ARVIND MILLS LTD Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THOUGH there are four questions referred to us for our opinion, they raise only three points for our consideration and each one of the points is covered by a decision binding on us. It will, therefore, be sufficient if we refer to the facts giving rise to the reference and then proceed to dispose of the points in accordance with the decision relevant to each point. The assessment period with which we are concerned in this reference is 1st April, 1954, to 31st March, 1955. The assessee is a limited liability company which at the material period carried on business of manufacturing and selling cotton textile goods. During the relevant assessment period the assessee inter alia sold diverse kinds of stores, materials and other goods as also some old looms and machinery as per particulars set out in the list, annexure 2 to the statement of the case. The sale price received by the assessee in respect of stores, materials and other goods was Rs. 1,20,199 while the sale price received in respect of old looms and machinery was Rs. 2,10,275. The assessee recovered sales tax from the purchases in respect of all these sales on the assumption that the assessee would in its turn be liable to pay sales tax to the State. Whether these sales were taxable or not formed one of the points in dispute before the Revenue Authorities assessing the assessee to sales tax for the relevant assessment period. The second point in dispute between the parties arose out of certain sales of cotton waste effected by the assessee during the relevant assessment period. According to the assessee the sales of cotton waste fell within entry 1 of Schedule B to the Bombay Sales Tax Act, 1953, while according to the Revenue Authorities they fell within the residuary entry 80 of Schedule B. The last point in controversy related to the purchases of certain raw materials and stores effected by the assessee during the relevant assessment period. The assessee contended that the purchases were casual purchases not in the course of business and were, therefore, not liable to purchase tax under section 10 of the Act whereas the stand taken by the Revenue was that the purchases were in the course of the business of the assessee and were, therefore, liable to purchase tax under that section. On all these three points the assessee lost before the Sales Tax Officer and in appeal, the view taken by the Sales Tax Officer was confirmed by the Assistant Collector of Sales Tax. This was followed by a revision application to the Deputy Commissioner of Sales Tax and that revision application being unsuccessful, the assessee preferred further revision application to the Tribunal. The Tribunal also negatived the contentions of the assessee and upheld the claim of the Revenue in regard to all the three points. The Tribunal held that the sales of stores, materials and other goods and old looms and machinery set out in annexure 2 to the statement of the case were sales in the course of the assessee's business and were, therefore, liable to sales tax under the provisions of the Act; that the sales of cotton waste were taxable under the residuary entry 80 of Schedule B and not under entry 1 of Schedule B and that the purchases of the raw materials and stores effected by the assessee were in the course of assessee's business and were, therefore, liable to purchase tax under section 10 of the Act. The assessee being aggrieved by this decision of the Tribunal made an application for a reference and on the application the Tribunal referred the following four questions, namely :- "(1) Whether on the facts and in the circumstances of the case the Tribunal could hold that the applicant-mill company was carrying on business in the different items of stores and miscellaneous goods described as waste materials and other goods in annexure 2 hereto ? (2) Whether on the facts and in the circumstances of the case the Tribunal was right in turning down the applicant-mill company's contention that it was not a dealer in machinery and other different kinds of stores and miscellaneous goods taking each category separately ? (3) Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that cotton waste sold by the applicant-mill company during the year of assessment was not covered by entry 1 in Schedule B to the Bombay Sales Tax Act, 1953 ? (4) Whether on the facts and in the circumstances of the case the Tribunal was right in confirming the levy of the purchase tax on the purchase of the items mentioned in annexure 3 hereto taking each item separately ?"

(2.) FOR the opinion of the Court. The first two questions relate to the sales of stores, materials and other goods and old looms and machinery, the third question relates to the sales of cotton waste and the last question relates to the purchases of raw materials and stores.

(3.) THE last question relates to the purchases of raw materials and consumable stores effected by the assessee during the relevant assessment period. Now it is indisputable that the purchases of these articles made by the assessee would attract purchase tax under section 10 of the Act only if the purchases could be said to be made in the course of the business of the assessee. THE business of the assessee consisted of manufacture and sale of cotton textile goods and for the purpose of manufacturing cotton textile goods for sale, the assessee required raw materials and consumable stores. Raw materials and consumable stores were commodities essential for manufacture of cotton textile goods for sale, and purchases of raw materials and consumable stores were an essential and integral part of the business activity of the assessee which was one integrated activity consisting of buying of raw materials and consumable stores, manufacturing cotton textile goods out of raw materials by using consumable stores in the process of manufacture and selling cotton textile goods so manufactured with the object of making profit. It was essential in the carrying on of the business of the assessee that raw materials and consumable stores should be purchased and the purchases of raw materials and consumable stores made by the assessee were, therefore, clearly in the course of the business of the assessee. This view which we are inclined to take on principle is amply supported by the decision of the Supreme Court in State of Andhra Pradesh v. Abdul Bakshi and Bros. ([1964] 15 S.T.C. 644) THE question that arose in that case was whether a dealer who carried on the business of tanning hides and skins and selling the tanned skins could be said to be carrying on the business of buying tanning bark required in the tannery for the purpose of business of tanning. THE argument on behalf of the assessee which was accepted by the Andhra Pradesh High Court was that a purchaser was liable to pay tax under the relevant rules framed under the Hyderabad General Sales Tax Act only when he was buying and selling a commodity specified in the relevant rules and not when he bought it for consumption for manufacturing an article to be sold by him. This argument was, however, negatived by the Supreme Court and Shah, J., delivering the judgment of the Supreme Court said :- "... A person to be a dealer must be engaged in the business of buying or selling or supplying goods. THE expression 'business' though extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive, and not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption, i.e., without a profit-motive, will not make a person dealer within the meaning of the Act, but a person who consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer. THE Legislature has not made sale of the very article bought by a person a condition for treating him as a dealer; the definition merely requires that the buying of the commodity mentioned in rule 5(2) must be in the course of business, i.e., must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. THE commodity may itself be converted into another salable commodity, or it may be used as an ingredient or in aid of a manufacturing process leading to the production of such salable commodity."