Case: State Of Tamil Nadu Vs. M/S Burmah Shell Oil Storage &amp; Distributingco. Of India Ltd

1967 SC 1066 ) (supra) this Court had observed at p. 9 that the miscellaneous, old and discarded items such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags etc., were held to be not part of or incidental to the main business of selling textiles. This contention in our view does not take into account the context in which that finding had been given. In that case, as already pointed out, what was held under the analogous Bombay Sales Tax Act which was similar to that under the Madras Sales Tax Act prior to its amendment in 1964, the sale of scrap does not necessarily lead to an inference that business which was an element in determining the liability of the dealer for the turnover in such goods was intended to be carried on in those goods. This Court had observed, it cannot be presumed, that when the goods were acquired there was an intention to carry on business in those discarded material nor are the discarded goods by products or subsidiary products or are produced in the course of manufacturing process; that they are either fixed assets of the company or are goods which are incidental to the acquisition or use of stores or commodities consumed in the factory and that when these go into the profit and loss account of the business and may indirectly be said to reduce the cost of production of the principal item, the disposal of those goods on the account cannot be said to be part of or incidental to the main business of selling textiles. As the scrap in that case was not held to be incidental to the acquisition or use of stores or commodities consumed in the factory, the turnover was not included but in the case of caustic liquor which is regularly and continuously accumulated in the tanks in the process of mercerisation of cloth, this Court held that that being a waste material it has still a market amongst other manufacturers or launders as by-products or subsidiary products in the course of manufacture, and the sale thereof is incidental to the business of the company. 7. In the view we hold the scrap sold is certainly connected with the business of the company and the turnover in respect of this commodity is liable to tax. It cannot also be said that the turnover in respect of the sale of the assessees advertisement material at cost price or less than cost price is not connected with the business of the assessee. Calendars, wallets and key chains are all given by the dealers to their customers for purposes of maintaining and increasing the sales of the products of the assessee and is therefore connected with the business. What the assessee is doing is to facilitate the dealers to acquire at their cost such advertising material of a uniform type approved by the assessee company which instead of allowing each of them to have these separately printed or manufactured, itself undertook to do so and supplied them to its dealers. The supply of such material is in our view being connected with the business is liable to be included in the turnover of the assessee. 8. It is pointed out by the learned advocate for the respondent in the first of the appeals that under G. O. 2238 dated 1st September, 1964 the canteen sales are exempt and notwithstanding the fact that the assessee in that appeal has complied with the terms and conditions of that G. O. the canteen sales have not been excluded. The G. O. to which reference it made is in the following terms :-"III No. 336 of 1964.- In exercise of the powers conferred by Section 17 of the Madras General Sales Tax Act, 1959 (Madras Act I of 1959), the Governor of Madras hereby exempts, with effect on and from the 1st September, 1964, the tax payable under the said Act, on the sales by all canteens run by an employer or by the employees on co-operative basis on behalf of the employer, under a statutory obligation without profit motive, provided that the employer subsidises at least twenty-five percent of the total expenses incurred in running the canteen." Under this G. O. what has to be established is that the assessee has subsidised at least 25 per cent of the total expenses in running the canteen. The Sales Tax Officer disallowed this amount because the assessee had not produced the accounts. In the memorandum of appeal to the Appellate Assistant Commissioner the assessee characterised this statement as unfair as the Commercial Tax Officer was invited to state what other records he required but he did not raise this point during the checking of the accounts. In support of this grievance a letter of the assessees advocate to the officer was referred. In that letter it was stated that out of the turnover of Rs. 35,974.96 in respect of the canteen sales, the assessee had supplied free tea to the staff of the value of Rupees 13,740.37. It was further mentioned in that letter that the assessee bears the expenses towards salaries and amenities provided for the employees in the canteen as also the the electric charges and corporation taxes. It also provides free of charge all equipment including furniture and fittings and a rent free building for this canteen. It therefore prayed that the turnover be exempted under the aforesaid G.O. Neither the Appellate Assistant Commissioner nor the Sales Tax Tribunal considered this aspect nor did the assessee pray for producing any evidence before them. We think as the assessee had sufficiently brought to the notice of the Sales Tax Officer its claim and was willing to produce accounts it should be permitted to do so. The Sales Tax Tribunal will give an opportunity to the assessee to produce evidence to show under the terms of G. O. 2238 it is entitled to exemption from the turnover in respect of the canteen sales.