STATE OF TAMIL NADU AND ANR.versusBOARD OF TRUSTEE OF THE PORT OF MADRAS

                 STATE OF TAMIL NADU AND ANR.                                     A
                                      v.
         BOARD OF TRUSTEE OF THE PORT OF MADRAS

                             MARCH 26, 1999

          [M. JAGANNADHA RAO AND S.N. PHUKAN, JJ.]                                B

      Sales Tax-Tamil Nadu General Sales Tax Act 1959, Ss. 2 (d) r/w. 2 (g)
(iii)-Major Port Trusts Act 1963, Ss. 35 (a) to (g)-Whether Port Trust was
'carrying on business' and was therefore a 'dealer' for the purpose of sale
tax-Held, ncr-lnterpretation of Statutes                                          C
      Prior to 1959, the Respondent Madras Port Trust was sought to
be assessed to sales tax under the Madras General Sales Tax Act, 1939 in
respect of charges collected for water supplied by it to ships. The Madras
High Court in Trustees of the Port Trust 6f Madras v. State of Madras, (1960)     D
11 S;TC 224 (Mad) held that the Respondent was not "carrying on any
business" of buying and selling with a view to making profit and that
supplying water to ships was only a discharge of a statutory duty imposed
upon it. The Respondent was thus not a "dealer".

      The 1939 statute was replaced by the Tamil Nadu General Sales Tax E
Act, 1959 (Act). S.2 (g) (iii) of the Act defined 'business' to include an
activity whether or not carried on with a profit motive. Again, in State of
Madras v. Trustees ofPort of Madras, (1974) 34 STC 135 (Mad), the Madras
High Court held that the Respondent was not liable to sales tax since it was
not a 'dealer' carrying on the business of selling goods as a commercial
venture in the course of the exercise of its statutory duties.               F
      In 1992, s. 2(g) (iii) of the Act was amended to include within the
definition of 'dealer' a factor, broker or a commercial or any other mercantile
agent who carried on the business of bnying and selling goods on behalf of
any principal or through whom the goods were bought, sold, supplied or
distributed. The Commercial Tax Officer issued a notice calling upon the          G
Respondent to register itself as a dealer under the Act.
      The Respondent's writ petition challenging the notice was dismissed
by a Single Judge of the Madras High Court holding that the amended
definition of 'dealer' was wide enough to cover the Respondent. The Division
Bench, however, allowed the Respondent's appeal and held that there was no        H
                                     195
    196                     SUPREME COURT REPORTS                    [1999) 2 S.C.R.

A element of profit or gain in the duties discharged or servkes rendered by
    the Respondent and these did not constitute "business". Therefore, the
    Respondent was not a 'dealer' under s.2 (g) of the Act.

          Dismissing the appeal, this Court

B          HELD: 1.1. The sales made by the Port Trust were not exigible to sales
    tax. [219-F]

         State of Madras v. Trustees of Port Trust of Madras, (1974) 34 STC 135
    (Mad) and Board of Trustees of the Visakhapatnam Port Trust v. Commercial
    Tax Officer, (1979) 43 STC 36 (AP), approved.
c
          1.2. The Port Trust was not involved in any activity of carrying on
    business. The sale of unclaimed and unserviceable goods was in discharge
    of various statutory charges and was an infinitesimal part of its main activities
    or services. [219-B)

          Trustees of Port of Madras v. Mis Aminchand Pyarelal, [1976) 1 SCR
    721, followed.

           Trustees of the Port Trust of Madras v. State of Madras, (1960) 11 STC
    224 Mad; State ofMadras v. Trustees of Port of Madras, (1974) 34 STC 135;
                                                                                        -
E   State of A.P. v. H Abdul Bakhi & Bros, AIR (1965) SC 531; Board of
    Revenue v. A.M Ansari, [1976) 3 SCC 512; Director ofSupplies and Disposals,
    Calcutta v. Member, Board of Revenue, West Bengal, Calcutta, AIR (1967)
    SC 1826; Government Medical Store Depot Gauhati v. Superintendent of
    Taxes, Gauhati, [1985) 4 SCC 239; Government Medical Store Depot, Karna!
    v. State of Haryana, [1986) 3 SCC 66; State of Punjab v. Assessing Authority,
F   Chandigarh, [1991) Supp. 1 SCC 153; State of Gujarat v. Rajpur
    Manufacturing Co. Ltd, AIR (1967) SC 1066; State of Gujarat v. Vivekanand
    Mills, (1967) 19 STC 103 SC ; State of Gujrat v. Arvind Mills Ltd, (1967)
    19 STC 12 SC; State of Gujarat v. Ambica Mills Ltd., (1967) STC 12 SC;
    Hindustan Steels Ltd. v. State of Orissa, AIR (1970) Sc 253; State of Tamil
G   Nadu v. Mis Burmah Shell Oil Storage and Distributing Co. of India Ltd.,
    [1973) 3 SCC 511; Raipur Manufacturing Co. Case, AIR (1967) SC 1066;
    Hyderabad Asbest~'s Cement Products Ltdv. State ofA.P., (1972) 30 STC 26;
    State of Tamil Nadu v. Binny Ltd. Madras, fl9SO] Suppl. SCC 686; Royal
    Talkies Hyerabad v. Employees State Insurance Corporation, [1978) 4 SCC
    204; State of Tamil Nadu v. Thirumagel Mills Ltd., (1972) 29 STC 290 SC;
H   State of Tamil Nadu v. Shakti Estates, [1989) 1 SCC 636; Indian Express (P)
         STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]   197

Ltd v. State of Tamil Nadu, (1987) 67 STC 474 (SC); The Hindu v. State of A
T.N., (1987) 67 STC 477 SC; The District Controller of Stores, Northern
Railway, Jodhpur v. Assistant Commercial Taxation Officer (1976) 37 STC
423; Member, Board of Revenue, West Bengal v. Controller ofStores, Eastern
Railway, Calcutta, (1989) 74 STC 5; Mis Vrajlal Manila/ & Co. v.. State of
Madya Pradesh, AIR (1986) SC 1985; Mis Vishnu Agencies (Pvt.) Ltd v.
Commercial Tax Officer, (1978) 1 SCC 520; Food Corporation of India v. B
State of Kera/a, (1997) 3 SCC 410; State of Bombay v. Ahmedabad Education
Society, (1956) 7 STC 497 (Born); Girdhari Lal Jiwanlal v. Assistant
Commissioner ofSales Tax (Appeals), Nagpur, (1957) 8 STC 732 (Born); Dy.
Commissioner ofAgricultural Income Tax & Sales Tax v. Travancore Rubber
and Tea Co., (1967) 20 STC 520 SC; Swadeshi Cotton Mills Co. Ltdv. Sales C
Tax Officer, (1964) 15 STC 505 All; University of Delhi v. Ram Nath, AIR
(1963) SC 1873; India Institute of Technology v. State of UP., (1976) 38 STC
428 (ALL); Dy Commissioner (C. T.) Coimbatore v. South India Textile,
Research Association (1978) 41 STC 1?7 (Mad); State of Tamil Nadu v.
Cement Reserach Institute of India, (1992) 86 STC 124 Mad and Tirumala
Tirupati Devasthanam v. State of Madras, (1972) 29 STC 266 Mad, referred D
to.

      Base repair Organization (Now Naval Dockyard), Visakhpatnam v.
State of A.P., (1983) 53 STC 223 (AP), Clarified and modified.

        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1728 of                E
1999.

     From the Judgment and Order dated 10.12.96 of the Madras High Court
in W.A. No. 1015 ofl994.

    A.K. Ganguli, V. Krishnamurthy, V. Ramasubramanian and T. Harish           p
Kumar for the Appellants.

