National Insurance Co. Ltd. vs Commissioner of Sales Tax

H.N. Seth, C.J.—As the point of controversy involved in these four revisions u/s 11 of the Sales Tax Act, is the same, they can be conveniently disposed of by a common judgment. Sales Tax Revisions Nos. 103, 104 and 105 of 1982 pertain to assessment of M/s. National Insurance Co. Ltd., Hazratganj, Lucknow, under the provisions of the U. P. Sales Tax Act for the years 1976-77, 1977-78 and 1978-79. Sales Tax Revision No. 113 of 1982 is in respect of assessment proceedings of M/s. United India Fire and General Insurance Co. Ltd., Lucknow, under the provisions of the U. P. Sales Tax Act for the assessment year 1975-76.

In the course of their business the applicants, insurance companies, insure motor vehicles against loss or damage caused due to accident. In the event of complete or partial loss due to accident the applicants are required to compensate the insured. The insurance companies thereafter take possession of the vehicles and dispose it of as scrap by holding auction. In these cases the two insurance companies sold a number of such motor vehicles by auction as scrap and the question that arises for consideration is whether they can be required to pay sales tax in respect of the amount of money they receive as a result of auctioning such scrap. The sales tax authorities including the Sales Tax Tribunal came to the conclusion that the insurance companies were liable to pay sales tax in respect of the transaction of sale of such scrap. Aggrieved, the applicants, insurance companies, have come up in revision before this Court seeking relief u/s 11 of the U. P. Sales Tax Act. Section 3 of the U. P. Sales Tax Act lays down that every dealer shall for each assessment year pay tax at the rate provided by or u/s 3-A of the Act on his turnover of sales. The liability to pay sales tax under the Act is that of a dealer as defined u/s 2(c) read with Clause (aa) of the U. P. Sales Tax Act. In the case of Oriental Fire and General Insurance Co. Ltd. v. Commissioner of Sales Tax 1986 UPTC 139 a learned single Judge has held that an insurance company is, in respect of sale of such totally damaged vehicles, not a dealer within the meaning of the U. P. Sales Tax Act and cannot be made liable for sales tax. Following that decision I hold that in respect of the transaction of sale of scrap vehicles the applicants, insurance companies, cannot be treated as dealers of such transaction and cannot be subjected to sales tax. In the result all the four revisions succeed and are allowed. The orders of the Sales Tax Tribunal as well as that of the subordinate sales tax authorities, copies whereof have been annexed in these revisions, are quashed. The sales tax authorities are further directed to refund the amounts realised by them from the applicants in pursuance of the assessment orders which have been quashed by me. Parties are directed to bear their own costs.