2-Judge Bench of Delhi HC refers question of law regarding S. 2(c) of Delhi Sales Tax Act to a Full Bench

Delhi High Court: While deciding a petition filed by the Air India Ltd., a two-Judge Bench comprising of S. Murlidhar, J. and Pratibha M. Singh, J. formulated certain question of law to be decided by a Full Bench.

The petitioner, Air India, is involved in offering air transportation services. As part of running its business, it sells scrap, depleted parts and out-dated or unused aircraft. The question that arose was whether it was liable to pay sales tax on such sales, under the Delhi Sales Tax Act, 1975.

Learned counsel for the petitioner submitted that the petitioner was not a dealer as per the provisions of the DST Act inasmuch as, the business for which the petitioner was registered was not in any manner connected with the sale of old aircraft and scrap. Moreover, the predominant activity of the petitioner being civil aviation, the sale of scrap and old aircraft was only ancillary thereto and not amenable to sales tax. The predominant activity being non-amenable to sales tax, the sale of scrap and spare parts was also not amenable to sales tax.

The Court perused Sections 2(c) and 2(e) of the DST Act and various cases of different High Courts and the Supreme Court. The Court was of the view that the various cases cited, dealt with different modes of transportation- road, rail and air. The activity of operating aircrafts to carry passengers and cargo was no doubt a commercial activity but it was not the ‘business’ for which the petitioner was registered as a dealer under the DST Act. However, the sale of scrap was not merely occasional but a regular and routine activity which would continue so long as the petitioner continues to provide air transportation services.

The important question thus, 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’? This question did not appear to have arisen in the context of air transport earlier. Accordingly the matter was referred to a Full Bench. [Air India Ltd. v. Commissioner of Sales Tax, 2017 SCC OnLine Del 10297, dated 12.09.2017]

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