     T.L. V. Iyer, S. Balakrishnan, S. Prasad, S.P. Mittal and Kumari Astha
Tyagi with them for the Respondent and Applicant in intervention appln. of
Kandala Port Trust.
                                                                               G
     Tapas Ray, Ranjan Mukherjee, C.N. Sree Kumar and P. Sureshan for the
Respondent.

        The Judgment of the Court was delivered by

        M. JAGANNADHA RAO, J. Leave granted.                                   H
    198                     SUPREME COURT REPORTS                    (1999] 2 S.C.R.

A          This appeal is preferred by the State of Tamil Nadu and the Commercial
    Tax Officer, Harbour- I, Assessment Circle, Chennai against the Judgment of
    the High Court of Madras in Writ Appeal No.1015of1994 dated 10.12.1996.
    By that Judgment, the Division Bench allowed the appeal and set aside the
    Judgment passed by the learnedSingle Judge in Writ Petition No.5509 of 1994
B   dated 30th March, 1994. The learned single Judge had dismissed the writ
    petition No.5509 of 1994 filed by the first respondent, the Board of Trustees
    of the Port Trust of Madras (hereinafter called the 'Port Trust') and by the
    Judgment uncier appeal, the writ petitions stood allowed and the notices
    issued by the Second appellant, the Commercial Tax Officer on 1.9.1993 and
    8.2.1994 stood quashed.
c
          The facts are as follows :

           The Madras Port Trust is now a major Port Trust governed by the
    provisions of the Major Port Trusts Act, 1963 (earlier it was governed by an
D   Act of 1905). It provides services of landing, shipping or trans-shipping,
    receiving, shifting, transporting, storing or delivery of goods brought into the
    premises of the Port Trust. Goods are brought into the Port Trust and delivered
    to the importee/consignee or their cleaning Agents etc. Goods are also exported
    through the Port Trust by means of its services. In the case of uncleared or
    abandon.ed goods, the Port Trust brings them for sale in public auction after
E   the approval of the customs authorities. Before 1959, the Sales Tax Authorities
    in Madras sought to assess the Port Trust to sales tax under the Madras
    General Sales Tax Act (Act 9 of 1939) in respect of charges collected for water
    supplied by the Port Trust to ships. At that time, the Port Trust was governed
    by the Madras Port Trust Act (Act 2 of 1905). A Division Bench of the High
F   Court of Madras in Trustees a/the Port of Madras v. State of Madras, (1960)
    11 STC 224 (Mad) held by Judgment dated ·27.11.1959 that the Port Trust was
    not constituted for the purposes of "carrying on any business" of buying and
    selling with a view to make profit and that while supplying water to the ships
    that called at the Port, it was only discharging a statutory duty imposed upon
G   it by the statute and was not a "dealer", within the meaning of 'dealer' in
    Section 2(b)ofthe Madras General Sales Tax Act, 1939. At that time Section
    2(b) which defined the word "dealer" stated that a dealer would be any person
    who carried on the business of buying or selling goods. The definition did
    not say that it was not relevant whether the said person was carrying on
    business with or without profit motive. In other words, profit motive was
H   treated, at that time, as an essential element of business. The High Court,
              STATE v. B.0.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]        199

       therefore, held that inasmuch as the Port Trust was_pefforming certain statutory   A•
r      functions and rendering duties without any intention to make profit, it was
       not a 'dealer' within the definition of the said t;xpression.

              The above said statute of 1939 was replaced by the Tamil Nadu General
       Sales Tax Act, 1959. It contained a definition of "business" in Section 2(d)
       and a definition of "dealer''. in Section 2(g). The definitions were amended B
       from time to time. Section 2(d) which defined "business" did not initially
       state that the motive to gain or profit was not relevant. But the said sub-
       clause 2( d) was substituted by a new clause by the Madras Act 15 of 1964
       which included within the said definition of "business", the activity of carrying
       on business whether or not such business was carried on with a motive to
       make gain or profit. After the said amendment of 1964 the matter in regard
                                                                                          c
       to the Madras Port Trust again went before the Madras High Court in State
       of Madras v. Trustees of Port of Madras, (1974) 34 STC 135 (Mad). The
       dispute in that case related to the sale of unclaimed and unserviceable goods
       by the Madras Port Trust through auctioneers. The question raised was whether
       the Port Trust was a department of the Central Government and whether the D
       Port Trust was a 'dealer' and its activity of selling the unclaimed and
       unserviceable goods could be subjected to sales tax. It was held by a Division
       Bench of the High Court of Madras in the above cited case in State of
       Madras v. Trustees of Port of Madras, (1974) 34 STC 135, that even though
       the sales in question related to the assessment years 1964-65 and 1965-66
       and were effected after the amendment of the definition "business" by Madras E
       Act 15 of 1964, still the above said transactions of sale were not liable to
r-
       sales tax inasmuch as the Port Trust could not be treated as a 'dealer' carrying
       on the business of selling, supplying or distributing goods as a commercial
       venture in the course of the exercise of its statutory duties. It was also held
       that the Port Trust was a statutory body constituted by the Madras Port Trust
                                                                                         F
       Act, 1905 and though it was subject to certain control by the Central
       Government, it could not be treated as a department of Central Government
       so as to come within Explanation 2 read with Section 2(g) of the Act of
       1959 nor was the Port Trust liable as a local authority within the meaning
       of 'dealer' in section 2(g)(i) as it was not established that it was carrying on
       business of buying and selling etc.                                               G
             Subsequently, sub-clause (iii) of Section 2(g) of the Tamil Nadu General

r      Sales Tax Act, 1959 was amended by Tamil Nadu Act 31 of 1992. Section
     • 2(g)(iii) after amendment included within the definition of 'dealer' a factor,
       broker or commercial agent or Arhati, a del Credere Agent or a commercial or
       any other mercantile agent by whatever name called, and whether of the same        H
    200                     SUPREME COURT REPORTS                   [1999] 2 S.C.R.

A description as stated above or not, who carried on the business of buying,
    selling, supplying or distributing goods on behalf of any principal or through
    whom the goods were bought, sold, supplied or distributed. On the assumption
    that after the above said amendment by Tamil Nadu Act 31 of 1992 in the
    definition of "dealer", the Judgment of the Madras High Court in State of
    Madras v. Trustees of Port of Madras, (1974) 34 STC 135 (Mad) would not
B   come in his way, the second appellant namely, the Commercial Tax Officer
    issued a notice dated 1.9.1993 calling upon the Port Trust to register itself as
    a dealer under the Tamil Nadu General Sales Tax Act, 1959. The respondent
    then replied on 26. l 0.1993 relying upon the above Judgment of the Madras
    High Court rendered in State of Madras v. Trustees of Port of Madras, (1974)
C   34 STC 135 (Mad) and it contended that the amendment did not make any
    difference. Thereupon, the second appellant gave a further notice dated
    8.2.1994 directing the respondent to furnish details of the auction sales
    conducted during the year 1993-94 upto 1.4.1993. In the said notice the
    respondent was asked "to furnish the details of auction sales conducted
    during 1993-94 and the quantum of sales effected by way of auction commodity-
D   wise, date-wise" to the second appellant. It was at that stage that the Port
    Trust filed Writ Petition No.5509 of 1994 contending that the Tamil Nadu
    General Sales Tax Act, 1959 did not apply to it and that the notices issued
    to them were without jurisdiction. A learned single Judge of the High Court
    dismissed the writ petition by Judgment dated 30.3.1994 holding that the
E   definition of'dealer' in section 2(g)(iii) as amended in 1991 was wide enough
    to cover the case of the respondent and that the Judgment of the High Court
    in State of Madras v. Trustees of Port of Madras, (1974) 34 STC 135 (Mad)
    rendered before the said 1991 amendment was not applicable. It was also
    observed that the proceeding being a show-cause notice, the respondent
    could go before the Commercial Tax Officer and pursue further remedies under
F   the Act.

