TMI Blog1998 (12) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2130 of 1998 and contended as follows: The petitioner, All India Skins and Hides Tanners and Merchants Association, is a registered society under the Tamil Nadu Societies Registration Act with effect from November 31, 1979. The association was founded with the object of looking after and furthering the interest of its members who are engaged in the business of purchases, sale and export of hides and skins. In pursuance of clause II(11) of the memorandum of association, a Pooled Consolidated Service Scheme to Members has been formulated and the association secured commodities that are in short supply but which are required essentially to carry on the activities of its members by pooling the requirements of its members and obtained such goods from abroad and outside the State and distributed them to the members by charging a nominal service charge. The monies that are required for obtaining the goods were provided by the members. Such transactions are in the nature of goods obtained by the petitioner-association for and on behalf of its members who have contributed for such goods and the transactions will not constitute sale of goods attracting liability to tax under the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sale of Goods Act, 1930. The State Legislature being competent to legislate only under entry 54, List II of the Seventh Schedule to the Constitution the expression sale of goods bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court. 5.. In this case Shah, J. in his separate judgment, while concurring with the decision, stated as follows: It appears on the findings recorded by the High Court that the clubs or associations sought to be rendered liable in these appeals were not transferring property belonging to them but were merely acting as agents for and on behalf of the members. 6.. From the decision of the Supreme Court it emerges that there cannot be any sale as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1930. Under entry 54, List II of the Seventh Schedule to the Constitution of India, when there is no transfer of title to goods such a transaction cannot be deemed as a sale and the legislation of deemed sale is to be declared as ultra vires the Constitution of India. 9.. The petitioner is an incorporated society under the Tamil Nadu Societies Registration Act. Therefore, even after the amendment to the Constitution and the Act, the transaction of distribution of goods to members by an incorporated society cannot be subjected to sales tax. The ratio of the decision of the apex Court in Young Men s Indian Association s case reported in [1970] 26 STC 241 still holds good. 10.. Explanation (1) to section 2(n) as well as explanation (1) to section 2(g) of the Act was there even when the decision reported in [1970] 26 STC 241 (Joint Commercial Tax Officer v. Young Men s Indian Association) was rendered. By misreading of the above decision, while considering the 46th Constitutional Amendment it was stated in the Objects and Reasons that while sale by a registered club or other association or persons (the club or association of persons having corporate status) to its members is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation of co-operative societies of the farmers through which they can sell their goods. Those societies merely function as agents for the farmers who are their members. By becoming members of those societies and subscribing to their bye-laws, they had given large powers to their agents so that their produce may be sold in the best possible manner. None of the bye-laws, of the society goes to show that the society had purchased the goods entrusted to it by its members. 13.. In State of Tamil Nadu v. Madras Advocates Co-operative Society Limited [1976] 38 STC 297 (Mad.) considered the case of Madras Advocates Co-operative Society, a registered society under the Madras Co-operative Societies Act, 1932, which was assessed to tax on the sales of food and refreshments to its members on a non-profit basis. Applying the decision in Joint Commercial Tax Officer v. Young Men s Indian Association [1970] 26 STC 241 (SC) it was held that there is no sale of refreshments by the society. In the case of a members club even though it was a distinct legal entity, it was held that it was acting only as an agent for its members in the matter of the supply of various preparations and articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of individual consumers, the matter was dealt with through such associations. The assessee-association was only acting as a go-between for its members in the sense it was concerned only with the distribution of the goods allotted to the members. It did not have, in the real sense, any property in the goods which it transferred in favour of the members. 