Case Note & Summary
The case involves Sales Tax References under the Bombay Sales Tax Act, 1959, concerning the tax liability of M/s. Bombay Telephone (now Mahanagar Telephone Nigam Limited) for the period from 1 April 1976 to 31 March 1984. The appellant, originally a department of the Central Government (later a corporation from 1 April 1986), is engaged in providing telecommunication facilities in India and abroad. While providing these services, it occasionally sold old telephones, directories, and discarded materials not required by it. Neither the main activity of providing telecommunication services nor the incidental activity of selling scrap materials were considered business activities, and the appellant was not registered as a dealer under the BST Act. With the introduction of clause (5A) to Section 2 of the BST Act with effect from 15 January 1975, which expanded the definition of 'business' to include any trade, commerce, or manufacture, the Sales Tax Officer opined that the appellant's activities constituted business and that the appellant was a dealer liable to tax on the sale of scrap. The Tribunal upheld this view. The common questions of law referred were whether the activity of rendering telecommunication service constitutes 'commerce' within the meaning of 'business' under Section 2(5A), and whether the appellant is a 'dealer' carrying on business of buying or selling goods, making its sales of scrap liable to tax. The High Court held that telecommunication service is a commercial activity and falls within the definition of 'commerce' under Section 2(5A), and consequently, the appellant is a 'dealer' under Section 2(11) and the incidental sale of scrap is taxable. The court answered both questions in the affirmative, against the appellant and in favor of the Revenue.
Headnote
A) Sales Tax - Definition of Business - Commerce - Section 2(5A) Bombay Sales Tax Act, 1959 - Whether telecommunication service constitutes 'commerce' - The court examined the meaning of 'commerce' in the context of the definition of 'business' and held that providing telecommunication services for a fee is a commercial activity and falls within the ambit of 'commerce' as used in Section 2(5A). The activity involves exchange of services for consideration and is systematic and organized. (Paras 1-5) B) Sales Tax - Dealer - Incidental Sale of Scrap - Sections 2(5A) and 2(11) Bombay Sales Tax Act, 1959 - Whether the appellant is a 'dealer' liable to tax on sale of scrap - The court held that since the main activity of telecommunication is 'business', the incidental sale of scrap materials (old telephones, directories, discarded materials) is also part of the business activity. Therefore, the appellant is a 'dealer' under Section 2(11) and the sales of scrap are taxable. (Paras 4-5)
Issue of Consideration
Whether rendering telecommunication service constitutes 'commerce' within the definition of 'business' under Section 2(5A) of the Bombay Sales Tax Act, 1959, and whether the appellant is a 'dealer' liable to tax on sale of scrap materials.
Final Decision
The court answered both questions in the affirmative, holding that the appellant's activity of rendering telecommunication service constitutes 'commerce' under Section 2(5A) and that the appellant is a 'dealer' under Section 2(11), making its sales of scrap liable to tax under the Bombay Sales Tax Act, 1959.
Law Points
- Definition of business includes commerce
- Telecommunication service is commerce
- Incidental sale of scrap is business activity
- Dealer definition includes government departments engaged in commerce