          The Port Trust preferred an appeal to the Division Bench of the High
    Court, which on a consideration of the provisions of the Major Port Trust
    Act, 1963 and the amended provisions of Tamil Nadu General Sales Tax Act,
G   1959 came to the conclusion that there was no element of profit or gain in
    the duties discharged or in the services rendered by the Port Trust, the
    services were statutory and these services did not come within the definition
    of the word "business" in Section 2(d) of the Act and, therefore, the
    respondent was not a "dealer" within Section 2(g) of the Act notwithstanding
    the amendment to Section 2(g)(iii) by the Tamil Nadu Act 31 of 1992. The Writ
H   App~al was allowed and the notices of the second appellant were quashed.
       STATE r. B.0.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]         201

      Aggrieved by the above said Judgment of the Division Bench of the              A
High Court in the writ appeal, the State of Madras and the Commercial Tax
Officer have filed this appeal. The Port Trusts of Cochin, Kandla, Calcutta
have filed Interlocutory Applications for intervention but inasmuch as the
concerned State Governments which levy sales-tax under the respective State
Laws are not before us, we have not permitted any arguments by the said
Ports in regard to the liveability of sales tax under the respective State           B
enactments. We have merely allowed them to support the submissions of the
Madras Port Trust in the context of the Tamil Nadu Statute. Their applications
are, therefore, liable to be dismissed.

      In this appeal, we have heard elaborate submissions of the learned C
senior counsel Shri A.K.Ganguli for the State of Tamil Nadu and of Sri
T.L.Viswanatha Iyer, learned senior counsel for the Madras Port Trust. Counsel
cited a large number of rulings in support of their respective contentions.

       The notices in the present case refer to the auctions conducted by the
Port Trust during 1993-94 and in the Civil Appeal it is stated in ground No.         D
(i) (I) and (r) that the Port Trust is liable to pay sales tax in regard to_ the
auctions of unclaimed or unservicable goods including scrap. Therefore, the
dispute was in relation to these items.

      Under the Tamil Nadu Sales Tax Act, 1959, after the amendment by
Madras Act 15 of 1964 and Tamil Nadu Act 31 of 1992, sub clause (g) of               E
section 2 defines 'dealer' and in so far as it is material for the purpose of
this case, reads as follows :

        "S.2(g): "dealer" means 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,               F
        remuneration or other valuable consideration, and includes-

       (i) a local authority,. ....... which carries on such business;

       (ii) .................................... .
                                                                                     G
       (iii) a factor, ......... , or an auctioneer, or any other mercantile agent
       by whatever name called,. ....... who carries on the business of buying,
       selling, supplying or distributing goods on behalf of any principal or
       through whom the goods are bought, sold, supplied or distributed;

       (iv) to (ix) ............................ .                                   H
    202                           SUPREME COURT REPORTS              (1999] 2 S.C.R.

A           Explanation(!): ........................ .

            Explanation (2) : The Central Government or any State Oovernment
            which, whether or not in the course of business, buy, sell, supply or
            distribute goods, directly or otherwise, for cash, or for deferred
            payment, or for commission, remuneration or other valuable
B           consideration, shall be deemed to be a dealer for the purposes of
            this Act.

            Section 2(d) defines 'business' as follows
            "S.2(d): "business" includes

C           (i) any trade, or commerce or manufacture or any adventure or
            concern in the nature of trade, commerce or manufacture, whether
            or not such trade, commerce, manufacture, adventure or concern is
            carried on 'with a motive to make gain or profit and whether or not
            any profit accrues from such trade, commerce, manufacture, adventure
D           or concern; and

            (ii) any transaction in connection with, or incidental or ancillary to,
            such trade, commerce, manufacture, adventure or concern."
          Sub-clause (n) of section 2 defines 'sale' as every transfer of the
    property in goods (otherwise than by way of a mortgage, hypothecation,
E   charge or pledge) by one person to another in the course of business for
    cash, deferred payment or other valuable consideration. The inclusive part of
    the definition of 'sale' contains sub-clauses (i) to (vi). There are four
    Explanations to the section and Explanation (1-B) deals with transfer of
    property involved in the purchase, sale, supply or distribution of goods through
p   various persons including an auctioneer.

          Section 3 of the Act, in sub-clause (1), states that every dealer (other
    than a casual trader or agent of a non-resident dealer) whose total turnover
    for a year exceeds three lakhs of rupees and every casual trader or agent of
    a non-resident dealer, whatever be his turnover for the year, shall pay tax for
G   each year in accordance with the provisions of the Act.

          As will be clear from the definition of 'dealer' in section 2(g) the
    question is whether the Port Trust, - treated as a person under section 2(g)
    or a local authority under section 2(g)(i) or as an auctioneer under section
    2(g)(iii) - is a 'dealer' "who carries on the business of buying, selling etc.".
H   The emphasis here is on "carrying on business" and not merely buying and
            STATE v. B.0.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]       203

     selling. In view of the definition of "business" in section 2(d) after the 1964   A
     Amendment, it does not matter whether the business is carried on without a
     mo!ive to make p,rofit or gain or whether profit has in fact accrued.

            Now the d~finition of "business" in section 2(d) and in most of the
     sales tax statutes is an inclusive definition and includes 'trade or business or
     manufacture etc.·; This itself shows that the legislature has recognised that B
     the word 'business' is wider than the words 'trade, commerce or manufacture
     etc:'· The word 'business' though extensively used is a word of indefinite
     import. In taxing statutes, it is normally used in the sense of an occupation,
     a profession - which occupies time, attention and labour of a person, normally
     with a profit motive and there must be a course of dealings, either actually C
     continued or contemplated to be continued with a profit motive and not for
     sport or pleasure State of A.P. v. H.Abdul Bakhi & Bros., AIR (1965) SC
     531. Even if such profit motive is statutorily excluded from the definition
     of 'business' yet the person could be doing 'business'.

             The word 'carrying on business' requires something more than merely       D
     selling or buying etc. 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 (Board of Revenue &
     Others vs. A.M. Ansari & Others ( 1976 (3) SCC 512). Such profit motive
     may, however, be statutorily excluded from the definition of 'business' but       E
     still the person may be 'carrying on business'.

            Counsel on both sides cited various ruJings before us some relating to
     definition of 'business' before the profit motive was excluded and some
     thereafter. Some rulings related to cases where the main transaction was


--    'business' with profit motive while some were sales where it was not the
     motive. In some cases the sales were of subsidiary products. Cases where
     the main activities were not 'business' were also cited. Cases where the
                                                                                       F


     transactions arose out of statutory duties were also cited and some were in
     connection with services rendered. Some were by governments. These various
     types of cases cited could appear to be somewhat overlapping, but in our          G
     view, if the principles on which they are based are kept in view, it can be
     seen that there is no such overlapping.

          We would categorize the rulings cited before us by learned senior
     counsel on both sides into two basic and distinctive categories, the first one
     where the main activity of the person amounted to "carrying on business"          H
    204                     SUPREME COURT REPORTS                    [1999] 2 S.C.R.

A and the second where it did not. In the first category where the main activity
    was business, there could be sales relating to certain transactions 'connected
    with', 'incidental' or 'ancillary' to the main business though without profit
    motive, and the question would arise as to whether these sales were liable
    to sales tax or not. The second category would be one where the main
    activity did not admittedly amount to "carrying on business". Even so, in
B   regar~_to sales which were connected or incidental or ancillary to such main
    activity, question would arise whether such sales· were exigible to sales tax.
    The contention of the Port Trust before us is that its case falls under the
    second category and not under the first category. The State contends contra.

