Ciniplex Pvt. Ltd. vs State of Karnataka

N. Kumar, J.—The assessee has preferred this appeal against the order passed by the Additional Commissioner of Commercial Taxes u/s 64(1) of the Karnataka Value Added Tax Act, 2003 (for short, hereinafter referred to as "the Act"). The assessee is running a canteen in the cinema theatre and he sells food articles, snacks and beverages. He is a dealer registered under the provisions of the Act, He has opted for composition scheme with effect from May 1, 2006 and the same has been granted by the authorities. At the time of audit of books u/s 39, the assessing authority found that during November 2006, the assessee has effected sale of certain equipments other than the food and beverages. The assessee had furnished debit notes issued on November 25, 2006 to the tune of Rs. 1,06,612. The goods sold are used equipments, viz., metal detector, water coolers and lockers. They were not reflected in the VAT return filed by the assessee. Therefore, the assessing authority issued a show-cause notice dated January 9, 2008 proposing to reassess the turnover for the tax period November 2006. The assessee contended that since he has opted for composition and since the charging section 15(1) does not provide for a separate rate with regard to sale of equipments or other materials, the assessee is liable to pay tax at four percent. However, the assessing authority levied tax at 12.5 percent on the sale turnover of Rs. 1,06,612 and levied penalty at ten percent u/s 72(2) along with interest at 1.25 percent u/s 36 of the Act. Aggrieved by the said order, the assessee preferred an appeal to the Joint Commissioner of Commercial Taxes (Appeals). The appellate authority held that the turnover relating to sale of used equipment also forms part of the total turnover and therefore, u/s 15(1), the assessee is liable to pay tax at four percent on the total turnover. Accordingly, the appellate authority reduced the tax rate applicable to the assessee from 12.5 percent to four percent and consequently, the interest as well as the penalty levied was also reduced. The revisional authority in a purported exercise of power issued a notice dated July 5, 2010, u/s 64(1) of the Act proposing to restore the order of the assessing officer and to set aside the order of the appellate authority. The revisional authority confirmed the proposition by holding the objections as untenable. The revisional authority proceeded to confirm the levy of penalty u/s 72(3) on the ground that there was a failure to declare the impugned turnover in the return. The revisional authority directed the assessing authority to levy penalty from the date of filing the return till the date of reassessment order. Aggrieved by the aforesaid order, the assessee is before this court.

Apart from other grounds, the learned counsel for the assessee assails the impugned order on the ground that the assessee was not in the business of purchase and sale of used equipments, viz., metal detectors, water coolers and lockers. Therefore, it was a one-time sale of discarded goods and as such he was not liable to pay tax under the Act. Though this point was not urged before the lower authorities, this being purely a question of law, which could be decided based on the admitted material on record, it was contended that the very initiation of proceedings is void ab initio.

The learned counsel for the Revenue supporting the impugned order and contended that the assessee has opted for composition scheme u/s 15 of the Act. The assessee was only a caterer, i.e., he sells only food articles. The goods, which are now sold, are not part of the aforesaid business. Therefore, the consideration received for sale of the aforesaid articles cannot form part of the total turnover for the purpose of calculating tax and availing of the benefit and therefore, he submits that the order passed by the revisional authority is valid and does not call for interference.

From the aforesaid material, it is very clear that the assessee is in the business of sale of food articles, snacks and beverages. He is registered dealer under the Act. He has opted for composition scheme and he has paid four percent tax on the total turnover of sale of food articles, snacks and beverages. In November, 2006, he has sold used equipment, viz., metal detectors, water coolers and lockers. The said sale consideration was not reflected in VAT returns filed by the assessee. The aforesaid sale is a onetime sale by which the discarded goods were sold. The assessee is not in the business of the sale of metal detectors, water coolers and lockers. He is not a dealer of those articles. Therefore, the question that arises for consideration in this appeal is whether he is liable to pay any tax under the Act on the sale of those three items.

This court had an occasion to consider a some what identical issue in the case of Kwality Biscuits (P) Ltd. Vs. State of Karnataka througii Commissioner of Commercial Taxes, That was a case where the assessee was a dealer under the Act carrying on the business of manufacture and sale of biscuits and confectionery, wheat products, jams, jellies and creams. When the assessee sold the said business, he has also sold the intellectual property owned by him. The question was- whether the consideration received for the sale of intellectual property was liable to tax. After referring to the definitions of "dealer", "business", "sale", "taxable turnover", "turnover" under the Act and after referring to the various judgments of the apex court, it was held at paras 21 and 22 as under (pages 11 and 78 in 53 VST):

Therefore, to attract the liability to pay tax u/s 5 of the Act, a dealer must be carrying on the business of buying, selling, supplying and distributing goods. A person to be a dealer must be engaged in the business of buying or selling or supplying goods. A person is a dealer within the meaning of the Act, when he carries on the business of buying or selling of goods for consideration paid or payable in future. What is required is that sale or purchase must take place during the course of business of buying or selling in view of definition of ''dealer'' in clause (h) of section 2 of the Act. The expression ''business'' though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive, and not for sport or pleasure. 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. ''During the course of business'' postulates a continuous exercise of an activity. It also connotes some real, substantial and systematic or organised course of activity or conduct set with a purpose. In taxing statutes, it is used in the sense of an whole time occupation or profession of a person which requires continuous attention and labour. The expression ''carrying on business'' requires something more than mere selling or buying. It is not merely the act of selling or buying makes a person dealer but the object of the person who carries on the activity is important to attract levy of sales tax. ''Sale'' means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred, payment or other valuable consideration. A sale by a person who carries on the business of buying, selling, etc., and a sale in the course of business are the twin indispensable requirements to attract the charge of tax. The taxing statutes must be construed with strictness and no payment is to be exacted from the subject, which is not clearly and unequivocally required by the statute.

Where a person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. But no test is decisive of the intention to carry on the business. In the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised. Even in transaction in connection with or incidental or ancillary to. such trade, commerce, manufacture, advertisement or concern constitutes/business'', but such a transaction should have a direct nexus with the main business carried on by the dealer.

Therefore, it is clear that to attract levy of tax under the Act, pursuant to carrying of business in a particular commodity, it 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. "During the course of business" postulates a continuous exercise of an activity. It also connotes some real, substantial and systematic or organised course of activity or conduct set with a purpose. In taxing statutes, it is used in the sense of a whole time occupation or profession of a person, which requires continuous attention and labour. Therefore, the business of the assessee should satisfy the aforesaid requirement. The assessee is in the business of selling items such as food articles, snacks and beverages, whereas in November 2006, he sold the discarded goods like metal detector, water coolers and lockers. It was a one-time sale of discarded goods. The assessee was not in the business of purchase and sale of the aforementioned three items. Therefore, the consideration received from the sale of said goods is not leviable to tax under the Act. In that view of the matter, the levy of tax on the sale of discarded goods totally in a sum of Rs. 1,06,612 is without authority of law. Hence we pass the following:

ORDER

(i) The appeal is allowed.

(ii) The orders passed by the revisional authority, first appellate authority and the assessing authority are all quashed.