g)(i) as it was not established that  it          was carrying on business of buying and selling etc.

             Subsequently, sub-clause (iii) of Section 2(g)          of  the Tamil Nadu General Sales Tax Act, 1959  was          amended  by  Tamil  Nadu Act 31 of  1992.   Section          2(g)(iii)  after  amendment   included  within  the          definition   of   ‘dealer’  a  factor,  broker   or          commercial  agent or Arhati, a del Credere Agent or          a  commercial  or  any other  mercantile  agent  by          whatever  name  called,  and whether  of  the  same          description  as stated above or not, who carried on          the  business  of  buying,  selling,  supplying  or          distributing  goods  on behalf of any principal  or          through  whom the goods were bought, sold, supplied          or  distributed.  On the assumption that after  the          above  said amendment by Tamil Nadu Act 31 of  1992          in  the definition of "dealer", the Judgment of the          Madras  High Court in State of Madras vs.  Trustees          of  Port of Madras [1974 (34) STC 135] (Mad)  would          not  come in his way, the second appellant  namely,          the  Commercial  Tax Officer issued a notice  dated          1.9.1993  calling  upon the Port Trust to  register          itself  as  a dealer under the Tamil  Nadu  General          Sales  Tax Act, 1959.  The respondent then  replied          on  26.10.1993  relying upon the above Judgment  of          the  Madras High Court rendered in State of  Madras          vs.  Trustees of Port of Madras [(1974) 34 STC 135]          (Mad)  and it contended that the amendment did  not          make   any  difference.    Thereupon,  the   second          appellant  gave  a  further notice  dated  8.2.1994          directing  the respondent to furnish details of the          auction  sales  conducted during the  year  1993-94          upto  1.4.1993.  In the said notice the  respondent          was  asked "to furnish the details of auction sales          conducted  during 1993-94 and the quantum of  sales          effected  by  way of auction commodity-wise,  date-          wise"  to  the  second appellant.  It was  at  that          stage  that  the  Port Trust  filed  Writ  Petition          No.5509  of  1994  contending that the  Tamil  Nadu          General Sales Tax Act, 1959 did not apply to it and          that  the  notices  issued  to  them  were  without          jurisdiction.   A learned single Judge of the  High          Court dismissed the writ petition by Judgment dated          30.3.1994  holding that the definition of  ’dealer’          in  section  2(g)(iii) as amended in 1991 was  wide          enough to cover the case of the respondent and that          the  Judgment of the High Court in State of  Madras          vs.  Trustees of Port of Madras [(1974) 34 STC 135]          (Mad)  rendered before the said 1991 amendment  was          not  applicable.   It  was also observed  that  the          proceeding   being   a   show-cause   notice,   the          respondent  could  go  before  the  Commercial  Tax          Officer and pursue further remedies under the Act.

             The  Port  Trust  preferred an appeal  to  the          Division  Bench  of  the  High Court,  which  on  a          consideration  of the provisions of the Major  Port          Trust Act, 1963 and the amended provisions of Tamil          Nadu  General  Sales  Tax  Act, 1959  came  to  the          conclusion  that there was no element of profit  or

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        gain  in  the duties discharged or in the  services          rendered  by  the  Port Trust,  the  services  were          statutory  and  these services did not come  within          the  definition  of the word "business" in  Section          2(d)  of the Act and, therefore, the respondent was          not  a  "dealer"  within Section 2(g)  of  the  Act          notwithstanding  the amendment to Section 2(g)(iii)          by  the Tamil Nadu Act 31 of 1992.  The Writ Appeal          was allowed and the notices of the second appellant          were quashed.

              Aggrieved  by the above said Judgment of  the          Division  Bench  of  the High  Court  in  the  writ          appeal, the State of Madras and the Commercial  Tax          Officer have filed this appeal.  The Port Trusts of          Cochin,  Kandla, Calcutta have filed  Interlocutory          Applications  for intervention but inasmuch as  the          concerned  State Governments which  levy  sales-tax          under the respective State Laws are not before  us,          we  have  not permitted any arguments by  the  said          Ports  in  regard to the leviability of  sales  tax          under  the  respective State enactments.   We  have          merely  allowed them to support the submissions  of          the  Madras Port Trust in the context of the  Tamil          Nadu  Statute. Their applications  are,  therefore,          liable to be dismissed.

             In  this  appeal,  we   have  heard  elaborate          submissions  of  the  learned senior  counsel  Shri          A.K.Ganguli  for the State of Tamil Nadu and of Sri          T.L.Viswanatha Iyer, learned senior counsel for the          Madras Port Trust.  Counsel cited a large number of          rulings in support of their respective contentions.

             The  notices in the present case refer to  the          auctions conducted by the Port Trust during 1993-94          and  in the Civil Appeal it is stated in ground No.          (i)  (l)  and (r) that the Port Trust is liable  to          pay  sales  tax  in  regard   to  the  auctions  of          unclaimed  or  unservicable goods including  scrap.          Therefore,  the  dispute was in relation  to  these          items.

             Under  the  Tamil  Nadu Sales Tax  Act,  1959,          after  the  amendment by Madras Act 15 of 1964  and          Tamil  Nadu  Act  31  of 1992, sub  clause  (g)  of          section  2 defines ‘dealer’ and in so far as it  is          material  for  the purpose of this case,  reads  as          follows:

             "S.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, and includes--

             (i)  a local authority,........  which carries          on such business;

             (ii).....................................

             (iii)a factor, ........., or an auctioneer, or          any  other  mercantile  agent   by  whatever   name          called,........who  carries  on   the  business  of

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        buying, selling, supplying or distributing goods on          behalf  of any principal or through whom the  goods          are bought, sold, supplied or distributed;

             (iv) to (ix).............................

             Explanation (1):.........................

             Explanation  (2):The Central Government or any          State  Government  which,  whether or  not  in  the          course of business, buy, sell, supply or distribute          goods,  directly  or  otherwise, for cash,  or  for          deferred  payment, or for commission,  remuneration          or other valuable consideration, shall be deemed to          be a dealer for the purposes of this Act.

