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PETITIONER:

JOINT DIRECTOR OF FOOD, VISAKAPATNAM

Vs.

RESPONDENT:

THE STATE OF ANDHRA PRADESH

DATE OF JUDGMENT27/07/1976

BENCH:

KRISHNAIYER, V.R.

BENCH:

KRISHNAIYER, V.R.

KHANNA, HANS RAJ

UNTWALIA, N.L.

CITATION:

1976 AIR 2322 1977 SCR (1) 59

1976 SCC (3) 598

CITATOR INFO :

F 1985 SC1748 (7)

ACT:

Central Sales Tax Act, 1956--Sec. 2(b), 9--Andhra Pra-

desh General Sales Tax .Act 1957--central Government selling

foodgrains and fertilizer, whether a dealer Profit motive,

if relevant--Whether State carries on business.

HEADNOTE:

The Joint Director of Food stationed in the Port of

Visakapatnam sold food grains and fertilizers to the Andhra

Pradesh State and other States at the price fixed by the

Central Government. The Sales Tax Officer of the Andhra

Pradesh imposed the tax under the Andhra Pradesh General

Sales Tax Act, 1957, on the intra State sales and imposed

tax under Central Sales Tax Act 1956 on the inter State

sales. The Joint Director of Food claimed immunity from the

tax on the ground that the element of profit motive was

absent. Under the Andhra Pradesh Act, the profit motive is

irrelevant. The High Court of Andhra Pradesh, therefore,

dismissed the appeals filed by the Central Government as far

as they related to the tax under the Andhra Pradesh Act. The

High Court, however, remanded the three appeals which per-

tained to the tax under the Central Sales Tax Act for deter-

mining the presence of profit motive in the Central Govern-

ment while undertaking the dealings in question.

In appeals by Special Leave the appellant contend-

ed:

1. Since the sales were by the Central Govern-

ment, the Joint Director could not be the assessee.

2. Section 2(b) of the Central Act read with s. 9

excludes the Central Government as an exigible

entity.

3. An undertaking to distribute essential com-

modities by the State in implementation of its

governmental obligations cannot be described as

trading activity or carrying on of business without

doing violence to the concepts of governmental

functions and business operations.

Dismissing the appeal,

HELD: (1) Since the Joint Director represented the

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Central Government in the sales he can legitimately be dealt

with for sales tax proceedings as representing the Union

Government. [61 C]

(2) Section 2(b). of the Central Act in terms states

that a dealer means any person who carries on the business

of buying and selling goods and includes a Government which

carries on such business. [61 F]

(3) Section 9(3) of the Central Act provides that the

tax and penalty collected shall be assigned to the State

which recovers the tax. Therefore, the real beneficiary of

the Central Act i.s the State concerned. In any event

there is no flaw in the reasoning of the High Court that the

Central Government way tax itself. [62 A-B]

(4) The State has the power to carry on the trade or

business as is manifest from Art. 19(6)(ii) and other provi-

sions. Systematic activity of buying foodgrains and ferti-

lizers and selling them by the State although in fulfilment

of the beneficiant national policy is never the. less trade

or business. Necessarily Government may become a dealer

which carries on business within the meaning of the

different definitions in one Central Act and the State Act.

[62 B-E]

(5) The question of profit motive is relevant for the

purpose of Central Act. Since the question has not been

investigated by the fact finding authorities, the-High court

has rightly directed the authorities below to go into the

said question. So far as the Andhra Act is concerned since

the profit motive is

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irrelevant because of the special definition in the Act the

State Sales Tax Officer is entitled to collect sales tax

from appellant in regard to intra State sales even assuming

that there is no profit motive. [62 E-H]

(6) The Court observed that it is conscious of the

social implications of the Sales Tax being leviable on the

essential commodities like foodgrains and fertilizers. Any

tax on food and fertilizers is bound to cause an extra

burden on the poor who are the ultimate consumers but the

court has to interpret the law and apply it. Necessary

objective can be achieved by appropriate notifications or if

need be, necessary legislative directions. [63 A-B]

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.

1393-1398 of 1975.

(Appeals by Special Leave Petitions from the

Judgment and Order dated 31-1G,-1975, of the Andhra

Pradesh High Court in Revision Case No. 3 to 8 of

1974).