C          So far as the first category of cases are concerned, we may state that
    initially most sales tax statutes did not provide in the definition of 'business'
    that profit motive was irrelevant. Thus the profit motive remained relevant.
    Nor did the statutes include in the definition of 'business' sales 'in connection
    with' or 'ancillary' or 'incidental' to the main business.

D          In a large number of cases belonging to this first category the person
    was held not to be 'carrying on business' if he was not doing business for
    profit, an element which, not being excluded, was to be treated as a basic
    component of 'business' and, therefore, implied under various sales-tax
    statutes. It was held in these cases that though trading activities were no
E   doubt proved, there being no profit motive involved in the relevant activity,
    the sales were not liable to sales tax, and the person could not be held to be
    'carrying on business'. To this line belonged Director of Supplies and
    Disposals, Calcutta v. Member, Board of Revenue, West Bengal, Calcutta,
    AIR (1967) SC 1826 = 20 STC 398 cited for the respondent Port Trust,
    which related to disposal of war equipment .faken over from the American
F   forces in the Second World War. The Directorate of Disposals which carried
    on the disposals was merely disposing of surplus material by way of
    realisation of capital and there was no profit motive. On the same basis, in
                                                                                        -
    Government Medical Store Depot, Gauhati v. Superintendent of Taxes,
    Gauhati & Others, [1985) 4 SCC 239, again cited for the respondent Port
G   Trust, it was held that, as per the unamended definition of 'business', profit-
    motive was not excluded and, on the facts found, as there was no profit-
    motive established, the transactions of sales of medicines by the Medical
    Store Depot to various departments, did not amount to 'carrying on business'
    in spite of the volume, frequency, continuity and regularity of the transactions.
    This was followed in Government Medical Store Depot, Karna/ v. State of
H   Haryana & Others, [1986) 3 SCC 669. In State of Punjab v. Assessing
                 STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]       205

          Authority, Chandigarh, [1991] Supp. 1 SCC 153, the sales were by Canteens          A
          run by the Hospitality Organisation, Punjab. In all these cases, it was held
          that sales tax was not leviable because of absence of profit motive (which
          was not excluded by statute) in regard to the main activities. But these cases
          are not directiy in point inasmuch they are based on a definition of 'business'
          which did not exclude profit motive and cannot help the respondent - Port          B
          Trust.

                 Again. before the statutory exclusion of 'profit motive' from the
          definition of 'business', question arose whether certain sales of commodities
          other than the goods relating to the main business could also be included in
          the turnover. The definition did not, in the initial stages, include sales made    C
          "in connection with" the· main business activities. The said word is obviously
          wider than the word 'ancillary' or 'incidental'. We shall start with the leading
          case. In State of Gujarat v. Raipur Manufacturing Co. Ltd., AIR (I 967) SC
           1066 = 19 STC l, relied upon for the respondent-Port Trust, it was held
          by Shah, J. (as he then was) that the definition of 'business' did not exclude
          profit motive nor did it include sales "in connection with" the main activity.     D
          The Textile Mill's main activity did indisputably amount to 'carrying on
          business' but in regard to the incidental sales of 'unserviceable or discarded'
          goods, it was held that these sales were intended only for reduction of the
          space and to save accommodation and were not so integrated with (or
          connected with) the main business, even if they were of considerable volume        E

---   -
          and frequency. There was no proof that the Mills intended to carry on business
          in unserviceable and discarded goods. However, in the same case, 'Kolsi and
          Waste Caustic Liquor' which were sold regularly and continuously were
          held to be part of the business being subsidiary products of the main business
          of the Textile Mill and sales of these items were held liable to sales tax

---       inasmuch as an intention to trade in these items could be presumed. Likewise
          in State of Gujarat v. Vivekanand Mills, (1967) 19 STC I 03 SC, cited for
                                                                                             F

          the respondent- Port Trust, the Mills purchased cotton locally believing that
          shipment from California would take 6 months time to arrive but the
          Californian Cotton arrived suddenly and therefore the local cotton had to be
          sold to avoid blocking up of a large sum of money. It was held that it could       G
          not be inferred that the Mills intended to carry business in selling cotton.
          The sales were not liable to tax. Position was similar in State of Gujarat v.
          Arvind Mills Ltd., (1967) 19 STC 12 SC, where sales of old containers such
          as cans, boxes, discarded stores, machinery and iron scrap, discarded hessian,
          oil and chemicals were held not part of business but sale of 'Waste Caustic
          liquor' were held liable to tax. Again in State of Gujarat v. Ambica Mills         H
    206                      SUPREME COURT REPORTS                    [1999) 2 S.C.R.

A   Ltd., (1967) STC 12 SC the sale of 89 looms, 28 carding engines, 2 lathes
    etc. were held not exigible to tax. In Hindustan Steels Ltd. v. State of
    Orissa, AIR (1970) SC 253, the main activity was production of steel but
    there were sales of bricks to contractors at a fixed percentage over cost
    price. These sales were held not part of the main business activity and were
B   held not liable to sales tax. All these cases being based on a definition of
    'business' which did not include connected, ancillary or incidental sales,
    cannot help the respondent~Port Trust.

          After the amendment to the definition of 'business' in 1964 or
    thereabouts in most sales-tax statutes, profit motive was statutorily treated
C   as irrelevant. Further, by including sales made 'in connection with' or
    'incidental' or 'ancillary' to the main business as part of 'business', the
    scope for taxation was widened and questions arose again whether, the
    incidental sales of certain commodities could be treated as amounting to
    'carrying on business'.

D          The words 'in connection with' occurring in the definition of'business'
    fell for consideration in State of Tamil Nadu v. Mis Burmah Shell Oil Storage
    and Distributing Co. ofIndia Ltd. & Another, [1973] 3 SCC 511=31STC426,
    strongly relied upon for the appellant- State of Tamil Nadu. In that case, sales
    fell into two periods. The oil company's sales during 1-4-64 to 31-8-64 and
E   those during 1.9.64 to 31.3.65 were in question. The amendment which made
    profit motive irrelevant and included sales made 'in connection with' main
    business in the definition of 'business' came into force w.e.f. l.9.64 in Madras
    State. In respect of the pre-amendment period, this Court followed Raipur            -
    Manufacturing Co. Case AIR (1967) SC 1066. Jaganmohan Reddy, J. held that                \

    the sale of miscellaneous, old and discarded items, could not be treated as
F   part of the activities of carrying on business even if the sales were frequent
    and their volume was large. It was also observed that the discarded goods
    were not by-products or subsidiary products of or arising in the course of
                                                                                         -
    manufacturing process. Nor could they be treated as sales 'in connection
    with' the main business for such a contingency was not part of the then
G   definition of 'business'. But in respect of the period after 1.9.64, it was held
    that the addition of the words in section 2(d) (ii) of transactions "in connection
    with or incidental or ancillary to such trade, commerce, manufacture, adventure
    or concern" and the exclusion of 'profit-motive' made the definition of
    'business'. wider. It was, therefore, held that the scrap that was sold after
    1.9.1964 was "connected with" the business of the company. The Court
H   distinguished Raipur Manufacturing Co. Case on this ground. An argument
       STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.)         207

was advanced for the assessee in that case that the word 'such' in the              A
inclusive part of the definition of 'business' in section 2(d)(ii) viz. "any
transaction in connection with or incidental or ancillary to, such trade,
commerce, manufacture, etc.", governed the word 'trade' etc. and that a
commercial element was intended to be part of the subsidiary sale transaction.
But this contention was rejected by this Court holding that the word 'such'         B
referred to the concept of absence of profit motive, as per the amended
definition of 'bu~iness' in section 2(d)(i). It was held that the decision of the
Andhra Pradesh High Court in Hyderabad Asbestos Cement Products Ltd. v.
State of A.P., (1972) 30 STC 26, had correctly explained the position after a
similar amendment. Adverting to that judgment, it was held (p.516) :
                                                                                    c
        "In their view (Andhra Pradesh High Court), under both parts of the
        definition, profit motive is now immaterial and the concept of business
        in respect of matters falling under section 2(d)(ii) in the commercial
        sense put forward and accepted in the earlier cases must be abandoned.
        We think the view adopted by the Andhra Pradesh High Court is in            D
        consonance with our own reading of the section which we have
        indicated earlier."