15.. In Chittoor Co-operative Sugars Limited v. State of Andhra Pradesh [1983] 53 STC 249 (AP) the assessee, a co-operative society, in pursuance of the objects of the society as incorporated in the bye-laws procured chemical fertilizers and supplied the same in proportion to shares held by them. Thus, applying the ratio in the decisions reported in Joint Commercial Tax Officer v. Young Men s Indian Association [1970] 26 STC 241 (SC) and Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat [1972] 29 STC 105 (SC) the Andhra Pradesh High Court at page 253 of the judgment observed as follows: In our opinion, the principle of these two decisions squarely applies to the facts of the present case. Here also, the shareholders of the society mostly are from a rural area, and the presumption that they may not know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carrier of goods, under section 43 of the Major Port Trusts Act, the Port Trust is a statutory bailee of the goods. All the services performed/rendered by the Board and enumerated in section 42 of the Major Port Trusts Act, attract the payment of statutory dues as provided for in the Trust s scale of rates framed under section 48 of the Major Port Trusts Act and such scales of rates have been declared to have the force of law. As regards the periodic and irregular sale of scrap and unserviceable goods belonging to the Trust conducted by the Trust, the Port Trust will not come under the ambit of the expression dealer , because it does not do it as a business or as a trade and it is done in the course of rendering of service to the Port users as well as the maintenance of the Port Trust. 18.. In Arulmigu Dhandayuthapani Swami Thirukkoil v. Commercial Tax Officer-II, Palani [1998] 108 STC 114, the Madras High Court considered the correctness of the levy of purchase tax on the purchase of jaggery and cardamom required for preparation of panchamirtham prasadam. While narrating the facts of the case, the High Court at pages 115-116 of the judgment stated as follows: The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... temple cannot be held as business and the temple also cannot be held as a dealer and hence there is no element of sale as provided under the Act to tax the same. The facts and circumstances would, in our opinion, disclose that the appellant is neither a dealer nor doing any business and hence there is no question of levy of tax on the purchase of jaggery by the appellant. As rightly pointed out by the learned counsel for the appellant, the sale of panchamirtham prasadam was not a commercial activity undertaken by the appellant in the course of any business of theirs and though prima facie a sale is involved, it is not in connection with the business of the appellant and much less as a dealer under the provisions of the Act. In order to characterise a person as a dealer, the primary pre-requisite is that he should carry on business within the meaning of the Act. If a person does not carry on business, he is not a dealer. The business which is intricately connected with commerce is unknown to the appellant and therefore it is impossible for us to conceive that while the appellant sell panchamirtham to the devotees who come to the temple, the appellant is doing a business. The ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of wattle extract through the aforesaid association is exempt from tax. We have also taken a similar view in T.A. No. 838 of 1990 dated February 26, 1991, that the purchase of wattle extract through the said association was not liable to tax. 24.. Thus, Mr. K.J. Chandran, vehemently argued that in view of the apex Court s decision in Joint Commercial Tax Officer v. Young Men s Indian Association [1970] 26 STC 241 which still holds the field, it may be declared that section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959 and the Rules framed thereunder, as amended by Act No. 28 of 1984 which authorised levy of sales tax on the supply of goods by an unincorporated association or body of individuals to its members to be deemed sales as illegal, void and ultra vires the Constitution of India. 25.. Thiru S. Ramanathan, learned counsel appearing on behalf of the petitioners in T.P. Nos. 2203 of 1997 and 2204 of 1997 adopted the arguments of Mr. K.J. Chandran, learned Senior Counsel. 26.. Thiru R. Mahadevan, Government Advocate (Taxes), argued as follows: The petitioner, registered under the Societies Registration Act, is an incorporated body having a separate legal id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to tax of the transaction will depend upon its strictly legal form. If an incorporated members club supplies its property to its members at a fixed tariff, the transaction would readily be deemed to be one for sale, even if the transaction is on a non-profit basis; such a transaction would be liable to sales tax. 27.. After the Amendment Act No. 28 of 1984 whereby a new sub-clause (v) to section 2(n) of the Act has been introduced, the test relating to transfer of property belonging to its members by the association to determine whether the transaction is a sale or not has no relevance at all. In J. Abdur Rahim Company v. State of Tamil Nadu reported in [1995] 98 STC 368, the Madras High Court held that the purchase value of wattle extract imported by the association on its own account and then distributed to its members who are consumers and the last purchasers cannot be exempted at the hands of the petitioners. The ratio of the decisions in Bengal Rowing Club v. Commissioner of Commercial Taxes, West Bengal reported in [1993] 88 STC 389 (WBTT) and in Ranchi Gymkhana Club