V.P. Raman, Addl. Solicitor General of India,

G.L. Sanghi, and Girish Chandra, for the appellant.

A. K. Sen and P.P. Rao, for the respondent.

The Judgment of the Court was delivered by

KRISHNA IYER, J. This batch of cases between a State

Government (Andhra Pradesh) and the Union Government sug-

gests the need for litigative discipline for our governments

and a periodical postauditing in that behalf. And now we

make good this inaugural observation by narrating briefly

the necessary facts and examining closely the few points

tersely presented by the Additional Solicitor General ap-

pearing for the common appellant in all these cases.

Our Constitution mandates on the State welfare activism

and contemplates its undertaking distribution of commodities

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essential to the life of the community at large through

trade and business directly organised or in other suit-

able ways. Foodgrains and fertilisers are strategic items

and the Union of India has, in fulfilment of high governmen-

tal functions, been procuring these vital goods and selling

them lo the States or their nominees so as to ensure equita-

ble supplies and price discipline. Pursuant to this com-

mendable programme the Central Government constructed an

infra-structure and, pertinent to our purpose, appointed,

inter alia, a Joint Director of Food stationed in the port

town of Visakapatnam. This Officer sold, for the price

fixed by his Government, food' grains and fertilisers to the

Andhra Pradesh State and other States. These transactions,

in the language of sales tax law, fell within the twin

categories of intra-State and inter-State sales. A vigilant

State Sales Tax Officer directed the filing of returns by

the appellant under the Andhra Pradesh General Sales Tax

Act, 1957 (Act VI of 1957) (for short the State Act) and the

Central Sales Tax Act, 1956 (for short the Central Act).

This was complied with in six returns for the span of three

years but was coupled with a plea of immunity from tax on

grounds which will be presently discussed. The adverse fate

of those contentions at the hands of the Sales Tax Officer

and the appellate officer eventuated in further appeals to

the Tax Tribunal. The three appeals covered by the Central

Act were remanded for the narrow purpose of determining the

presence of profit motive in the Central Government while

undertaking these dealings as that element

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is decisive of the appellant being a dealer doing business

and therefore liable to tax under the Central Act. The

other three appeals were duly dismissed and these successive

defeats notwithstanding, the Central Government's Joint

Director moved the High Court in all the. six cases. Un-

daunted by discomfiture there, the appellant has arrived

here, discretion not being the better part of valour even

where public money is involved.

The learned Additional Solicitor General has rightly

discarded some of the rhetorical but lifeless contentions

urged before the: High Courtbased on Part IV of the Consti-

tution. The surviving points pressed before us may now be

set out and discussed.

A hyper-technical point half-heartedly urged may be

mentioned first, it being easy of rejection Argued counsel

that since, in any view. the sales were by the Central

Government, the Joint Director could not be the assessee.

Obviously this official represented his Government in the

sales and therefore could legitimately be dealt with for

sales tax. proceedings as representing the Union Govern-

ment. The less said about such obstructive contention on

behalf of a public functionary the better. Devoid of

presentability we decline to spend more space on this plea.

Next in order was the argument that the defination of

'dealer' in s. 2(b) of the Central Act read in implicit

harmony with s.9 excludes the Central Government as an

exigible entity. The thrust of the argument, if we may say

so, is that the Central Government being the taxing authori-

ty may not, without being guilty of grotesqueness, tax

itself. Counsel was cautious to concede that legally it was

not impossible for the Central Government as a statutorily

empowered agency to collect tax that falls due from it is as

an assessee. Indeed, if the statute deafly states that

government is liable to pay tax qua dealer, it is not a

legal plea to say that government is also the taxing author-

ity. We have therefore to examine whether' there is any

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necessary exclusion from exigibility or other provision of

immunisation which can be spelt out of s. 2 or s. 9. Section

2(b) Of the. Central Act reads:

"2. (b) In this Act, unless the context

otherwise requires, 'dealer' means any person who

carries on the business of buying or selling goods,

and includes a Government which carries on such

business".