      In other words, the "concept of business in the commercial sense" was,
it was held, abandoned. That would mean that after the amendment, it was
sufficient if these sales were made "in connection with" the trade and there        E
was no need to prove in these sales any commercial element. The word 'such'
in sub-clause (ii) of section 2(d) defining 'business' after amendment would
mean the absence of profit motive and it did not matter so far as these sales
were concerned, if there was no profit motive or commercial element. Such
sales were also to be treated as part of 'business' under the inclusive part        F
of section 2(d)(ii). Thus sales of scrap and unserviceable goods, even if made
for reducti9n of space or such other reason and even if there was no profit
motive, they would become exigible to sales-tax. This was a radical departure
from Raipur Manufacturing Co. but this was because of the amendment in the
definition of 'business' in 1964 and not because of any change in legal             G
principle. This decision would support the case of the appellant, State of
Tamil Nadu, if however, it was proved that the main activity of the Port Trust
amounted to 'business'.

      The words 'incidental' in section 2(d)(ii) came up for consideration in
State of Tamil Nadu v. Binny Ltd Madras, [1980] Suppl. SCC 686, cited for           H
    208                      SUPREME COURT REPORTS                    [I 999] 2 S.C.R.

A the respondent - Port Trust. The company was having business of manufacture
    and sale of textiles. It was also running a store in the premises of the factory
    to enable the workmen to buy provisions which were assessed to tax. The
    sales to workmen were on no profit basis. The company contended that it was
    only running a facility for its workmen and its main business was certainly
B   not that of selling provisions. The issue related to 1967-68 after amendment
    of section 2(d) of the Madras Act. The argument that there should be a
    "direct" connection between the main business and these sales of provisions
    was rejected by this court and it was held that these sales were 'incidental'
    to the main business and covered by the amended definition of 'business'
    in section 2(d). Bhagwati, J. (as he then was) adverted to the observations
C   Of Krishna Iyer, J. in Royal Talkies, Hyderabad v. Employees State Insurance
    Corporation, [ 1978] 4 SCC 204, a decision under the ESI Act to the following
    effect:

            "a thing is incidental to another, if it merely pertain to something else
            as primary. surely, such work should not be extraneous or contrary to
D           the purpose of the establishment but need not be integral to it either."

            It was pointed out that in the case relating to Royal Talkies, it was held
    that it was impossible to hold that a canteen or cycle stand or cinema magazine
    booth was not incidental to the purpose of the theatre. The cinema goers
E   ordinarily find the above to be facilities, amenities and sometimes even a
    necessity. All that the statute required was that the work should not be
    irrelevant to the purpose of the establishment. Adverting to the facts in the
    case before them (i.e. Binny Case), this Court held that if a canteen maintained
    by a cinema-owner for the benefit of cinegoers could be regarded as
    'incidental' to the purpose of the Cinema theatre, namely, the business of           .I
F   exhibiting films in the theatre, it was difficult to see how a store run by the
    owner of a Textile undertaking for sale of provisions to workmen employed
    in the factory could be said to be not 'incidental' to the business of
    manufacture of textiles. [This case stands in contrast with State of Tamil
    Nadu v. Thirumagel Mills Ltd., (1972) 29 STC 290 SC where, before
G   amendment of definition of 'business' in the T.N. Act, sales made during the
    running of a fair price shop by a spinning mill for benefit of employees
    without profit motive were held not liable to sales tax]. On the same parity
    of reasoning, it was held in State of Tamil Nadu v. Shakti Estates, [1989] I
    sec 636, that where a reserve-forest was purchased or taken on lease by a
    firm for raising coffee and cardamom plantation thereon and a portion of the
H   forest produce was cleared by felling trees and then the cut trees and natural
            STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]         209

     growth were sold in various forms like firewood, timber/sleepers/charcoal,-          A
     then these sales were 'incidental or ancillary' to the business. It was immaterial
     that in these sales there was no profit motive. In the context, it was to be
     noted that a 'casual dealer' was also included in the definition of'dealer' and
     even sales effected before the plantation had started yielding results would
     be covered. In Indian Express (P) Ltd v. State of Tamil Nadu, (1987) 67 STC          B
     474 SC, it was held that the sales of old and unsold copies of newspapers
     by a newspaper publisher as waste paper regularly with profit motive, were
     'incidental' to the main business of printing and publishing newspapers and
     were liable to sales tax. This case was followed in The Hindu v. State a/Tamil

--   Nadu, (1981) 67 STC 477 SC, which related to sales of glazed newsprint by
     a newspaper publisher (during the period when the publication was stopped)
     and also sales of old newspapers, print waste and cut waste and these sales
                                                                                          C

     were treated as 'incidental or ancillary' to the main business of printing and
     publishing of newspaper and liable to sales-tax. These cases would be of help
     to the appellant, State of Tamil Nadu, if the main activity of the Port Trust
     amounted to 'business'.
                                                                                          D
           Learned senior counsel for the appellant, State of Tamil Nadu contended
     that merely because the Port Trust was performing statutory functions or
     duties, it could not be contended that there was no 'business' in the eye of
     the Jaw. It was pointed out that even the Central Government and State
     Governments had been brought within the purview of the definition of 'dealer'        E
     in section 2(g) by way o.f an Explanation. Similarly, compulsory sales under
     Control orders had also been brought within the tax-net.

           It is true that in the Explanation 2 to section 2(g) which defines 'dealer',
     the Central Government and State Governments hav~ been brought within the
     definition of 'dealer' in certain respects. In District Controller of Stores,        F
     Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer and
     another, (1976) 37 STC 423, relied upon for the appellant, State of Tamil
     Nadu, sale of unserviceable stores and scrap by the Northern Railway were
     held exigible to sales tax in view of the enlarged definition of 'business'
     under the Rajasthan Sales Tax Act, 1954. It was pointed out that there was           G
     no fallacy in thinking that the Railway, since it was concerned in the activity
     of transportation, it was engaged in commerce. Similarly in Member, Board
     of Revenue, West Bengal v. Controller of Stores, Eastern Railway, Calcutta,
     (1989) 74 STC 5, it was held in a batch of cases that sale of unclaimed goods
     made the Railway a 'dealer' under section 2(g) of the Bengal Finance (Sales
     Tax) Act, 1941. The South Eastern Railway was a carrier of goods and its             H
      210                     SUPREME COURT REPORTS                   [1999] 2 S.C.R.