             Section 2(d) defines ‘business’ as follows:

             "S.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."

             Sub-clause  (n) of section 2 defines ‘sale’ as          every  transfer of the property in goods (otherwise          than by way of a mortgage, hypothecation, charge or          pledge)  by one person to another in the course  of          business  for  cash,  deferred   payment  or  other          valuable  consideration.  The inclusive part of the          definition  of  ‘sale’ contains sub-clauses (i)  to          (vi).   There are four Explanations to the  section          and  Explanation  (1-B)  deals   with  transfer  of          property  involved in the purchase, sale, supply or          distribution  of  goods   through  various  persons          including an auctioneer.

             Section  3  of  the Act,  in  sub-clause  (1),          states  that  every  dealer (other  than  a  casual          trader  or  agent of a non-resident  dealer)  whose          total  turnover  for a year exceeds three lakhs  of          rupees  and every casual trader or agent of a  non-          resident  dealer, whatever be his turnover for  the          year,  shall  pay tax for each year  in  accordance          with the provisions of the Act.

             As  will  be  clear  from  the  definition  of          ‘dealer’  in  section 2(g) the question is  whether          the Port Trust, - treated as a person under section          2(g)  or a local authority under section 2(g)(i) or          as  an  auctioneer under section 2(g)(iii) -  is  a          ‘dealer’  "who  carries on the business of  buying,          selling  etc.".  The emphasis here is on  "carrying          on business" and not merely buying and selling.  In          view  of  the definition of "business"  in  section          2(d)  after the 1964 Amendment, it does not  matter          whether the business is carried on without a motive

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        to  make  profit or gain or whether profit  has  in          fact accrued.

             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 recognised 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 A.P.   vs.          H.Abdul Bakhi & Bros.  (AIR 1965 SC 531)].  Even if          such profit motive is statutorily excluded from the          definition  of  ‘business’ yet the person could  be          doing ‘business’.

             The  word  ‘carrying  on  business’   requires          something  more than merely selling or buying  etc.          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 (Board of Revenue          &  Others  vs.  A.M.Ansari & Others ( 1976 (3)  SCC          512).    Such  profit  motive   may,  however,   be          statutorily   excluded  from   the  definition   of          ‘business’ but still the person may be ‘carrying on          business’.

             Counsel  on  both sides cited various  rulings          before us some relating to definition of ‘business’          before  the  profit  motive was excluded  and  some          thereafter.   Some  rulings related to cases  where          the  main  transaction was ‘business’  with  profit          motive  while some were sales where it was not  the          motive.  In some cases the sales were of subsidiary          products.  Cases where the main activities were not          ‘business’  were  also  cited.    Cases  where  the          transactions  arose  out of statutory  duties  were          also  cited  and  some   were  in  connection  with          services  rendered.   Some   were  by  governments.          These  various types of cases cited could appear to          be  somewhat  overlapping, but in our view, if  the          principles  on  which  they are based are  kept  in          view,  it  can  be  seen  that  there  is  no  such          overlapping.

             We  would categorize the rulings cited  before          us by learned senior counsel on both sides into two          basic  and  distinctive categories, the  first  one          where  the main activity of the person amounted  to          "carrying  on business" and the second where it did          not.  In the first category where the main activity          was  business,  there  could be sales  relating  to          certain transactions ‘connected with’, ‘incidental’          or  ’ancillary’ to the main business though without          profit  motive, and the question would arise as  to

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        whether  these  sales were liable to sales  tax  or          not.   The  second category would be one where  the          main   activity  did  not   admittedly  amount   to          "carrying  on  business".   Even so, in  regard  to          sales  which  were  connected   or  incidental   or          ancillary  to  such main activity,  question  would          arise  whether  such sales were exigible  to  sales          tax.  The contention of the Port Trust before us is          that  its case falls under the second category  and          not  under the first category.  The State  contends          contra.

             So  far  as  the first category of  cases  are          concerned,  we may state that initially most  sales          tax  statutes did not provide in the definition  of          ‘business’ that profit motive was irrelevant.  Thus          the  profit motive remained relevant.  Nor did  the          statutes  include  in the definition of  ‘business’          sales  ‘in  connection  with’   or  ‘ancillary’  or          ‘incidental’ to the main business.

             In  a large number of cases belonging to  this          first  category  the  person  was held  not  to  be          ‘carrying on business’ if he was not doing business          for  profit, an element which, not being  excluded,          was  to  be  treated  as   a  basic  component   of          ‘business’  and,  therefore, implied under  various          sales-tax  statutes.   It was held in  these  cases          that  though  trading  activities   were  no  doubt          proved,  there  being no profit motive involved  in          the relevant activity, the sales were not liable to          sales  tax, and the person could not be held to  be          ‘carrying  on  business’.   To this  line  belonged          Director  of  Supplies and Disposals, Calcutta  vs.          Member,  Board  of Revenue, West  Bengal,  Calcutta          [AIR  1967  SC  1826 = 20 STC 398]  cited  for  the          respondent Port Trust, which related to disposal of          war  equipment taken over from the American  forces          in  the  Second  World  War.   The  Directorate  of          Disposals which carried on the disposals was merely          disposing of surplus material by way of realisation          of  capital and there was no profit motive.  On the          same  basis,  in  Government Medical  Store  Depot,          Gauhati  vs.   Superintendent of Taxes,  Gauhati  &          Others  [1985  (4)  SCC 239], again cited  for  the          respondent Port Trust, it was held that, as per the          unamended  definition of ‘business’,  profit-motive          was  not excluded and, on the facts found, as there          was  no profit-motive established, the transactions          of sales of medicines by the Medical Store Depot to          various departments, did not amount to ‘carrying on          business’  in  spite  of   the  volume,  frequency,          continuity  and  regularity  of  the  transactions.          This  was  followed  in  Government  Medical  Store          Depot, Karnal vs.  State of Haryana & Others [ 1986          (3)  SCC  669].  In State of Punjab vs.   Assessing          Authority,  Chandigarh  [1991 Supp.  (1) SCC  153],          the  sales were by Canteens run by the  Hospitality          Organisation,  Punjab.  In all these cases, it  was          held  that  sales tax was not leviable  because  of          absence of profit motive (which was not excluded by          statute)  in  regard to the main  activities.   But          these cases are not directly in point inasmuch they          are  based on a definition of ’business’ which  did          not  exclude  profit  motive and  cannot  help  the

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        respondent - Port Trust.