v. State of Bihar reported in [1997] 107 STC 162 (Pat) by holding that the club was not a members c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be admitted as affiliated member . Rule 8 says that the governing body of the association shall be called the executive committee and shall consist of the office-bearers and 21 other members elected by the general body in accordance with these Rules . Rule 9 says that the management of the association and of all the movable and immovable properties of the association shall vest with the executive committee . Rule 11(iii) is very important and it says that the office bearers and members of the executive committee shall be elected by the general body. Ordinary members who are proprietors/proprietrix, partners, directors/managing directors of their concerns shall alone be eligible to contest for any elective office of the association. (Underlined by us for emphasis). 31.. It is stated that the pooled consolidated service scheme to members was formulated with reference to clause 11 of the objects of the association in the Memorandum of Association which reads as follows: To render such assistance and service to members in the conduct and promotion of their trade and industry as in the opinion of the Association may be necessary for furthering the interests of the trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodity to be negotiated on behalf of the members and assess the quantity of requirements. (d) The executive committee of the association shall negotiate the purchases of such determined goods for the specified quantities within/and without India specifically disclosing that such purchases are for and on behalf of the members of the association. (e) The executive committee shall obtain the import licence, if necessary, open O/C, observe all export-import legal, customary and business formalities, and carry out such other related incidents thereto in furtherance of the pooled purchases in the name of the association for and on behalf of the members. (f) The executive committee shall obtain the requirements of the specified goods, from within and without India in the name of the association for and on behalf of the members. (g) On arrival of such goods, the executive committee shall determine the correct quantity received and apportion it on the basis of the ratio in which the quantities required by each of the members stand. It shall approximately compute the cost provisionally and intimate the quantity apportioned and the amount payable by each of the members. (h) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The final balances of all service charges after adjustments of transfers from each of the consignment account, shall also be adopted as service charges paid by the members for the services rendered by the association for and on behalf of its members and transferred to any fund to be used for the benefit of the members. VIII. The property in goods in each of the consignments shall vests in and belong to the participating members of such consignments, with the association holding them on their behalf within the scope of this service scheme. IX. The executive committee may at its discretion adopt, vary or abandon any of the above aspects for the benefit of its members and the efficient functioning of the scheme. 34.. Though in the petitions the prayer is to declare the provisions of section 2(n)(v) of the Act and rules framed thereunder as amended by Act No. 28 of 1984 which authorises levy of sales tax on the supply of goods by an unincorporated association or body of individuals to its members to be deemed sales as ultra vires the Constitution of India, the arguments proceeded on the ground that the All India Skins and Hides Tanners and Merchants Association, a registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 STC 241 (SC), Shah, J in his separate judgment has categorically held that: if an incorporated members club supplies its property to its members at a fixed tariff, the transaction would readily be deemed to be one for sale, even if the transaction is on a non-profit basis ; such a transaction would be liable to sales tax........ The test in each case is whether the club transfers property belonging to it for a price or the club acts as an agent for making available property belonging to its members . 37.. In the present case, as already seen, there are two classes of members, viz., ordinary members and affiliated members and the list of members confirms this position. But the affiliated members are not eligible to contest for any elective office of the association though the management of the association vests in the elected executive committee. Thus, all the members of the association are not on an equal footing with an equal interest in the club and its property and there is no joint legal interest as contemplated in the decision of the Madras High Court reported in [1952] 3 STC 77 (Cosmopolitan Club v. Deputy Commercial Tax Officer). Therefore, in the matter of supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ratio of the decision in Bengal Rowing Club v. Commissioner of Commercial Taxes [1993] 88 STC 389 (WBTT) is applicable to the present case and in such circumstances the supply of its property in wattle extract to its members at a fixed price is to be deemed to be one for sale. However, the decision in the case of Ranchi Gymkhana Club reported in [1997] 107 STC 162 (Pat) is not relevant as there was total and complete exclusion of all categories of members from having any say in the affairs of the club and hence held to be not a members club. 40.. As stated earlier, the nearest object that could be correlated to the Pooled Consolidated Service Scheme (hereinafter called the scheme ) is clause 14 which contemplates transaction of business in tanning materials. It is not similar to the case of procuring chemical fertilizers as incorporated in bye-laws by the Chittoor Co-operative Sugars Limited case reported in [1983] 53 STC 249 (AP). 