  A activity of selling goods which remained unclaimed was adjunctive to its
    principal activity as carrier of goods. It was 'incidental' or 'ancillary' to its
    business as carrier of goods. On that basis, in the same batch, in a case
    arising from Andhra Pradesh, the Central Government was held to be a
    'dealer' within section 2(b) of the Andhra Pradesh General Sales Tax Act,
  B 1957. There the Central Government sold, through the Joint Director of Food,
    foodgrains and fertilizers to the A.P. State and other States, for a price fixed
    by the Government. Though the tax was levied on the Government of India,
    it was stated that this was for the benefit of the State Governments and
    through a machinery of the State tax agency. The State had power to trade
    or do business as was manifest from Article l 9(6)(ii) of the Constitution of
  C India. The trade in essential commodities, though carried on to fulfil a State
    obligation of ensuring even distribution of vital goods to needy sections of
                                                                                        -
    the people, was nevertheless trade or business. Necessarily, therefore, the
    Central Government became a 'dealer' by definition as it carried on business
    and this was so even if the State Act excluded the profit motive. Again in
  D Mis Vrajlal Manila/ & Co. and another v. State of Madhya Pradesh and
    another, AIR (1986) SC 1085, it was held that the M.P. General Sales Tax Act,
    1959 was amended by enlarging the definition of 'dealer' in section 2(d) and
    that the Explanation added brought the Central or State Governments within
    the purview of the said definition. Then in the seven Judge decision in Ml
    s Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer and Others, [1978]
  E l SCC 520, this Court had to consider the transactions of supply of cement
    by a distributor to a permit holder in terms of the W..& Cement Control Act
    and Control Order to find out if they amounted to 'sale' within section 2(g)
    of the Bengal Finance (Sales Tax) Act, 1941. The case was also concerned
    with the compulsory sales of paddy by paddy grows to licensed agents
  F appointed by the State Government under the A.P. Paddy Procur~ment (Levy)
    Orders. The issue related to the absence of a consensual option as between
    the parties to the bargain. It was held that a transaction effected in compliance
    with the obligations imposed by statute might nevertheless be a 'sale' in the
    eye of the law, so long as mutual assent, express or implied, was not excluded.
  G There was no obligation for a trader to deal with business in these controlled
    goods. But once a dealer opted, he was bound to trade strictly within the
    terms of the Control orders. Further though the terms were mostly
    predetermined by statute, it could not be said that there was no area or scope
    for parties to bargain. Thus, these sales were held liable to sales-tax. These
    decisions could help the appellant, State of Tamil Nadu, if the main activity
· H of the Port Trust amounted to 'business'.
       STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]         211

      In this context reference was also made by the appellant's senior counsel A
to Food Corporation of India v. State of Kera/a, [1997] 3 SCC 410, as a case
where the services were governed by statute. In that case, purchase of food
grains by the Food Corporation of India pursuant to levy orders issued under
Section 3 of the Essential Commodities Act were held liable to sales tax under
the U.P. Sales Tax Act, 1948. The facts of the case showed that the FCI had B
reserved the right to accept or reject the offer of the State. Several earlier
judgments relating to sales which were governed by Control orders were
approved by the three Judge Bench. But this ruling cannot help the appellants
because the Food Corporation, as seen from the preamble of the Food
Corporation Act, 1964 was established for purpose of trading in food grains
and other food stuffs. Hence the appellants must establish that the Port Trust C
was established for carrying on business.

      It will thus be noticed that in all these cases the main activity of the
person or body was undoubtedly 'business' even though the motive of profit
was excluded by statute and even though the connected, incidental or ancillary
sales were statutorily included in the definition of business. The question in       D
issue before us is whether the Port Trust was established by statute to 'carry
on business'.

       We now come to the second category of cases cited for the respondent,
Port Trust where the main activity of the person or body does not amount
to 'carrying on business'. If that be the case the activities will stand far         E
removed from any business. Let us assume that such "non-business" activities
might result (say) in some scrap or unwanted material which should be cleared
so that accommodation could be saved. If the sales were then made with an
intention to reduce the congestion and not with the intention of running an
independent business in the scrap or unwanted material, then would they be           F
liable to sales-tax? If in such situations, the activities of sale of the scrap or
unwanted material were only a very infinitesimal part of the activities when
compared with the main "non-business" activity, could they be brought under
the tax net?

      In our view, if the main activity was not 'business', then the connected,      G
incidental or ancillary activities of sales would not normally amount to
'business' unless an independent intention to conduct 'business' in these
connected, incidental or ancillary activities is established by the revenue. It
will then be necessary to find out whether the transactions which are
connected, incidental or ancillary are only an infinitesimal or small part of the
main activities. In other words, the presumption will be that these connected,       H
    212                      SUPREME COURT REPORTS                    [1999] 2 S.C.R.

A incidental or ancillary activities of sales are not 'business' and the onus of
    proof of an independent intention to do 'business' in these connected,
    incidental and ancillary sales will rest on the Department. If, for example, these
    connected, incidental or ancillary transactions are so large as to render the
    main activity infinitesimal or very small, then of course the case would fall
B   under the first category referred to earlier.

          We shall now refer to a few decided cases where such questions have
    arisen and which have been cited for the respondent, Port Trust.

          One of the earliest of the cases where the 'object or purpose' of the
    main activities fell for consideration was the case decided by the Chagla, CJ
C   in the Bombay High Court in State of Bombay v. Ahmedabad Education
    Society, (1956) 7 STC 497 (Born). In that case, an Educational society was
    entrusted with the task of founding a College and for that purpose to construct
    buildings therefor. It was held that it could not be said to be 'carrying on
    business' merely because for the above purposes, it established a brick kiln
D   and sold surplus brick and scrap at cost price without intending to make profit
    or gain. Having regard to its principal activities and its objects, it was held
    that the Educational Society was not established to 'carry on business' and
    the sale of bricks were held not exigible to sales tax. Chagla, C.J. pointed out
    that it was not merely the act of selling or buying etc. that constituted a
    person a 'dealer', but that the 'object' of the person who carried on the
E   activities was important. The learned Chief Justice said that it was not every
    activity or any repeated activity seriously undertaken which resulted in sale
    or supply of goods that could attract sales tax. If it was the intention of the
    Legislature to tax every sale or purchase - irrespective of the object of the
    activities out of which the transactions arose -then it was unnecessary to
    state that the person must 'carry on the business' of selling, buying etc. No
F   doubt, when this case was decided, the statute did not include the connected,
    incidental and ancillary activities in the definition of 'business'. But, even so
    the principles enunciated are, with respect, correctly stated and support the
    case of the respondent, Port Trust.

G         In Girdhari Lal Jiwanlal v. Assistant Commissioner of Sales Tax
    (Appeals), Nagpur, (1957) Vol.8 STC 732 Born., relied on for the respondent-
    Port Trust, the Bombay High Court held that an agriculturist did not necessarily
    fall within the definition of a 'dealer' under section 2(c) of the CP & Berar
    Sales Tax Act (Act 21 of 1967), merely because he sold or supplied commodities.
    It must be shown that he was carrying on a business. It was held that it must
H   be estahlished that his primary intention in engaging himself in such a.-:tivities
               STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]     213

