1965 (10) TMI 59 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of sales of stores, materials, other goods, old looms, and machinery.
2. Classification of sales of cotton waste under the Bombay Sales Tax Act, 1953.
3. Liability of purchase tax on purchases of raw materials and stores.

Detailed Analysis:

1. Taxability of Sales of Stores, Materials, Other Goods, Old Looms, and Machinery:
The first issue was whether the sales of stores, materials, other goods, and old looms and machinery were taxable under the Act. The court referenced the decision in *Ambica Mills Ltd. v. State of Gujarat [1964] 15 S.T.C. 367*, which established that only sales made as part of the business or in the course of business activity are taxable. The court noted that "business" is a broad term and various tests like volume, frequency, continuity, and initial intention are used to determine if a sale is part of business activity. The court found that the initial intention of the assessee was to use the goods for manufacturing, not for resale at a profit. The sales were made because the items had become old and unserviceable, not from a profit motive. Thus, these sales did not possess the character of business transactions. The court concluded that the sales tax collected by the assessee was based on an erroneous assumption. Consequently, the first two questions were answered in the negative, indicating that these sales were not taxable.

2. Classification of Sales of Cotton Waste:
The second issue concerned whether the sales of cotton waste fell under entry 1 or the residuary entry 80 of Schedule B of the Bombay Sales Tax Act, 1953. The court referred to its earlier decision in *Ahmedabad New Cotton Mills Co. Ltd. v. State of Gujarat* (Sales Tax Reference No. 13 of 1961), which held that cotton waste is a by-product of the manufacturing process and cannot be classified as "raw cotton (whether ginned or unginned)." Since there was no specific entry for cotton waste, it fell under the residuary entry 80. Therefore, the court answered the third question in the affirmative, confirming that the cotton waste was taxable under the residuary entry.

3. Liability of Purchase Tax on Purchases of Raw Materials and Stores:
The third issue was whether the purchases of raw materials and consumable stores were liable for purchase tax under section 10 of the Act. The court noted that the purchases were integral to the assessee's business of manufacturing and selling cotton textile goods. The court referenced the Supreme Court decision in *State of Andhra Pradesh v. Abdul Bakshi Bros. [1964] 15 S.T.C. 644*, which held that purchases for use in manufacturing goods for sale are considered as part of business activity. The court rejected the distinction between raw materials and consumable stores suggested by the assessee, affirming that both are essential for manufacturing and thus fall within the scope of business activity. Consequently, the court answered the fourth question in the affirmative, holding that the purchases were liable to purchase tax.

Conclusion:
The court concluded that:
1. Sales of stores, materials, other goods, old looms, and machinery were not taxable as they were not part of the business activity.
2. Sales of cotton waste were taxable under the residuary entry 80 of Schedule B.
3. Purchases of raw materials and consumable stores were liable to purchase tax under section 10 of the Act.

The reference was answered accordingly with no order as to costs.