1963 (4) TMI 33 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the assessees are dealers in tanning materials.
2. Whether the purchase turnover of tanning materials can be taxed in the hands of the assessees.
3. Interpretation of "carrying on the business" and its relation to profit motive.

Detailed Analysis:

1. Whether the assessees are dealers in tanning materials:
The primary issue revolves around whether the assessees can be classified as dealers in tanning materials under the Madras General Sales Tax Act, 1959. The appellate authority initially accepted the assessees' contention that they were not dealers in tanning materials, relying on the decision in Abdul Bakshi & Brothers, Hyderabad v. State of Andhra Pradesh [1960] 11 S.T.C. 526. However, the Board of Revenue, upon revision, held that the assessees were indeed dealers since they were engaged in the business of selling tanned skins and buying raw skins, which involved transactions in the course of their business. The Board emphasized that according to section 2(g) of the Act, even a person who carries on the business of buying only is a dealer.

2. Whether the purchase turnover of tanning materials can be taxed in the hands of the assessees:
The core question is whether the purchase turnover of tanning materials should be taxed. The assessees argued that they are not dealers in tanning materials and that these materials were consumed in their business of tanning hides and skins. The court examined various precedents, including the State of Bombay v. Ahmedabad Education Society [1956] 7 S.T.C. 497, which highlighted the necessity of a profit-making motive in defining business activities. The court concluded that the purchase of tanning materials by the assessees was not devoid of profit-making motive, as these materials were integral to their business of selling tanned hides and skins. Therefore, the purchase of tanning materials is considered part of their business activities, making the turnover taxable.

3. Interpretation of "carrying on the business" and its relation to profit motive:
The court delved into the interpretation of "carrying on the business," emphasizing that it should involve a profit-making motive. The court referenced several cases, including Nagpur Yarn and Dyes Merchants Association v. State of Bombay [1958] 9 S.T.C. 530 and State of Madhya Pradesh v. Bengal Nagpur Cotton Mills Ltd. [1961] 12 S.T.C. 333, to elucidate this point. The court noted that the purchase of goods, even if consumed in the production process, should be considered within the business's profit motive. The court disagreed with the decision in Abdul Bakshi & Brothers, Hyderabad v. State of Andhra Pradesh [1960] 11 S.T.C. 526, which required the dealer to be engaged in the business of the specific commodity being taxed. The court held that the purchase of tanning materials, used in the production of tanned hides and skins, is inherently profit-driven and thus falls within the definition of "carrying on the business."

Conclusion:
The court concluded that the assessees are indeed dealers in tanning materials, and the purchase turnover of these materials is taxable. The court emphasized that the profit motive is inherent in the purchase of tanning materials used in the production of tanned hides and skins. The appeal was dismissed, and the assessment was upheld, with the court reiterating that the purchase of goods for business purposes, even if consumed in the production process, is taxable.