        must be to carry on the business of sale or supply of agricultural produce. A
        The High Court held that there was "nothing to show that the petitioner
        acquired these lands with a view to doing the business of selling or supplying
        agricultural product. According to the assessee, he was principally an
        agriculturist who also deals in cotton, coal, oil-seeds and groundnuts". He
        was having agriculture for the purpose of earning income from the fields but B
        there was nothing to show that he acquired the lands with the primary
        intention of doing business of selling or buying agricultural produce. This
        decision was approved by this Court in Dy. Commissioner of Agricultural
        Income-tax & Sales-tax v. Travancore Rubber & Tea Co., (1967) vol.20 STC
.....   520 SC, and it was held that where the only facts established were that the C
        assessee converted latex tapped from rubber trees into sheets and effected
        a sale of those sheets to its customers, the conversion of latex into sheets
        being a process essential for transport and marketing of the produce, the
        department had failed to prove that ''the assessee was formed" with a
        commercial purpose. The Allahabad High Court in Swad~shi Cotton Mills Co. D
        Ltd v. Sales Tax Officer, (1964) 15 STC 505 (All.) was dealing with a batch
        of cases where different bodies were running canteens. One of the cases
        concerned the Aligarh Muslim University which was maintaining dining halls
         where it was serving food and refreshments to its residents-students. It was
         held, referring to observations of this Court in University of Delhi & Another E
         v. Ram Nath & Others, AIR (1963) SC 1873, that it was incongruous to call
         educational activities of the University as amounting to 'carrying on business'.
         The activity of serving food in the dining hall was a minor part of the overall
         activity of the University. Education was more a mission and avocation rather
         than a profession or trade or business. The aim of education was the creation
         of a well-educated, healthy, young generation imbued with a rational and F
        progressive outlook of life. On this reasoning, it was held that the Aligarh
        University was not 'carrying on bnsiness' and the sale of food at the dining
        halls was not liable to tax. Likewise after the amendment of definition o~
        'business' question arose in India Institute of Technology v. State of UP,
        (1976) 38 STC 428 (All), with respect to the visitor's hostel maintained by the G
        Indian Institute of Technology where lodging and boarding facilities were
        provided to persons who would come to the Institute in connection with
        education and the academic activities of the Institute. It was observed that,
        the statutory obligation of maintenance of hostel which involved supply and
        sale of food was an integral part of the objects of the Institute. Nor could the H
    214                      SUPREME COURT REPORTS                    (1999] 2 S.C.R.

A   running of the hostel be treated as the principal activity of the Institute. The
    Institute could not be held to be doing business. Similarly, in the case of a
    Research organisation, in Dy. Commissioner (C. T), Coimbatore v. South
    India Textile Research Association, (1978) 41 STC 197 (Mad), which was
    purchasing cotton and selling the cotton- yam/cotton waste resulting from
B . the research activities, it was held that the Institute was solely and exclusively
    constituted for the purposes of research and was not carrying on 'business'
    and these sales and purchases above-mentioned could not be subjected to
    sales-tax. Likewise, in State of Tamil Nadu v. Cement Research Institute of
    India, (1992) 86 STC 124 (Mad), it was held that the Institute was an
    organizatiGnthe objects of which were to promote research and other scientific
C work, that the laboratories and workshops were maintained by the organization
    for conducting experiments, and that though the cement manufactured as a
    result of research was sold, it could not be considered to be a trading activity
    within Section 2(d) of the Tamil Nadu General Sales Tax Act, 1959. Again in
    Tirumala Tirupati Devasthanam v. State of Madras, (1972) 29 STC 266 (Mad),
D the dispute arose with regard to the sales of silverware etc. which are
    customarily deposited in the Hundis by devotees. It was held by the Madras
    High Court that the Devasthanam's main activities were religious in nature
    and these sales were not liable to tax. (No doubt, the case related to a period
                                                               \
    where the profit motive was not excluded by statute). We are of the view that
E all these decisions involve the general principle that the main activity must
    be 'business' and these rulings do support the case of the respondent-Port
    Trust.

          Finally, we come to the Naval Dockyard Case in Base Repair
    Organisation, (Now Naval Dockyard), Visakhapatnam v. The State of A.P.,
F   (1983) 53 STC 223 (AP). Here the Naval Dockyard was established for
    repairing and servicing ships of the Navy. It was obliged by section 46 of the
    Factories Act to run a canteen to cater to the needs of its employees and the
    canteen was run on no-profit no loss basis. It was held that the sales in the
    canteen were not liable to sales tax. It was held as follows :

G           "It should be noticed that the canteen is not only being run in discharge
            of a statutory obligation, but that it constitutes an infinitesimal and
            insignificant part of the entire activity of the assessee. Having regard
            to the nature of the functions and the purpose for which the Naval
            Dock yard is established, and also because of the fact that the canteen
H           subserves the main object and purpose of the assessee and is an
       STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]          215

        integral and inseparable part of it, it would be unrealistic to separate      A
        the said activity and treat it as a business."

      We are in entire agreement with the above elucidation of the law and
the conclusion and these observations support the case of the respondent-
Port Trust.
                                                                                      B
      Learned senior counsel for the appellant, State of Tamil Nadu, however,
relied upon the certain other observations in the above case. The observations
relied upon are as follows:

        "Sub-clause (ii) is in the nature of an explanation. It says that any
        transaction in connection with or incidental or ancillary to trade,           C
        commerce, manufacture, adventure or concern, referred to in sub-
        clause (i), shall equally be a business. The contention of Mr.
        Venkatarama Reddy is that, on the same parity ofreasoning, inasmuch
        as the main activity of the petitioner does not amount to trade,
        commerce or manufacture, the ancillary or incidental activity of              D
        running a canteen cannot equally amount to business. It is not possible
        to agree with this submission."

        Thereafter, the High Court observed :

        "According to the definition, if the main activity is in the nature of        E
        trade, commerce or manufacture, any ancillary or incidental
        transaction, be it per se in the nature of trade, commerce or
        manufacture or not, is also treated as 'business'. But the converse is
        not true. In other words, if the main activity is not business, but if
        an ancillary or incidental activity is per se business, the incidental or
        ancillary activity does not cease to be business, merely because it is        F
        ancillary or incidental to the main activity, which itself is not business.
        The definition is not capable of being read in such a manner."

       We agree with the above observations subject to the following
clarification or modification. If the main activities are 'business' then the
sales in connection with or incidental or ancillary thereto need not have
                                                                                      G
been intended as a business or commercial activity. Their mere connection
with or being incidental or ancillary to something else which was 'business'
was sufficient to include such sales in the main business. The second part
of the last extract starting with the words 'But the converse is net true', are
to be modified to mean that if the main activity falling under sub-clause (i)         H
    216                      SUPREME COURT REPORTS                     [1999] 2 S.C.R.

A did not amount to business, nonnally these sales made in connection with or
    were incidental or ancillary to the main activity would not be 'business' but·
    there could still be an exception wher~ the sales so connected or incidental
    or ancillary to the main "non-business" activity were proved to have been
    made with an independent intention to do business and the burden of proof
B   to prove the exception would fall on the revenue. In our view, the Andhra
    Pradesh High Court did not, in the above passage, imply that even where the
    main activities were not business, the assessee must prove want of an intention
    to carry on business in the connected, incidental or ancillary activity which
    involved sales. It is possible, in exceptional cases that such latter sales could
C   per se be business having been proved by the revenue to have been carried
    in with such an explicit intention. The burden, as already stated, would here
    lie on the revenue.

         Then the learned senior counsel for the appellant-State relied upon yet
    another passage from the above judgment of the Andhra Pradesh High Court
D   which reads as follows :

            "We must make it clear that there is a definite distinction between
            an activity which is ancillary or incidental to the main activity and an
            activity which is an integral part of the main activity. In the first case,
            the incidental or ancillary activity is a distinct activity, though it is
E           incidental or ancillary to the main activity."

           On the facts of the case before the Andhra Pradesh High Court, the
    canteen activity was treated as a requirement of statute and also as an integral
    part of the main activity and was, therefore, not business. If the Andhra
    Pradesh High Court meant that incidental or ancillary sales or sales made in
F
    connection with a main activity, (which main activity was not in itself
    business), in order to escape liability should always be proved by the assessee
    to be an integral part of the main "non- business" activity, we are not inclined
    to agree. In our view, that would erase the distinction between sales which
    were integral with the main "non-business" activity and those which were
G   incidental or ancillary or connected. In the first place, if these sales were an
    integral part of the main "non-business" activity, they were not incidental or
    ancillary and would present no difficulty in leading to the conclusion that
    they were not taxable. But if the sales were connected or incidental or
     ancillary to the "non-business" activity then, as stated earlier, there would be
H    a presumption that they were not intended to be 'business'. It would then
       STATE v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNADHA RAO, J.]        217

be for the revenue, in any exceptional case to prove that, in respect of a "non-    A
business" activity the ancillary or incidental sales were independently intended
to be carried on as a separate business. To this extent, we modify the principle
stated in the Andhra Pradesh High Court in the Naval Dockyard case.