             Again.   before  the  statutory  exclusion  of          ‘profit  motive’ from the definition of ‘business’,          question arose whether certain sales of commodities          other  than the goods relating to the main business          could  also  be  included  in  the  turnover.   The          definition  did not, in the initial stages, include          sales  made "in connection with" the main  business          activities.   The said word is obviously wider than          the  word  ‘ancillary’ or ‘incidental’.   We  shall          start  with the leading case.  In State of  Gujarat          vs.   Raipur Manufacturing Co.  Ltd.  [AIR 1967  SC          1066  = 19 STC 1], relied upon for the respondent -          Port  Trust,  it was held by Shah, J.  (as he  then          was)  that  the  definition of ‘business’  did  not          exclude  profit motive nor did it include sales "in          connection  with"  the main activity.  The  Textile          Mill’s  main  activity did indisputably  amount  to          ‘carrying  on  business’  but  in  regard  to   the          incidental  sales  of ‘unserviceable or  discarded’          goods,  it was held that these sales were  intended          only  for  reduction  of  the  space  and  to  save          accommodation  and were not so integrated with  (or          connected  with)  the main business, even  if  they          were  of considerable volume and frequency.   There          was  no  proof that the Mills intended to carry  on          business  in  unserviceable  and  discarded  goods.          However, in the same case, ‘Kolsi and Waste Caustic          Liquor’  which were sold regularly and continuously          were  held  to  be  part   of  the  business  being          subsidiary  products  of the main business  of  the          Textile  Mill  and sales of these items  were  held          liable  to  sales tax inasmuch as an  intention  to          trade  in these items could be presumed.   Likewise          in  State of Gujarat vs.  Vivekanand Mills  [(1967)          19  STC  103 (SC)], cited for the respondent-  Port          Trust, the Mills purchased cotton locally believing          that  shipment from California would take 6  months          time  to arrive but the Californian Cotton  arrived          suddenly  and therefore the local cotton had to  be          sold  to avoid blocking up of a large sum of money.          It  was held that it could not be inferred that the          Mills intended to carry business in selling cotton.          The  sales  were not liable to tax.   Position  was          similar  in State of Gujarat vs.  Arvind Mills Ltd.          [(1967)  19  STC  12  (SC)]   where  sales  of  old          containers  such as cans, boxes, discarded  stores,          machinery  and  iron scrap, discarded hessian,  oil          and  chemicals  were held not part of business  but          sale  of ‘Waste Caustic liquor’ were held liable to          tax.   Again in State of Gujarat vs.  Ambica  Mills          Ltd.  [(1967) STC 12 (SC)] the sale of 89 looms, 28          carding  engines,  2  lathes etc.   were  held  not          exigible  to  tax.  In Hindustan Steels  Ltd.   vs.          State  of  Orissa  [AIR  1970  SC  253],  the  main          activity  was  production of steel but  there  were          sales   of  bricks  to   contractors  at  a   fixed          percentage  over cost price.  These sales were held          not  part  of the main business activity  and  were          held  not  liable  to sales tax.  All  these  cases          being based on a definition of ’business’ which did          not  include  connected,  ancillary  or  incidental          sales, cannot help the respondent -Port Trust.

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             After  the  amendment  to  the  definition  of          ‘business’ in 1964 or thereabouts in most sales-tax          statutes,  profit motive was statutorily treated as          irrelevant.   Further, by including sales made  ‘in          connection  with’ or ‘incidental’ or ‘ancillary’ to          the  main business as part of ‘business’, the scope          for  taxation was widened and questions arose again          whether,   the   incidental    sales   of   certain          commodities  could  be  treated   as  amounting  to          ‘carrying on business’.

             The  words  ‘in connection with’ occurring  in          the definition of ‘business’ fell for consideration          in  State  of Tamil Nadu vs.  M/s Burmah Shell  Oil          Storage  and  Distributing  Co.  of India  Ltd.   &          Another  [1973  (3) SCC 511 = 31 STC 426]  strongly          relied  upon  for  the appellant - State  of  Tamil          Nadu.   In that case, sales fell into two  periods.          The  oil  company’s sales during 1-4-64 to  31-8-64          and   those  during  1.9.64  to  31.3.65  were   in          question.   The amendment which made profit  motive          irrelevant  and included sales made ‘in  connection          with’ main business in the definition of ‘business’          came into force w.e.f.  1.9.64 in Madras State.  In          respect  of  the pre-amendment period,  this  Court          followed  Raipur Manufacturing Co.  Case [AIR  1967          SC 1066].  Jaganmohan Reddy, J.  held that the sale          of  miscellaneous,  old and discarded items,  could          not  be  treated  as  part  of  the  activities  of          carrying  on  business  even  if  the  sales   were          frequent  and their volume was large.  It was  also          observed   that  the  discarded   goods  were   not          by-products or subsidiary products of or arising in          the  course  of manufacturing process.   Nor  could          they  be treated as sales ‘in connection with’  the          main  business for such a contingency was not  part          of  the  then  definition of  ‘business’.   But  in          respect  of  the period after 1.9.64, it  was  held          that the addition of the words in section 2(d) (ii)          of  transactions "in connection with or  incidental          or  ancillary to such trade, commerce, manufacture,          adventure   or  concern"  and   the  exclusion   of          ‘profit-motive’  made the definition of  ‘business’          wider.  It was, therefore, held that the scrap that          was  sold  after 1.9.1964 was "connected with"  the          business  of the company.  The Court  distinguished          Raipur  Manufacturing Co.  Case on this ground.  An          argument was advanced for the assessee in that case          that  the word ‘such’ in the inclusive part of  the          definition  of ‘business’ in section 2(d)(ii)  viz.          "any  transaction in connection with or  incidental          or ancillary to, such trade, commerce, manufacture,          etc.",  governed the word ‘trade’ etc.  and that  a          commercial  element was intended to be part of  the          subsidiary  sale transaction.  But this  contention          was  rejected  by this Court holding that the  word          ‘such’ referred to the concept of absence of profit          motive, as per the amended definition of ‘business’          in  section 2(d)(i).  It was held that the decision          of  the  Andhra  Pradesh High  Court  in  Hyderabad          Asbestos  Cement Products Ltd.  vs.  State of  A.P.          [(1972)  30  STC  26] had correctly  explained  the          position  after a similar amendment.  Adverting  to          that judgment, it was held(p.516):

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             "In  their  view (Andhra Pradesh High  Court),          under  both parts of the definition, profit  motive          is  now  immaterial and the concept of business  in          respect  of matters falling under section  2(d)(ii)          in the commercial sense put forward and accepted in          the  earlier cases must be abandoned.  We think the          view adopted by the Andhra Pradesh High Court is in          consonance  with  our  own reading of  the  section          which we have indicated earlier."

             In  other  words, the "concept of business  in          the  commercial sense" was, it was held, abandoned.          That  would  mean that after the amendment, it  was          sufficient  if these sales were made "in connection          with"  the trade and there was no need to prove  in          these  sales  any  commercial  element.   The  word          ‘such’  in sub-clause (ii) of section 2(d) defining          ‘business’  after amendment would mean the  absence          of  profit  motive and it did not matter so far  as          these  sales were concerned, if there was no profit          motive or commercial element.  Such sales were also          to  be  treated  as part of  ‘business’  under  the          inclusive  part of section 2(d)(ii).  Thus sales of          scrap  and  unserviceable goods, even if  made  for          reduction of space or such other reason and even if          there  was  no  profit motive,  they  would  become          exigible   to  sales-tax.   This   was  a   radical          departure  from Raipur Manufacturing Co.  but  this          was  because of the amendment in the definition  of          ‘business’ in 1964 and not because of any change in          legal  principle.  This decision would support  the          case  of  the  appellant, State of Tamil  Nadu,  if          however,  it  was proved that the main activity  of          the Port Trust amounted to ’business’.

             The  words  ‘incidental’ in  section  2(d)(ii)          came  up  for consideration in State of Tamil  Nadu          vs.   Binny  Ltd.   Madras [1980 Suppl.   SCC  686]          cited for the respondent - Port Trust.  The company          was  having  business  of manufacture and  sale  of          textiles.   It  was  also running a  store  in  the          premises  of  the factory to enable the workmen  to          buy  provisions  which were assessed to  tax.   The          sales  to  workmen  were on no profit  basis.   The          company  contended  that  it  was  only  running  a          facility  for its workmen and its main business was          certainly  not  that  of selling  provisions.   The          issue related to 1967-68 after amendment of section          2(d)  of  the Madras Act.  The argument that  there          should  be  a "direct" connection between the  main          business and these sales of provisions was rejected          by this court and it was held that these sales were          ‘incidental’  to  the main business and covered  by          the  amended  definition of ‘business’  in  section          2(d).   Bhagwati,  J.(as he then was) adsverted  to          the  observations  of  Krishna Iyer, J.   in  Royal          Talkies,  Hyderabad vs.  Employees State  Insurance          Corporation  [1978  (4) SCC 204], a decision  under          the ESI Act to the following effect:

             "a  thing  is  incidental to  another,  if  it          merely  pertain  to  something   else  as  primary.          surely,  such  work  should not  be  extraneous  or          contrary  to  the purpose of the establishment  but          need not be integral to it either."

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             It  was pointed out that in the case  relating          to  Royal  Talkies,  it  was   held  that  it   was          impossible to hold that a canteen or cycle stand or          cinema  magazine  booth was not incidental  to  the          purpose   of  the  theatre.    The   cinema   goers          ordinarily  find  the  above   to  be   facilities,          amenities and sometimes even a necessity.  All that          the  statute required was that the work should  not          be  irrelevant to the purpose of the establishment.          Adverting  to  the  facts in the case  before  them          (i.e.   Binny  Case),  this Court held  that  if  a          canteen   maintained  by  a  cinema-owner  for  the          benefit   of  cinegoers  could   be   regarded   as          ‘incidental’  to the purpose of the Cinema theatre,          namely,  the  business of exhibiting films  in  the          theatre, it was difficult to see how a store run by          the  owner  of  a Textile undertaking for  sale  of          provisions to workmen employed in the factory could          be  said to be not ‘incidental’ to the business  of          manufacture  of  textiles.   [This case  stands  in          contrast  with State of Tamil Nadu vs.   Thirumagel          Mills  Ltd.  [(1972) 29 STC 290(SC)] where,  before          amendment  of  definition  of   ‘business’  in  the          T.N.Act,  sales  made during the running of a  fair          price  shop  by  a  spinning mill  for  benefit  of          employees  without  profit  motive  were  held  not          liable  to  sales  tax].   On the  same  parity  of          reasoning,  it was held in State of Tamil Nadu  vs.          Shakti  Estates  [1989  (1) SCC 636] that  where  a          reserve-forest was purchased or taken on lease by a          firm  for  raising coffee and  cardamom  plantation          thereon  and  a portion of the forest  produce  was          cleared by felling trees and then the cut trees and          natural  growth  were  sold in various  forms  like          firewood,  timber/sleepers/charcoal,-   then  these          sales  were  ‘incidental  or   ancillary’  to   the          business.   It  was immaterial that in these  sales          there was no profit motive.  In the context, it was          to  be  noted  that  a  ‘casual  dealer’  was  also          included  in  the definition of ‘dealer’  and  even          sales  effected  before the plantation had  started          yielding  results  would  be  covered.   In  Indian          Express  (P) Ltd.  vs.  State of Tamil Nadu [(1987)          67 STC 474 (SC)], it was held that the sales of old          and  unsold  copies  of newspapers by  a  newspaper          publisher  as  waste  paper regularly  with  profit          motive,  were ‘incidental’ to the main business  of          printing  and publishing newspapers and were liable          to  sales tax.  This case was followed in The Hindu          vs.   State of Tamil Nadu [(1987) 67 STC 477  (SC)]          which  related  to sales of glazed newsprint  by  a          newspaper  publisher(during  the  period  when  the          publication  was  stopped)  and also sales  of  old          newspapers,  print  waste and cut waste  and  these          sales  were treated as ‘incidental or ancillary’ to          the  main  business of printing and  publishing  of          newspaper  and  liable to sales-tax.   These  cases          would  be of help to the appellant, State of  Tamil          Nadu,  if  the  main  activity of  the  Port  Trust          amounted to ’business’.

             Learned  senior  counsel  for  the  appellant,          State  of Tamil Nadu contended that merely  because          the  Port Trust was performing statutory  functions

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        or duties, it could not be contended that there was          no  ‘business’  in  the  eye of the  law.   It  was          pointed  out  that even the Central Government  and          State  Governments  had  been  brought  within  the          purview  of  the definition of ‘dealer’ in  section          2(g)   by  way  of   an  Explanation.    Similarly,          compulsory sales under Control orders had also been          brought within the tax-net.

             It  is  true  that  in the  Explanation  2  to          section  2(g)  which defines ‘dealer’, the  Central          Government  and State Governments have been brought          within  the  definition  of   ‘dealer’  in  certain          respects.    In  District   Controller  of  Stores,          Northern Railway, Jodhpur vs.  Assistant Commercial          Taxation  Officer  & another [(1976) 37  STC  423],          relied upon for the appellant, State of Tamil Nadu,          sale  of  unserviceable  stores and  scrap  by  the          Northern Railway were held exigible to sales tax in          view of the enlarged definition of ‘business’ under          the  Rajasthan Sales Tax Act, 1954.  It was pointed          out  that there was no fallacy in thinking that the          Railway,  since it was concerned in the activity of          transportation,   it  was   engaged  in   commerce.          Similarly  in Member, Board of Revenue, West Bengal          vs.    Controller  of   Stores,  Eastern   Railway,          Calcutta  [(1989) 74 STC 5], it was held in a batch          of  cases  that  sale of unclaimed goods  made  the          Railway a ‘dealer’ under section 2(g) of the Bengal          Finance(Sales  Tax)  Act, 1941.  The South  Eastern          Railway  was a carrier of goods and its activity of          selling   goods   which   remained  unclaimed   was          adjunctive  to its principal activity as carrier of          goods.   It was ‘incidental’ or ‘ancillary’ to  its          business  as  carrier of goods.  On that basis,  in          the  same  batch,  in a case  arising  from  Andhra          Pradesh,  the  Central Government was held to be  a          ‘dealer’  within section 2(b) of the Andhra Pradesh          General  Sales  Tax Act, 1957.  There  the  Central          Government  sold,  through  the Joint  Director  of          Food,  foodgrains and fertilizes to the A.P.  State          and   other  States,  for  a  price  fixed  by  the          Government.   Though  the  tax was  levied  on  the          Government  of  India, it was stated that this  was          for  the  benefit  of  the  State  Governments  and          through  a machinery of the State tax agency.   The          State  had  power  to trade or do business  as  was          manifest from Article 19(6)(ii) of the Constitution          of  India.   The  trade in  essential  commodities,          though  carried on to fulfil a State obligation  of          ensuring  even distribution of vital goods to needy          sections  of the people, was nevertheless trade  or          business.   Necessarily,  therefore,   the  Central          Government  became  a ‘dealer’ by definition as  it          carried  on  business and this was so even  if  the          State Act excluded the profit motive.  Again in M/s          Vrajlal  Manilal  & Co.  and another vs.  State  of          Madhya  Pradesh  and another [AIR 1986 SC 1085]  it          was  held that the M.P.General Sales Tax Act,  1959          was amended by enlarging the definition of ‘dealer’          in  section  2(d)  and that the  Explanation  added          brought the Central or State Governments within the          purview  of the said definition.  Then in the seven          Judge  decision in M/s Vishnu Agencies (Pvt.)  Ltd.          vs.   Commercial  Tax Officer and Others [1978  (1)

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        SCC   520],   this  Court   had  to  consider   the          transactions  of supply of cement by a  distributor          to  a  permit  holder in terms  of  the  W.B.Cement          Control  Act and Control Order to find out if  they          amounted  to  ‘sale’  within section  2(g)  of  the          Bengal Finance (Sales Tax) Act, 1941.  The case was          also  concerned with the compulsory sales of  paddy          by  paddy grows to licensed agents appointed by the          State  Government under the A.P.  Paddy Procurement          (Levy) Orders.  The issue related to the absence of          a  consensual option as between the parties to  the          bargain.   It was held that a transaction  effected          in  compliance  with  the  obligations  imposed  by          statute  might nevertheless be a ‘sale’ in the  eye          of  the  law, so long as mutual assent, express  or          implied, was not excluded.  There was no obligation          for  a  trader  to  deal  with  business  in  these          controlled  goods.  But once a dealer opted, he was          bound  to  trade strictly within the terms  of  the          Control  orders.   Further  though the  terms  were          mostly  predetermined  by statute, it could not  be          said that there was no area or scope for parties to          bargain.   Thus,  these sales were held  liable  to          sales-tax.    These   decisions   could  help   the          appellant,  State  of  Tamil   Nadu,  if  the  main          activity of the Port Trust amounted to ’business’.

             In this context reference was also made by the          appellant’s  senior counsel to Food Corporation  of          India  vs.  State of Kerala [1997 (3) SCC 410] as a          case  where the services were governed by  statute.          In  that case, purchase of food grains by the  Food          Corporation of India pursuant to levy orders issued          under  section  3 of the Essential Commodities  Act          were  held liable to sales tax under the  U.P.Sales          Tax  Act, 1948.  The facts of the case showed  that          the  FCI had reserved the right to accept or reject          the  offer of the State.  Several earlier judgments          relating  to  sales which were governed by  Control          orders were approved by the three Judge Bench.  But          this  ruling cannot help the appellants because the          Food  Corporation, as seen from the preamble of the          Food  Corporation  Act,  1964 was  established  for          purpose  of  trading in food grains and other  food          stuffs.   Hence the appellants must establish  that          the  Port  Trust  was established for  carrying  on          business.