41.. Under this scheme it is true that requirements of the members are ascertained either in writing or orally. However, allotment is made only by the association. It is seen from the allotment in regard to Lc. No. 1346-tonnes 50 dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras Co-operative Societies Act, 1932 with the object of providing a canteen for supplying refreshments to the employees of a limited liability company without a profit-motive was considered. The relevant definitions of dealer , sale and turnover read as follows: Dealer is defined in section 2(g) as meaning: 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...................... Explanation.-A society (including a co-operative society), club or firm or an association which, whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members 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. Clause (n) of section 2 defines sale : sale with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of business for cash or for deferred payment or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aler within the meaning of the Act even though it buys, sells, supplies or distributes goods from or to its members whether in the course of business or not; it is not intended by the explanation to declare all transactions of the taxable entity with its members to be transactions of sale or purchase. The explanation is a part of the definition of dealer and not of sale . For the purpose of levying sales tax it was open to the Legislature to devise a definition of the word dealer and further to provide that certain bodies shall be deemed to be dealers within the meaning of the Act. We are unable, therefore, to agree with the High Court that the explanation to section 2(g) is ultra vires the State Legislature. For turnover from a transaction to be taxable under the Act, the transaction must have constituent elements, viz., (1) parties competent to contract; (2) mutual assent; (3) thing, the absolute or general property in which is transferred from the seller to the buyer; and (4) price in money paid or promised. When a co-operative society supplies to its members for a price refreshment in the canteen maintained by it, the four constituent elements of sale are normally presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a price. ................ We are of the view that the explanation to section 2(g) of the Madras General Sales Tax Act (1 of 1959) is not ultra vires the Legislature. Whether any part of the explanation (1) to section 2(n) is ultra vires the Legislature does not fall to be determined in this case, for, we are of the view that the transactions of the respondent-society fell within the substantive part of the definition of the expression sale , and on that account those transactions are taxable under the Madras General Sales Tax Act (1 of 1959). 46.. In the light of the above position, the decision in Board of Trustees of the Port of Madras v. State of Tamil Nadu [1998] 108 STC 66 (Mad.) wherein Port Trust was held to be not a dealer in terms of services rendered to the port users as well as maintenance of the Port Trust and the decision in Arulmighu Dhandayuthapani Swami Thirukkoil v. Commercial Tax Officer [1998] 108 STC 114 (Mad.) wherein Arulmigu Dhandayuthapani Thirukkoil was held to be not a dealer in view of the dominant activity of the temple which is religious and charitable in nature and not a business activity are not of any help to the petitionerassociation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from that of the members . It is also true that in clause (29A) there is nothing to the effect that notwithstanding the law of agency or any other law, supply of food, drink, etc., by a club, or by an incorporated club, for cash, deferred payment or any other valuable consideration in any form, would be deemed to be a sale. That being so, the law as settled by the Supreme Court of India on this question will govern the field. 