The Delhi High Court recently referred to a larger Bench the question: “Whether the sale of unserviceable (rejected) aircraft and unserviceable stores, scrap and spare parts by the Petitioner (Air India) are amenable to Sales Tax under the provisions of the Delhi Sales Tax Act, 1975?”
The Bench comprising Justice S. Muralidhar and Justice Pratibha M. Singh opined that the judgment in the case of Commissioner of Sales Tax v. DTC, 1996 III AD (Delhi) 462 needed reconsideration. The Court had in that case held that the sale of scrap by Delhi Transport Corporation (DTC) would not be amenable to sales tax, holding that the activity could not be said to be independent and unconnected with the main activities of the Corporation.
The Court was hearing a batch of Appeals filed by Air India, demanding a clarification on the need for payment of sales tax on sale of scrap, depleted parts and out-dated or unused aircrafts under the Act. In the same vein, another question posed before the Court was whether Air India was a ‘dealer’ which is ‘carrying on business of selling goods in Delhi’ in respect of the scrap.
The Court noted that the cases cited before it dealt with different modes of transportation, namely, road, rail and air. “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 (supra) 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. In DTC (supra), this Court observed “We express our disagreement with the decision of the Madhya Pradesh High Court”,” it noted.
The Court further highlighted the fact that while the decision in DTC’s case dealt with a statutory corporation, the case at hand dealt with a company which has ceased to be a statutory corporation. Besides, the Court noted that while the activity of operating aircrafts to carry passengers and cargo is a commercial activity, it is not the ‘business’ for which the petitioner 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 Petitioner continues to provide air transportation services. The important question thus, is whether the ‘dominant activity’ test would be a relevant criteria for determining whether under Section 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 (supra) will need to be reconsidered,” it, therefore, observed.