STATE OF MADRAS Vs. K C PRIVATE LIMITED

JUDGEMENT

(1.) This is an appeal by special leave is which the sole question for decision is whether the respondent company was liable to pay sales tax on an amount of Rs. 4,20,000 being the sale price of two arc furnaces which had been purchased in 1952 and sold in 1958.

(2.) The respondent company carried on business at 38, Mount Road , Madras, its main business being the manufacture and sale of machinery and parts of machinery and accessories. For manufacturing parts of the machinery, the company, maintained a foundry and in 1952 in purchased two arc furnaces for a sum of Rs. 2,13,512.81 for the purpose of using the same in its foundry. In the account books and the balance sheet of the company these furnaces were shown under the heading "workshop equipment". According to the company the furnaces were found to be unsuitable for the purpose for which they had been purchased and therefore they were disposed of in 1958 to a purchaser in Calcutta for a sum of Rs. 4,20,000. For the assessment year 1958-59 the assessing authorities sought to include the amount of Rs. 4,20,000 in the turnover of the company although it was maintained by the company that the sale represented an isolate sale of its fixed capital assets. The appeal before the Sales Tax Appellate Tribunal, Madras also failed. The view of the tribunal may be stated in its own words:-

(3.) Mr. A. K. Sen for the appellant contends that the assessee being a dealer in heavy machinery and accessories thereof the sale of arc furnaces could not be said to be wholly different and unconnected with its usual business activity. He has emphasised the fact that the assessee had admittedly made a profit of Rs. 2,07,000 from the aforesaid transaction and in addition collected sales tax from the Calcutta dealer. He has called attention to the finding of the appellate Assistant Commissioner of Commercial Taxes that the sale in the present case was not one of used assets and that whatever the intention at the time of the purchase might be, once the machinery was found not usable, the assessee "has got necessarily to get into a business venture of selling it and in point of fact sold it at good profit". It is further urged that the arc furnaces became a part of stock or machinery for sale because the assessee was dealing in manufacture and sale of heavy machinery and it must be deemed to have put the furnaces into its stock in due course of business activity. Mr. Sen has next pointed out that the respondent fell squarely within the definition of the word "dealer" as defined by Section 2 (b) of the Central Act. In support of his submission Mr. Sen sought to rely on a decision of this court in 1964-15 STC 644 . In that case the respondents had purchased undressed hides and skins and tanning bark together with other material required in their tannery as they carried on the business of tanning hides and skins and of selling tanned skins in the town of Hyderabad. For the assessment year 1954-55 the Sales Tax Officer sought to include in the total turnover a certain amount representing the price paid for buying tanning bark required in their tannery. The respondents submitted that the tanning bark had been bought for consumption in tannery and not for sale and they were accordingly not dealers in tanning bark. Therefore the price paid for buying tanning bark was not liable to duty under the Hyderabad General Sales Tax Act. The departmental authorities as also the Sales Tax Appellate Tribunal rejected this contention but it was accepted by the High Court of Andhra Pradesh. The High Court rejected the claim of the taxing authorities to tax the tanning bark on the ground that the purchaser was liable to pay tax only when he was carrying on business of buying and selling the commodity and not when he brought it for consumption in the process for manufacturing an article to be sold by him. This view was reversed and it was observed as follows: