1969 (1) TMI 61 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of tax at 5% instead of 2% on supply of goods to Railways under a specific notification.

Analysis:
The case involved a question of law referred by the Sales Tax Appellate Tribunal regarding the assessment of tax at 5% instead of 2% on the turnover arising from the supply of goods to the Railways. The assessee, a contractor, contended that the concessional rate of 2% should apply as per Notification No. 878-613/V/ST dated 31st March, 1963. However, the notification exempted certain goods from tax only when sold to the Government of India for official use, not when engaged in commercial activity. The issue was whether the sales to the Railways, engaged in commercial activity, fell within this exception.

The argument put forth by the assessee's counsel was that the Railways, specifically the Engineering Department, were not engaged in commercial activity or business, thus not falling within the exception of the notification. However, it was established that the Railways were indeed engaged in a commercial activity as running the Railways was considered a business activity. The Supreme Court's decision in Union of India v. Ladulal Jain supported this notion by affirming that running of railways is a business activity regardless of the entity operating it.

Furthermore, the judgment delved into the definition of "commerce" and "commercial activity" to ascertain if the Railways met these criteria. It was concluded that the Railways, by systematically transporting goods and passengers between states and districts, engaged in a commercial activity. Even if the term "commerce" was interpreted differently, the Railways fulfilled the requirements. Additionally, the Engineering Department of the Railways was deemed a part of the Railways department under the Government of India, thus not exempt from the commercial activity classification.

In conclusion, the Court held that the sales made by the assessee to the Engineering Department of the Railways were to be considered as sales to the Railways department of the Government of India, which engaged in commercial activity and carried on business. Therefore, the sales were rightly not assessed at the reduced rate of tax specified in the notification. The question posed was answered in the negative, and no costs were awarded for the reference.

This judgment underscores the importance of interpreting statutory notifications in line with the actual activities and entities involved, ensuring that exemptions and concessional rates are applied appropriately based on the nature of the transactions and parties concerned.