      That brings us finally to the question whether the Port Trust was
established under the Major Port Trusts Act, 1963 for carrying on business?         B
      The observations of this Court in Trustees of Port of Madras v. Mis
Aminchand Pyarelal & Others, [1976) 1 SCR 721, in connection with the
earlier Madras Port Trust Act were strongly relied upon by the learned senior
counsel for the respondent -Port Trust. In that case Chandrachud, J.(as he          C
then was) observed (at p.735) as follows :

        "Port Trusts do not do the business of warehousing goods and the
        rates which the Board charges for storage of goods are not levied as
        a means of collecting revenues. The Board is under a statutory
        obligation to render services of various kinds and those services           D
        have to be rendered not for the personal benefit of this or that
        importer but in the larger national interests."

      The above observations clearly show that Port Trusts are not established
for carrying on business.
                                                                                    E
      Coming to the Major Port Trusts Act, 1963 (before amendment by Act
15/97), Chapter V refers to "works and services to be provided by ports"
(sections 35 to 47) while Chapter VI deals with 'Imposition and Recovery
of Rates at Ports' (sections 48 to 65). Section 35(a) refers to various works
and appliances to be provided by the Ports, namely, wharves, quays, docks,
stage, jetties, piers etc. within the port or port approaches or on the foreshore   F
of the port or port approaches, with all convenient articles, drains, landing
places, stains, fences, roads, railways, bridges, tunnels and approaches and
buildings required for the residence of the employees of the Board as the
Board may consider necessary; Section 35(b) refers to providing buses,
railways, locomotives, rolling stock, sheds, hotel ;, warehouses and other          G
accommodation for passengers and goods. The port is required to provide
appliances for carrying passengers and for conveying, receiving and storing
goods, landed or to be shipped etc.; Section 35(c) requires the port to provide
moorings and cranes, scales and all other necessary means; appliances for
loading and unloading vessels; Section 35(d) requires the Port to take up
work for reclamation, excavation, enclosing and raising any part of the foreshore   H
    218                    SUPREME COURT REPORTS                   (1999] 2 S.C.R.

.A of the port or port approaches which may be necessary for the execution of
    the works authorised by the Act, or otherwise for the purposes of the Act;
    Section 35(e) requires the port to provide such breakwaters and other works
    as may be expedient for the protection of the port; Section 35(f) requires it
    to provide dredges and other machines for clearing, deepening and improving
B   any portion of the port or port approaches or of the foreshore of the port or
    port approaches; Section 35(g) requires to provide light hours, lightships,·
    beacons, buoys, pilot boats etc; Section 35(h) requires it to provide vessels,
    tugs or other boards for use or for towing vessels or for protecting life or
    property and for Mrposes of landing, shipping or transshipping passengers
C   or goods under Sectio~ 42; Section 35(i) requires it to provide tubewells and
    equipment, maintenance and use of boats, bongs and other appliances for
    extinguishing fires; section 35(k) requires it to provide construction models
    and plans for carrying out hydraulic studies; Section 35(1) requires it to
    provide dry docks, slipways, boat basins and workshops for carrying out
    repairs or overhandling of vessels, tugs boats, machinery etc. Section 35-A,
D   36 also refer to other works.

         We have referred to the Port Trust's activities and services in some
 - detail only with a view to show that the port trust was not constituted by
   Parliament to 'carry on business' as stated in Mis Aminchand Pyarela/'s, case
E [1976] I SCR 721. We have given the long list of its activities and services
   only to show how infinitesimal are the sales of unserviceable or unclaimed
   goods as compared to the very large range of the activities and services it       ___...
   is supposed to render.

F         In view of the requirements of sections 37, 39 and 42 ships come to the
    ports and carry goods outside or bring goods inside our country. Under
    Section· 43, the Board is liable for the loss, destruction or deterioration of
    goods of which it has taken charge in the manner provided in the sections.
    Under section 44, accommodation is to be provided for customs officers in
G   the wharves etc. Chapter VI deals with imposition and recovery of rates at
    ports. Sections 48 to 57 deal with the rates.

          The more important provisions for the present purpose are those in
    Sections 58 to 65 in Chapter VI. They deal with the Board's lien for rates on
    the goods which, in enforcement of the lien could be seized & detained till
H   such rates and rents are fully paid. Section 61 refers to sale of goods after
•
                STATE   v. B.O.T. OF THE PORT OF MADRAS [M. JAGANNA:DHA RAO, J.]       . 219


        2 months if rates or rent are not paid or lien for freight is not discharged.           A
        Section 62 refers to disposal of goods not remove~ from premises of Board.
        Section 63 mentions how tb.e sale proceeds- are to be dealt with ~ in payment
        of liens, claims,_ other charges,. demurrages, penalties etc. . ·

                 From the above provisions, in our opinion, it is clear that the Port Trust     B

--        is not involved in any activity of 'carrying on business' as has been clearly
          held in Aminchand Pyarelaf's, case (supra).,.and that unclaimed and
          unserviceable goods are sold in discharge of various statutory charges, items
          etc. and the sales of these items are also an infinitesimal part of the Port
          Trust's main activities or services. No doubt, the sales of goods are in
          connection with,_ or incidental or ancillary to the main "non-business" activities,   c
       · but they .cannot be treated as 'business' without any plea by the State of
          Tamil N~du that .the Pprt Trust had an independent intention to carry on
        . business in th~ sate;.of unserviceable/unclaimed goods. That is not the case
          of the Department fu. the show c.ause notice. Further.from the colinter•affidavits
          filed in the High Court it is clear that it is not the case of the State that there   D
          is a'ny separate intention on the part. of the Port-Trust, to carry on busines_s
          in the unserviceable 8c unclaimed goods. Its conten!ion has· been that the
          main activities of the Port Trust amounted t~ 'carrying on business' and that
          these sales, even if they were incidental, fell within the meaning of the word
          'business'. The argument fails in view of our finding that the main activity          E
          is not one amounting to 'carrying on business'.

               In our view, the conclusions arrived at by the Madras High Court in
        State ofMadTas v. Trustees ofPort Trust ofMadras, (1974) 34 STC 135 (Mad)


-
        which ruling was followed by the Andhra Pradesh High Court in Board of
        Trustees of the Visakhapatnam Port Trust v. Commercial Tax Officer & F
        Another, ( 1979) 43 STC 36 (AP) and the.conclusions arrived at in the judgment
....    under appeal by the Madras High· Cotirt- holding that such sales are not
        exigible to tax, are correct, though for the reasons given by us in this
        judgment. We do not accept the contention of.the &ppellants1hat at this stage
        the respondent should be directed to file its reply 'before the department and G
        go by the alternative remedies under the Act. Irt vtew of the case set up by
        the State in the show cause notice, it is not necessary to drive the respondent .
        - Port Trust to the remedy unde!" the Sales Tax Act. The submission for the
        appellants that the Port Trust was a local authority need not also be gone
        into for, even then, the question will be whether it was carrying on business. H
    220                     SUPREME COURT REPORTS             [1999] 2 S.C.R.

A   Nor does the amending Act 31 of 1992 have any bearing on this question.

           The intervention applications are dismissed.

          For the aforesaid reasons, the appeal is· dismissed but in the
    circumstances, without costs.
B
    S.M.                                                  Appeal dismissed.
                                                                                -