             It  will  thus  be noticed that in  all  these          cases  the main activity of the person or body  was          undoubtedly  ‘business’  even though the motive  of          profit  was excluded by statute and even though the          connected,  incidental  or   ancillary  sales  were          statutorily included in the definition of business.          The question in issue before us is whether the Port          Trust  was  established  by statute  to  ‘carry  on          business’.

             We  now  come to the second category of  cases          cited for the respondent, Port Trust where the main          activity  of the person or body does not amount  to          ‘carrying  on  business’.  If that be the case  the          activities   will  stand  far   removed  from   any          business.   Let us assume that such  "non-business"

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        activities  might  result  (say) in some  scrap  or          unwanted  material which should be cleared so  that          accommodation  could  be saved.  If the sales  were          then   made  with  an   intention  to  reduce   the          congestion and not with the intention of running an          independent  business  in  the  scrap  or  unwanted          material,  then would they be liable to  sales-tax?          If  in  such situations, the activities of sale  of          the  scrap  or unwanted material were only  a  very          infinitesimal  part of the activities when compared          with  the main "non-business" activity, could  they          be brought under the tax net?

             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.

             We  shall  now  refer to a few  decided  cases          where  such  questions have arisen and  which  have          been cited for the respondent, Port Trust.

             One  of  the earliest of the cases  where  the          ‘object or purpose’ of the main activities fell for          consideration  was the case decided by the  Chagla,          CJ  in the Bombay High Court in State of Bombay vs.          Ahmedabad  Education  Society  [(1956)  7  STC  497          (Bom)].   In that case, an Educational society  was          entrusted  with the task of founding a College  and          for  that purpose 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  brick  and  scrap at  cost  price  without          intending to make profit or gain.  Having regard to          its  principal  activities and its objects, it  was          held   that  the  Educational   Society   was   not          established  to ‘carry on business’ and the sale of          bricks  were  held  not   exigible  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 that the ‘object’ of  the          person who carried on the activities was important.          The  learned  Chief  Justice said that it  was  not          every  activity or any repeated activity  seriously          undertaken  which  resulted  in sale or  supply  of          goods  that could attract sales tax.  If it was the          intention  of the Legislature to tax every sale  or

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        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 the business’ of  selling,  buying          etc.   No  doubt, when this case was  decided,  the          statute  did not include the connected,  incidental          and  ancillary  activities  in  the  definition  of          ‘business’.  But, even so the principles enunciated          are, with respect, correctly stated and support the          case of the respondent, Port Trust.

             In   Girdhari  Lal   Jiwanlal  vs.   Assistant          Commissioner  of Sales Tax (Appeals), Nagpur  [1957          Vol.8  STC 732(Bom)], 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’ under section 2(c) of the          CP  & Berar Sales Tax Act (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  product.  According to the  assessee,          he  was principally an agriculturist who also deals          in cotton, coal, oil-seeds and groundnuts".  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 Dy.  Commissioner of Agricultural          Income-tax & Sales-tax vs.  Travancore Rubber & Tea          Co.  [1967 vol.20 STC 520(SC)] 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 [(1964) 15 STC 505 (All.)] was dealing with          a  batch  of  cases  where  different  bodies  were          running  canteens.  One of the cases concerned  the          Aligarh  Muslim  University which  was  maintaining          dining   halls  where  it   was  serving  food  and          refreshments  to  its residents-students.   It  was          held,  referring  to observations of this Court  in          University  of  Delhi  & Another vs.   Ram  Nath  &          Others  [AIR 1963 SC 1873] 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

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        reasoning,  it was held that the 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  definition  of          ‘business’  question  arose in India  Institute  of          Technology   vs.   State  of  UP  [(1976)  38   STC          428(All)],  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 organisation,  in  Dy.          Commissioner  (C.T),  Coimbatore vs.   South  India          Textile  Research  Association [(1978) 41  STC  197          (Mad)], 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          above-mentioned   could   not   be   subjected   to          sales-tax.   Likewise,  in State of Tamil Nadu  vs.          Cement  Research Institute of India [(1992) 86  STC          124(Mad)],  it  was held that the Institute was  an          organization  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.  State of Madras          [(1972)  29  STC 266(Mad)] 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.

             Finally, we come to the Naval Dockyard Case in          Base  Repair  Organisation, (Now  Naval  Dockyard),          Visakhapatnam  vs.   The State of A.P.  [(1983)  53          STC   223(AP)].   Here  the   Naval  Dockyard   was          established  for  repairing and servicing ships  of          the  Navy.   It  was obliged by section 46  of  the          Factories  Act  to  run a canteen to cater  to  the          needs  of its employees and the canteen was run  on          no-profit  no  loss  basis.  It was held  that  the          sales  in the canteen were not liable to sales tax.          It was held as follows:

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             "It  should be noticed that the canteen is not          only   being  run  in   discharge  of  a  statutory          obligation,    but   that    it   constitutes    an          infinitesimal  and insignificant part of the entire          activity  of  the assessee.  Having regard  to  the          nature  of the functions and the purpose for  which          the  Naval  Dock  yard  is  established,  and  also          because  of the fact that the canteen subserves the          main  object and purpose of the assessee and is  an          integral  and  inseparable part of it, it would  be          unrealistic to separate the said activity and treat          it as a business."

             We  are  in  entire agreement with  the  above          elucidation of the law and the conclusion and these          observations  support the case of the respondent  -          Port Trust.

