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Sales Tax - Whether when assessee is engaged in civil aviation sector, 'Dominant Activity' test is right criteria to decide taxability of incidental activity of sale of scraps - Matter referred to Larger Bench: HC

By TIOL News Service

NEW DELHI, SEPT 13, 2017: THE issue before the Bench is - Whether when the assessee is engaged in civil aviation sector, the 'Dominant Activity' test is the right criteria to decide the taxability of incidental activity of sale of scraps - Matter referred to Larger Bench.

Facts of the case

The assessee is engaged in the services of civil aviation, including the running of aircraft, ferrying of passengers and goods through air routes in both the domestic and international sectors. Till 1974, the assessee was registered with the Sales Tax Authorities as a dealer only in respect of its catering business and thereafter, only in relation to providing canteen facilities to its staff. The CCT thereafter sought to re-assess its returns on account of sales made by it in respect of unserviceable aircraft and unserviceable stores and spare parts arising in the course of its main activity, namely civil aviation. On appeal, the Tribunal upheld the reassessment by holding that the said transactions of sales were incidental and ancillary to or in connection with the assessee's 'business' as an airline, and hence, the assessee was a dealer 'qua the sale of old aircrafts/scraps'.

On reference, the HC held that,

++ the question that arises is whether the assessee is a ‘dealer’ which is ‘carrying on business of selling goods in Delhi’ in respect of the scrap including old and unserviceable aircraft, spare parts and other materials. The cases cited before this court deal with different modes of transportation, namely, road, rail and air. The services offered by all these entities include transportation of passengers and goods. In respect of Railways, the consistent view of the Supreme Court as well as the laws of Bombay and Madhya Pradesh is that the Railways is amenable to tax on the sale of spares, scrap etc. However, the DTC decision of this Court takes a contrary view in respect of road transport following the decision of the Andhra Pradesh High Court while disagreeing with the views of the High Courts of Madras and Madhya Pradesh;

++ the decision in DTC case is in the context of road transport. It was related to the context of the DTC being a statutory corporation. The present is a case of company, which has ceased to be a statutory corporation. The activity of operating aircrafts to carry passengers and cargo is no doubt a commercial activity but it is not the ‘business’ for which the assessee is registered as a dealer under the DST Act. However, the sale of scrap is not merely occasional but a regular and routine activity which will continue so long as the assessee continues to provide air transportation services. The important question thus, is whether the ‘dominant activity’ test would be a relevant criteria for determining whether u/s 2(c)(ii), the sale of scrap constitutes 'business'. This question does not appear to have arisen in the context of air transport earlier. It appears to the Court that the decision in DTC will need to be reconsidered. In the light of the above discussion, the question of law which might involve a reconsideration of the judgment of the Division Bench of this Court in DTC, is placed before larger bench.

(See 2017-TIOL-1866-HC-DEL-CT)