TMI Blog1997 (12) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... s justified in law in holding that the applicants were liable to pay tax prior to August 16, 1985, when explanation came to be inserted in section 2(11) of the Bombay Sales Tax Act, 1959, holding the shipping companies, amongst other entities, liable as dealers? 4.. Whether the sale of tanker by the applicants on the high seas was a sale within the State as defined by section 2(28) of the Bombay Sales Tax Act, 1959? The first two questions have been referred by the Tribunal under subsection (1) of section 61 of the Act. The other two question, viz., questions Nos. 3 and 4, have been referred by it under the directions of this Court under subsection (2) of section 61 of the Act. 2.. The material facts giving rise to this reference, briefly stated, are as follows: The assessee is a Government of India undertaking. It is engaged in the business of carrying passengers and cargo. The controversy in this reference pertains to the period April 1, 1983 to March 31, 1984. During this period, the assessee was held to be liable for payment of tax under the Bombay Sales Tax Act on the sale of a ship (also referred to as vessel or tanker ) made by it to Indian Navy. The case of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset in the hands of the assessee. The question that falls for determination is whether in the above circumstances, the sale of the ship by the assessee, can be subjected to tax under the Bombay Sales Tax Act. 4.. Mr. G.S. Jetly, learned counsel for the assessee, submits that the controversy in this case is squarely covered by the decision of this Court in Morarji Brothers (Import Export) Pvt. Ltd. v. State of Maharashtra [1995] 99 STC 117 wherein, on perusal of the provisions of the Bombay Sales Tax Act, it was held that the sale of a capital asset by an assessee would not amount to sale by a dealer within the meaning of section 3 read with clauses (11) and (5A) of section 2 of the Act. Our attention was also drawn to the trade circular dated December 30, 1985 issued by the Commissioner of Sales Tax, by which all concerned were informed about the decision of the department not to enforce the liability to pay any tax by shipping companies qua their disposal of scrap or unserviceable ships in respect of the period up to August 15, 1985. It was pointed out that the only exception carved out in the said circular was the case of shipping companies which had obtained regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute about the fact that the ship or tanker sold by the assessee was a capital asset of the assessee. The business of the assessee consisted of transporting goods and passengers. The sale of ship was not incidental to or connected with the business of the assessee. The case of the assessee is that sale of a capital asset could not be subjected to tax, in any event for the period prior to the insertion of explanation to clause (11) of section 2 of the Act. From the trade circulars issued by the Commissioner from time to time, it is evident that all throughout, the Revenue was also of the same opinion. The real question that falls for our determination, therefore, is whether under the law as it stood prior to August 16, 1985 [before insertion of the explanation to clause (11) of section 2 of the Act] sale of a capital asset by a shipping company could be held to be a sale exigible to tax under the provisions of the Act. It may be pertinent to mention that the definition of dealer in clause (11) was amended by the Maharashtra Act 14 of 1985 with a view to levying tax on disposal of unclaimed or confiscated goods by certain persons including unserviceable ships, etc., by shipping co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been assessed, he has filed an appeal, or as the case may be, an application for reference against such levy on the grounds as aforesaid; or (2) where such dealer has not been assessed, he has not paid such tax on the grounds as aforesaid or has paid the tax under protest, then, notwithstanding anything contained in the Bombay Sales Tax Act as amended by this Amendment Act, he shall not be liable to pay the purchase tax or, as the case may be, the sales tax, in respect of such purchases or sales. (5) For the purposes of sub-section (4), the burden of proving that the purchases were effected from the person who was not a dealer, or that the sale was of the capital assets pertaining to the business of the dealer, and if the tax was not paid, such non-payment was only on the ground that such tax was not payable as aforesaid, shall be on the registered dealer who has effected such purchases or sales and is claiming such benefit. It is clear from the decision of this Court in Morarji Brothers (Import Export) Pvt. Ltd. v. State of Maharashtra [1995] 99 STC 117 and the Maharashtra Ordinance No. 11 of 1996, Maharashtra Act 19 of 1996 and the Maharashtra Ordinance No. 4 of 1997 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on their disposal of unserviceable or scrap ships, but also of any other tax (such as sales tax on sales of other capital assets or purchase tax, etc.) payable for the period up to August 15, 1985 should not be enforced. On reconsidering the issue and having due regard to the legislative intention behind amendment to the terms dealer which came into force from August 16, 1985 it has now been decided not to enforce liability on shipping companies to pay any tax for the period up to August 15, 1985. However, it is hereby clarified that if the shipping companies have collected taxes separately for the period up to August 15, 1985, such shipping companies would be assessed in accordance with the provisions of law. You are requested to please bring the contents of this circular to the notice of your members. In the instant case, there is no dispute about the fact that the assessee did not collect any tax on the sale of the ship to Indian Navy. A distinction was, however, sought to be made between the shipping companies which were registered under the Bombay Sales Tax Act and companies which were not so registered and it was notified that shipping companies registered during ..... 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