48.. With due respects to the honourable Judges and Member of the West Bengal Taxation Tribunal, we totally differ from the views expressed above in so far as the provisions of the Tamil Nadu Act are concerned for the reasons explained below: In the first members club case reported in Cosmopolitan Club v. Deputy Commercial Tax Officer [1952] 3 STC 77 Mack, J., considered the scope of the explanation a co-operative society, a club, a firm or any association, which sells goods to its members is a dealer within the meaning of this clause and held as follows: All that I can say is that it can only apply to a co-operative society, club, firm or any association which sells goods to its members. This will depend upon constitution of the society or club as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al entities that may be entrusted with the duty of holding the property on behalf of the members, be it an individual, or a body of trustees, or a company formed for the purpose, so long as the real interest in the liquor remains, as in this case it clearly does, in the members of the club. There is no magic in this connection in the expressions trustee or agent . What is essential is that the holding of the property by the agent or trustee must be a holding for and on behalf of, and not a holding antagonistic to, the members of the club . The courts in these cases were dealing with case of quasi-criminal nature, and the substance of the transaction rather than the legal form in which it may be clothed had to be determined. It was held that if in substance the property in the liquor held by the club-whether incorporated or unincorporated-was vested in the members, when a member received and paid for it, there was no sale within the meaning of the Licensing Act, but was a transfer of a special property in the goods from all the other members of the club to the consumer in consideration of the price paid. We are not dealing in this case with liability criminal or quasi-crimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in [1991] 81 STC 185 (WBTT) (Automobile Association of Eastern India v. State of West Bengal) was agitated before the Supreme Court in a Special Leave Petition [S.L.P. (Civil) No. 68 of 1991] their Lordships passed a speaking order on May 11, 1994 to the effect that the levy of tax for the period after October 1, 1983 was to be sustained in view of the constitutional amendment as reported in [1994] 95 STC Frsc 2. 55.. The Constitution (Forty-sixth Amendment) Act, 1982 was enacted by the Parliament, which came into force from February 2, 1983. By the said Amendment Act, article 366 of the Constitution was amended by adding clause (29A) to article 366. Consequent to the Amendment Act, the definition of sale has been widened and no longer it has to be confined to the meaning given to the term sale in the Sale of Goods Act, 1930. As a result, transfer of property involved in the supply or distribution of goods by society, club, firm or any association to its members for a price even if it is not in the course of business shall be a deemed sale under explanation (1) to section 2(n) of the Act which reads as follows: Section 2(n): Explanation (1)-The transfer of property invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated club or association of persons to its members is not taxable, as such club or association, in law has no separate existence from that of the members. Further, the amended sections of the Act by Act No. 28 of 1984 in pursuance of the Constitution 46th Amendment are adequate to take care of incorporated and unincorporated clubs, firm, association, etc., and there is no need to consider any further amendment such as notwithstanding the law of agency or any other law...... by an incorporated club, etc. as contemplated in the decision reported in [1995] 98 STC 347 (WBTT) (Hindustan Club Limited v. Additional Commissioner of Commercial Taxes). 58.. The last point we would consider in this case is the legal meaning of unincorporated association and incorporated association , though these terms have been explained by the Madras High Court in Young Men s Indian Association v. Joint Commercial Tax Officer [1963] 14 STC 1030. 59.. In Halsbury s Laws of England, Fourth Edition, Volume 6, in paras 205 and 206 at pages 58-59 unincorporated members clubs and incorporated members clubs are dealt with as follows: 205. Unincorporated members clubs: An unincorporated m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is quite distinct from the club, the company merely being the proprietor; the relations of the members of the club inter se governed by the club rules or bye-laws, as in the case of an unincorporated members club, and the rights and liabilities of the share-holders in the company depend upon the memorandum and articles of association, as in the case of any ordinary trading company. 60.. In India also the word incorporated occurs only when an association is registered under the Companies Act. A society registered under the Societies Act or Co-operative Act is called only as a registered society, though such a society is a body corporate with power to hold property and is capable of entering into contracts. However, in strict legal term such registered societies cannot be called as incorporated societies or associations . If this principle is applied, the petitioner-association in this case registered under the Societies Act, has to be classified as an unincorporated association only. 61.. Thus, we hold as follows: (a) Section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959 and rules framed thereunder, as amended by Act No. 28 of 1984 which authorises levy of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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