              Learned  senior  counsel for  the  appellant,          State  of  Tamil  Nadu, however,  relied  upon  the          certain other  observations in the above case.  The          observations relied upon are as follows:

             "Sub-clause  (ii)  is  in  the  nature  of  an          explanation.   It  says  that  any  transaction  in          connection  with  or  incidental  or  ancillary  to          trade, commerce, manufacture, adventure or concern,          referred  to in sub-clause (i), shall equally be  a          business.   The contention of Mr.Venkatarama  Reddy          is  that, on the same parity of reasoning, inasmuch          as  the  main activity of the petitioner  does  not          amount  to  trade,  commerce  or  manufacture,  the          ancillary  or  incidental  activity  of  running  a          canteen  cannot equally amount to business.  It  is          not possible to agree with this submission."

        Thereafter, the High Court observed:

             "According  to  the  definition, if  the  main          activity  is  in the nature of trade,  commerce  or          manufacture,    any    ancillary    or   incidental          transaction,  be it per se in the nature of  trade,          commerce  or manufacture or not, is also treated as          ‘business’.   But  the  converse is not  true.   In          other  words, if the main activity is not business,          but  if an ancillary or incidental activity is  per          se  business, the incidental or ancillary  activity          does not cease to be business, merely because it is          ancillary or incidental to the main activity, which          itself  is  not  business.  The definition  is  not          capable of being read in such a manner."

             We  agree with the above observations  subject          to the following clarification or modification.  If          the  main activities are ‘business’ then the  sales          in  connection  with  or  incidental  or  ancillary          thereto  need not have been intended as a  business          or commercial activity.  Their mere connection with          or  being incidental or ancillary to something else          which was ‘business’ was sufficient to include such          sales in the main business.  The second part of the          last  extract  starting  with the  words  ‘But  the          converse  is  net true’,are to be modified to  mean

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        that  if the main activity falling under sub-clause          (i)  did  not  amount to business,  normally  these          sales made in connection with or were incidental or          ancillary  to  the  main   activity  would  not  be          ’business’  but  there could still be an  exception          where  the  sales  so connected  or  incidental  or          ancillary  to the main "non-business" activity were          proved  to  have  been  made  with  an  independent          intention to do business and the burden of proof to          prove  the exception would fall on the revenue.  In          our view, the Andhra Pradesh High Court did not, in          the  above passage, imply that even where the  main          activities  were  not business, the  assessee  must          prove  want of an intention to carry on business in          the  connected,  incidental or  ancillary  activity          which   involved  sales.   It   is   possible,   in          exceptional  cases that such latter sales could per          se be business having been proved by the revenue to          have   been  carried  in   with  such  an  explicit          intention.   The  burden, as already stated,  would          here lie on the revenue.

             Then  the  learned  senior   counsel  for  the          appellant-State  relied  upon yet  another  passage          from  the above judgment of the Andhra Pradesh High          Court which reads as follows:

             "We  must  make  it  clear  that  there  is  a          definite  distinction between an activity which  is          ancillary or incidental to the main activity and an          activity  which  is  an integral part of  the  main          activity.   In  the first case, the  incidental  or          ancillary  activity is a distinct activity,  though          it   is  incidental  or   ancillary  to  the   main          activity."

             On  the  facts of the case before  the  Andhra          Pradesh  High  Court,  the   canteen  activity  was          treated  as a requirement of statute and also as an          integral  part  of  the   main  activity  and  was,          therefore,  not  business.  If the  Andhra  Pradesh          High Court meant that incidental or ancillary sales          or  sales made in connection with a main  activity,          (which  main activity was not in itself  business),          in  order  to  escape liability  should  always  be          proved  by  the assessee to be an integral part  of          the  main  "non-  business" activity,  we  are  not          inclined  to agree.  In our view, that would  erase          the  distinction between sales which were  integral          with  the  main "non-business" activity  and  those          which  were  incidental or ancillary or  connected.          In the first place, if these sales were an integral          part of the main "non-business" activity, they were          not  incidental  or ancillary and would present  no          difficulty  in leading to the conclusion that  they          were  not taxable.  But if the sales were connected          or  incidental  or ancillary to the  "non-business"          activity  then, as stated earlier, there would be a          presumption  that  they  were not  intended  to  be          ‘business’.   It would then be for the revenue,  in          any exceptional case to prove that, in respect of a          "non-business" activity the ancillary or incidental          sales  were independently intended to be carried on          as  a separate business.  To this extent, we modify          the  principle  stated in the Andhra  Pradesh  High

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        Court in the Naval Dockyard case.

             That brings us finally to the question whether          the Port Trust was established under the Major Port          Trusts Act, 1963 for ‘carrying on business’?

             The  observations of this Court in Trustees of          Port of Madras vs.  M/s Aminchand Pyarelal & Others          [1976  (1) SCR 721] in connection with the  earlier          Madras  Port Trust Act were strongly relied upon by          the  learned  senior counsel for the  respondent  -          Port  Trust.   In that case Chandrachud,  J.(as  he          then was) observed (at p.735) as follows:

             "Port  Trusts  do  not  do  the  business   of          warehousing  goods  and the rates which  the  Board          charges  for  storage of goods are not levied as  a          means of collecting revenues.  The Board is under a          statutory  obligation to render services of various          kinds  and  those services have to be rendered  not          for  the personal benefit of this or that  importer          but in the larger national interests."

        The  above  observations  clearly  show  that  Port          Trusts   are  not  established  for   carrying   on          business.

