Sale of unserviceable-rejected aircraft-scrap and spare parts – Liability under Sales Tax

Sale of unserviceable-rejected aircraft/scrap and spare parts amenable to Sales Tax under the provisions of the Delhi Sales Tax Act, 1975-High Court refers the question for constitution of a larger Bench

 Sale of rejected aircraft

ABCAUS Case Law Citation:
ABCAUS 2069 (2017) (09) HC

The Substantial Question of Law framed/urged for determination:
Whether the Petitioner was liable to pay sales tax on scrap, depleted parts and out-dated or unused aircraft under the Delhi Sales Tax Act, 1975 (‘DST Act’)

Important Case Laws Cited/relied upon by the parties:
Commissioner of Sales Tax vs. DTC, 1996 III AD (Delhi) 462

Andhra Pradesh State Road Transport Corporation, Hyderabad v. The Commercial Tax Officer, Hyderabad – III [1971] 27 STC 42
Citi Bank vs. Commissioner of Sales Tax, 2015 SCC Online Del 14023
State of Tamil Nadu vs. Board of Trustee of the Port of Madras, AIR 1999 SC 1647
State of Gujarat vs. Raipur Manufacturing Co. Ltd.,[1967] 19 STC 1 (SC)

Brief Facts of the Case:

The Petitioner (Air India Limited) was 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 Petitioner 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 Respondents sought to re-assess the Petitioner’s returns on account of sales made by it in respect of unserviceable (rejected) air craft and unserviceable stores and spare parts arising in the course of its main activity, namely – civil aviation.

The Sales Tax Department made Re-assessments in respect of the sales activity of the Petitioner in AY 1994-95 and thereafter in AYs 1995-96, 1996-97 and 1997-98. The assessment proceedings finally resulted in appeals before the Appellate Tribunal, Sales Tax, Delhi (‘the Tribunal’), which upheld the assessment for AYs 1995-96, 1996-97 and 1997-98. Thereafter, upon an application made for AYs 1995-96, 1996-97 and 1997-98, the Tribunal by its order dated 7th May, 2015, referred the additional questions of law to the High Court.

The petitioner heavily relied upon the judgment of Delhi High Court ( ‘DTC’) to submit that the Petitioner’s services were similar to that of Delhi Transport Corporation (‘DTC’) and hence it was not liable to pay sales tax. The Respondent Department on the other hand relied upon several judgments of various High Courts and the Supreme Court, passed in relation to the Railways to argue that the Petitioner was liable to pay sales tax on the sales effected by it.

Observations made by the High Court:

The High Court observed that the various cases cited dealt with different modes of transportation, namely, road, rail and air. The services offered by all these entities included 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.

The DTC decision of Delhi High Court took 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 High Court further observed that the decision in DTC was in the context of road transport. It was related to the context of the DTC being a statutory corporation. However in the instant case the company had 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 petitioner is registered as a dealer under the DST Act.

The High Court observed that the sale of scrap was not merely occasional but a regular and routine activity which will continue so long as the Petitioner continues to provide air transportation services.

Thus according to the High Court, the important question was whether the ‘dominant activity’ test would be a relevant criteria for determining whether under Section 2 (c) (ii) the sale of scrap constitutes ‘business’?  The High Court observed that the above question does not appear to have arisen in the context of air transport earlier and it appeard that the decision in DTC will need to be reconsidered.

Thus the High Court framed the following question of law to be decided by a Full Bench of the High Court.

“Whether the sale of unserviceable (rejected) aircraft and unserviceable stores, scrap and spare parts by the Petitioner are amenable to Sales Tax under the provisions of the Delhi Sales Tax Act, 1975?”

The High Court opined that since the answer to the above question might involve a reconsideration of the judgment of the Division Bench of the High Court in DTC, these petitions be placed before the Hon’ble the Acting Chief Justice for constitution of a larger Bench for that purpose.

Sale of rejected aircraft

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