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Under this G. O. what has to be established is that the assessee has subsidised at least 25 per cent of the total expenses in running the canteen. The Sales Tax Officer disallowed this amount because the assessee had not produced the accounts. In the memorandum of appeal to the Appellate Assistant Commissioner the assessee characterised this statement as unfair as the Commercial Tax Officer was invited to state what other records he required but he did not raise this point during the checking of the accounts. In support of this grievance a letter of the assessees advocate to the officer was referred. In that letter it was stated that out of the turnover of Rs. 35,974.96 in respect of the canteen sales, the assessee had supplied free tea to the staff of the value of Rupees 13,740.37. It was further mentioned in that letter that the assessee bears the expenses towards salaries and amenities provided for the employees in the canteen as also the the electric charges and corporation taxes. It also provides free of charge all equipment including furniture and fittings and a rent free building for this canteen. It therefore prayed that the turnover be exempted under the aforesaid G.O. Neither the Appellate Assistant Commissioner nor the Sales Tax Tribunal considered this aspect nor did the assessee pray for producing any evidence before them. We think as the assessee had sufficiently brought to the notice of the Sales Tax Officer its claim and was willing to produce accounts it should be permitted to do so. The Sales Tax Tribunal will give an opportunity to the assessee to produce evidence to show under the terms of G. O. 2238 it is entitled to exemption from the turnover in respect of the canteen sales9. In the result both the appeals are dismissed in respect of levy of penalty. They are partly allowed so far as they are related to scrap in respect of the second period, 1-9-64 to 31-3-65 and dismissed in respect of the Ist period, 1-4-64 to 31-8-64. In so far as appeal 2119 of 1969 is concerned it is also partly allowed in respect of the advertisement materials for the period 1-9-64 to 31-3-65 and dismissed in respect of the Ist period, 1-4-64 to 31-8-64 and with respect of canteen sales the appeal is dismissed in respect of the Ist period, 1-4-64 to 31-8-64 and allowed in respect of the second period 1-9-64 to 31-3-65 and the matter remanded with the direction given above. There will be no order as to costs in both these appealsUnder this G. O. what has to be established is that the assessee has subsidised at least 25 per cent of the total expenses in running the canteen. The Sales Tax Officer disallowed this amount because the assessee had not produced the accounts. In the memorandum of appeal to the Appellate Assistant Commissioner the assessee characterised this statement as unfair as the Commercial Tax Officer was invited to state what other records he required but he did not raise this point during the checking of the accounts. In support of this grievance a letter of the assessees advocate to the officer was referred. In that letter it was stated that out of the turnover of Rs. 35,974.96 in respect of the canteen sales, the assessee had supplied free tea to the staff of the value of Rupees 13,740.37. It was further mentioned in that letter that the assessee bears the expenses towards salaries and amenities provided for the employees in the canteen as also the the electric charges and corporation taxes. It also provides free of charge all equipment including furniture and fittings and a rent free building for this canteen. It therefore prayed that the turnover be exempted under the aforesaid G.O. Neither the Appellate Assistant Commissioner nor the Sales Tax Tribunal considered this aspect nor did the assessee pray for producing any evidence before them. We think as the assessee had sufficiently brought to the notice of the Sales Tax Officer its claim and was willing to produce accounts it should be permitted to do so. The Sales Tax Tribunal will give an opportunity to the assessee to produce evidence to show under the terms of G. O. 2238 it is entitled to exemption from the turnover in respect of the canteen sales9. In the result both the appeals are dismissed in respect of levy of penalty. They are partly allowed so far as they are related to scrap in respect of the second period, 1-9-64 to 31-3-65 and dismissed in respect of the Ist period, 1-4-64 to 31-8-64. In so far as appeal 2119 of 1969 is concerned it is also partly allowed in respect of the advertisement materials for the period 1-9-64 to 31-3-65 and dismissed in respect of the Ist period, 1-4-64 to 31-8-64 and with respect of canteen sales the appeal is dismissed in respect of the Ist period, 1-4-64 to 31-8-64 and allowed in respect of the second period 1-9-64 to 31-3-65 and the matter remanded with the direction given above. There will be no order as to costs in both these