             Coming  to  the  Major Port Trusts  Act,  1963          (before  amendment by Act 15/97), Chapter V  refers          to  "works  and services to be provided  by  ports"          (sections  35  to 47) while Chapter VI  deals  with          ‘Imposition  and  Recovery  of   Rates  at   Ports’          (sections  48  to  65).  Section  35(a)  refers  to          various  works and appliances to be provided by the          Ports,   namely,wharves,  quays,    docks,   stage,          jetties,  piers  etc.   within  the  port  or  port          approaches  or on the foreshore of the port or port          approaches,  with all convenient articles,  drains,          landing  places,  stains, fences, roads,  railways,          bridges,  tunnels  and   approaches  and  buildings          required  for the residence of the employees of the          Board as the Board may consider necessary;  section          35(b)   refers   to   providing  buses,   railways,          locomotives,   rolling   stock,    sheds,   hotels,          warehouses  and other accommodation for  passengers          and  goods.   The  port  is  required  to   provide          appliances   for   carrying   passengers  and   for          conveying,  receiving and storing goods, landed  or          to  be  shipped etc.;  section 35(c)  requires  the          port to provide moorings and cranes, scales and all          other  necessary means;  appliances for loading and          unloading vessels;  section 35(d) requires the Port          to  take  up  work   for  reclamation,  excavation,          enclosing  and raising any part of the foreshore of          the  port or port approaches which may be necessary          for  the  execution of the works authorised by  the          Act,  or  otherwise  for the purposes of  the  Act;          section  35(e)  requires the port to  provide  such          breakwaters and other works as may be expedient for          the protection of the port;  section 35(f) requires          it  to  provide  dredges  and  other  machines  for          clearing,  deepening  and improving any portion  of          the  port or port approaches or of the foreshore of          the  port  or  port   approaches;   section   35(g)          requires   to  provide   light  hours,  lightships,

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        beacons,  buoys,  pilot boats etc;   section  35(h)          requires  it  to  provide vessels,  tugs  or  other          boards  for  use  or  for  towing  vessels  or  for          protecting  life  or property and for  purposes  of          landing,  shipping  or transshipping passengers  or          goods  under section 42;  section 35(i) requires it          to provide tubewells and equipment, maintenance and          use  of  boats,  bongs  and  other  appliances  for          extinguishing  fires;  section 35(k) requires it to          provide  construction models and plans for carrying          out  hydraulic studies;  section 35(l) requires  it          to  provide  dry docks, slipways, boat  basins  and          workshops  for carrying out repairs or overhandling          of  vessels,  tugs boats, machinery  etc.   Section          35-A, 36 also refer to other works.

             We   have  referred  to   the   Port   Trust’s          activities  and services in some detail only with a          view   to  show  that  the   port  trust  was   not          constituted by Parliament to ‘carry on business’ as          stated  in M/s Aminchand Pyarelal’s case [1976  (1)          SCR  721].   We  have given the long  list  of  its          activities   and   services  only   to   show   how          infinitesimal  are  the sales of  unserviceable  or          unclaimed goods as compared to the very large range          of  the  activities and services it is supposed  to          render.

             In view of          the  requirements  of sections 37, 39 and 42  ships          come  to the ports and carry goods outside or bring          goods  inside  our country.  Under section 43,  the          Board  is  liable  for  the  loss,  destruction  or          deterioration of goods of which it has taken charge          in  the  manner  provided in the  sections.   Under          section  44,  accommodation is to be  provided  for          customs  officers  in the wharves etc.  Chapter  VI          deals  with  imposition  and recovery of  rates  at          ports.  Sections 48 to 57 deal with the rates.

             The  more important provisions for the present          purpose  are those in Sections 58 to 65 in  Chapter          VI.   They deal with the Board’s lien for rates  on          the  goods which, in enforcement of the lien  could          be  seized & detained till such rates and rents are          fully  paid.   Section 61 refers to sale  of  goods          after  2  months if rates or rent are not  paid  or          lien  for  freight is not discharged.   Section  62          refers  to  disposal  of  goods  not  removed  from          premises  of  Board.  Section 63 mentions  how  the          sale  proceeds are to be dealt with - in payment of          liens, claims, other charges, demurrages, penalties          etc.  From the above provisions, in our opinion, it          is clear that the Port Trust is not involved in any          activity  of  ’carrying  on business’ as  has  been          clearly  held  in Aminchand Pyarelal’s  case(supra)          and that unclaimed and unserviceable goods are sold          in  discharge  of various statutory charges,  items          etc.   and  the  sales of these items are  also  an          infinitesimal  part  of  the   Port  Trust’s   main          activities  or  services.  No doubt, the  sales  of          goods  are  in  connection with, or  incidental  or          ancillary  to  the main "non-business"  activities,          but  they  cannot be treated as ‘business’  without          any  plea by the State of Tamil Nadu that the  Port

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        Trust  had  an  independent intention to  carry  on          business  in  the sale  of  unserviceable/unclaimed          goods.   That is not the case of the Department  in          the  show cause notice.  Further from the  counter-          affidavits filed in the High Court it is clear that          it  is not the case of the State that there is  any          separate  intention on the part of the  Port-Trust,          to  carry  on  business  in  the  unserviceable   &          unclaimed  goods.  Its contention has been that the          main  activities  of  the Port  Trust  amounted  to          ‘carrying  on business’ and that these sales,  even          if they were incidental, fell within the meaning of          the word ‘business’.  The argument fails in view of          our  finding  that  the main activity  is  not  one          amounting to ’carrying on business’.

             In our view, the conclusions arrived at by the          Madras High Court in State of Madras vs.Trustees of          Port Trust of Madras [(1974) 34 STC 135(Mad)] which          ruling  was  followed  by the Andhra  Pradesh  High          Court  in  Board of Trustees of  the  Visakhapatnam          Port  Trust  vs.  Commercial Tax Officer &  Another          [(1979)  43 STC 36(AP)] and the conclusions arrived          at  in the judgment under appeal by the Madras High          Court  holding that such sales are not exigible  to          tax,  are correct, though for the reasons given  by          us  in  this  judgment.   We   do  not  accept  the          contention of the appellants that at this stage the          respondent  should  be directed to file  its  reply          before  the  department and go by  the  alternative          remedies under the Act.  In view of the case set up          by  the  State in the show cause notice, it is  not          necessary  to drive the respondent - Port Trust  to          the remedy under the Sales Tax Act.  The submission          for  the appellants that the Port Trust was a local          authority  need  not  also be gone into  for,  even          then,  the question will be whether it was carrying          on  business.  Nor does the amending Act 31 of 1992          have any bearing on this question.

             The intervention applications are dismissed.

             For  the  aforesaid  reasons,  the  appeal  is          dismissed but in the circumstances, without costs.