Quite plain is the conclusion from a bare reading

of this provision that a government (ergo any

government) is by express inclusive definition made

a dealer. The Central Government being a govern-

ment is squarely covered by the definition. Nor

does s. 9 rescue the appellant. True it is that the

tax shall be levied by the Government of India. But

it does so for the benefit of the other State

Governments and indeed through the machinery of the

State tax agency. Section 9(3)reads:

"The proceeds in any financial year of any

tax, including any penalty, levied and collected

under this Act in any State (other than a Union

Territory) on behalf of the Government of India

shall be assigned to that State and shall be re-

tained by it: and the proceeds attributable to

Union territories shall form part of the Consoli-

dated Fund of India."

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Again, Art. 269(g) of the Constitution speaks in the same

strain, viz., that the real beneficiary of Central sales tax

is the State designated in the above provisions, the Union

Government being empowered to levy behalf of and thereafter

to assign to the respective States eventually entitled to

the tax. We see no flaw in the reasoning of the High Court

that the Central Government may tax itself, if it comes to

that.

A subsidiary contention calculated to insulate the

Central Government from liability was set up by the learned

Additional Solicitor-General to the effect that an undertak-

ing to distribute essential commodities by the State in

implementation of its governmental obligations cannot be

described as 'trading' activity or carrying on of busi-

ness'without doing violence to the concepts of governmental

functions and business operations. Indubitably the State

has the power to carry on trade or business as is manifest

from Art 19(6)(ii) and other provisions. In dubitably the

State, distributes essential commoditise in a fair and..

equitable way for the survival of the community under its

protection. It does 'not follow that we cannot harmonize the

tow functions.It is well on the agenda of State activity

that it carries on trade or business in essential commodi-

ties because it has the power to do carries on trade or

business it it obligated to ensure even distribution of

vital goods and because sections of the people We see no

difficulty in inferring that the style martic activity of

buying food grains and fetrilisers and selling them by the

State although in fulfilment of a benificant national policy

is never theless trade or business. Necessarily Government

becomes a 'dealer' by definition and carries on 'busi-

ness, within the meaning of the central. Act and the State

Act (omitting for a moment the distiction in the two defi-

nitions based upon the motive to make gain or profit). The

conclusion therefore is inacvitable that the appellant,

representing the Central Government is rightly held to be

the assessee

We may hasten to mention that the ordinary concept of

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business has the element: of gain or profit whose absence

negatives the character of the activity as business in s.

2(b) of the Central Act. A person becomes a dealer only if

he carries on business and the Central Government can be

designated as 'dealer' only if there. is profit motive.

This question not having been investigated by the fact-

finding authorities has been directed to be gone into by the

Tax Tribunal in the three. case revolving round the Central

Act. So far as the State Act is concerned, this question

does not arise for the straight forward reason that the

definition in s. 2(1)(bbb) of that Act expressly includes

within the concept of 'business' any trade or any adventure

or concern in the nature of trade or commerce carried on or

undertaken whether or not 'with a motive to make gain or

profit whether or not profit accrues therefrom'. Profit

making in the State Act, it was conceded by counsel for the

Union, was irrelevant in contrast to its pertinence in the

Central Act. If this be the correct position in law, it

follows that the State Sales Tax Officer is entitled 10

collect sales tax from the appellant in regard to intra-

State sales even assuming that there is no profit motive or

profit accrual. The reverse is the case so far as Central

sales tax is concerned.

In the result the orders passed by the Sales Tax Appel-

late Tribunal in all the six appeals, affirmed as it were by

the High Court are correct and these appeals deserve to be

dismissed.

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We are conscious of the social implications of sales-tax

being leviable on essential commodities like food grains and

fertilisers. Both these items are vital to the common man

and his fragile budget. Any tax, especially on food, casts

an extra burden on the poor who are the ultimate consumers

of the article and victims of the impost. But this socially

desirable objective can .surely be achieved by appropriate

notifications and, if need be, by necessary legislative

direction. The Court has to interpret the law and apply it.

The State, through its agencies. makes the law for socially

beneficial ends. It is not for the former to salvage the

latter from the legal coils which are its own. handiwork. We

make these observations lest it should be felt that judicial

constructions has contributed to extra food tax. The blame,

if any, must belong to the authors of the law.

The appeals are dismissed with costs-one set.

P.H.P. Appeals dismissed.

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