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TMI Blog1975 (1) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer is required to be registered and whether any tax is payable in respect of any particular sale or purchase or if tax is payable, the rate thereof. Accordingly, the respondents made an application dated 30th December, 1964, to the Commissioner of Sales Tax to determine the three questions, namely: (1) whether the respondents were dealers within the meaning of the said term as defined in clause (11) of section 2 of the said Act, (2) whether they were liable to be registered as dealers under the said Act, and (3) whether they were liable to pay purchase tax on the goods and materials purchased by them from unregistered dealers. The Deputy Commissioner of Sales Tax, Eastern Division, Nagpur, who heard this application by his order dated 21st February, 1966, answered all the said three questions in the affirmative. Against the said decision the respondents went in appeal to the Sales Tax Tribunal and by its judgment delivered on 25th October, 1967, the Sales Tax Tribunal held that the business of the respondents was not of purchasing goods nor of selling goods and that the purchases made by the respondents were purchases made during the course of their business as building contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased were resold, there was to be levied a purchase tax on the turnover of such purchases. The Act also provides for making purchases against certain certificates and where such certificates are given, the sale to the registered dealer giving the certificate is not liable to sales tax. Such certificates contain a declaration given by the purchasing dealer as to the purpose for which the goods are purchased. Under section 14 of the said Act where contrary to such a certificate the goods are used for another purpose, or are not resold or despatched in the manner and within the period certified, then the dealer becomes liable to pay purchase tax on the purchase price of such goods. Section 15 is not material to the present case. Though entry 54 of List II in the Seventh Schedule to the Constitution of India confers power upon the State Legislature to levy "taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I" in the said schedule, our State Legislature has not thought fit to levy tax on all sales and purchases on which it could have levied tax, but, for reasons of administrative convenience, has restricted the levy of tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing authorities. The respondents disputed their liability to pay tax on that particular turnover on the ground that the said amount represented the price paid by them for buying tanning bark required in their tannery and that as tanning bark was bought for consumption in the tannery and not for sale, they were accordingly not dealers in tanning bark and, therefore, the price paid by them for buying tanning bark was not liable to tax under the said Hyderabad Act. When the matter came before the Andhra Pradesh High Court, the High Court held that the turnover of purchases of tanning bark purchased by the respondents was not liable to be included in the respondents' taxable turnover of purchases. Reversing the decision of the Andhra Pradesh High Court the Supreme Court held that such turnover was exigible to tax. As considerable arguments have been advanced before us on what the real ratio of this decision is, it will be convenient to set out what was observed in that case at some length. The Supreme Court observed (at pages 647-648): "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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in such business with a view to make profit and were therefore dealers within the meaning of the said term as defined by clause (11) of section 2 of the Bombay Sales Tax Act, 1959. Mr. Cooper laid considerable emphasis on the phrase "the integrated activity of buying and disposal" in the judgment of the Supreme Court in State of Andhra Pradesh v. H. Abdul Bakshi and Bros.(1) In Mr. Cooper's submission, the sentence which follows thereafter, namely, "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", is merely illustrative of the word "disposal" and does not define it. Mr. Mehta, the learned counsel for the respondents, however, argued that the sentence, just quoted above, defined the scope and ambit of what "disposal" as an integrated activity of buying should be. A Division Bench of this High Court consisting of Abhyankar and Vimadalal, JJ., had occasion to consider what was held by the Supreme Court in the judgment in the case of State of Andhra Pradesh v. H. Abdul Bakshi and Bros.[1964] 15 S.T.C. 644 (S.C.). In that case, namely, K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department. It, however, rejected the contention raised on behalf of the department that purchase of any material by a person, whatever be the nature of his business and whatever be the use to which the material so purchased was put, attracted the charge of purchase tax, irrespective of whether the materials or goods so purchased formed or did not form any integrated activity connected with the purchase of the goods, such as either transformation of the goods produced or production of some other goods which were marketable. The Division Bench held that it was incumbent for the liability for the payment of purchase tax to arise that the goods purchased must be a part of the activity of the business, namely, the business of purchase and sale or supply of goods and that if the purchase of goods was for an altogether different purpose unconnected with the production of any goods, or if it was not for the purpose of making other goods which were capable of being sold, then the mere purchase of goods would not attract a charge under section 13 of the Bombay Sales Tax Act, 1959. According to the Division Bench, a nexus must be established between the article purchased and the article p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es any taxable goods, in the circumstances in which no tax under section 6 is payable on the sale price of such goods and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any mariner other than by way of sale in the State or despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under section 6............" The Supreme Court thus summarised the contentions urged before it on behalf of the appellants: "The counsel for the appellants submitted that the appellants were not 'dealers' within the meaning of the Act because they did not carry on the business of buying goods, and that in any event, the goods purchased by them for use in their construction business were not liable to tax under section 7." This summary of the arguments advanced before the Supreme Court on behalf of the appellants shows that two distinct points were canvassed before it, namely, (1) whether the appellants were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing materials otherwise than in the manufacture of goods for sale and for a profit-motive and, therefore, on the plain words of section 7 of the said Madhya Pradesh General Sales Tax Act, the purchase price was taxable. In the case of Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh[1969] 24 S.T.C. 343 (S.C.)., the materials purchased by the appellants were thus used not in the manufacture of goods for sale but were used in the construction of a building which was not a movable property. The goods so bought were thus transformed not into a commodity which was marketable or salable but into an immovable property. Relying upon this later decision of the Supreme Court it was submitted by Mr. Cooper, the learned counsel for the applicant, that, according to the ratio of this judgment, what was required was that goods purchased should have been consumed in the business activity of the purchaser and when they were so consumed, the fact that the consumption was in the production of a salable commodity or in the construction of an immovable property made no difference so far as the liability to pay purchase tax was concerned. In support of this submission, Mr. Cooper also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to show that the purchase of the goods in question did not bear the imprint of business on account of some other factors such as lack of frequency, continuity, profit-motive, regularity, volume of trade, etc., if, of course, such factors are found to be relevant, looking to the circumstances of the case." The Gujarat High Court then summarised the conclusions in law, which it arrived at, as follows (at page 76): "(1) In order that a liability to pay purchase tax is attracted, with regard to the purchases made in execution of a works contract, the contractor, who makes the purchases, must be a 'dealer' as defined in the Act and must also be liable under section 3 thereof. (2) The definition of 'dealer' which is found in section 2(11) of the Act stipulates that the person concerned should be carrying on the business of buying or selling goods in the State. (3) Works contract is a 'business' within the meaning of that term as used in section 2(11) of the Act. (4) Any action, which is unavoidable for the execution of a works contract, becomes an integral part of the business represented by that works contract. Therefore, if it is found that the purchase of certain goods was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) of section 2 of the Rajasthan Sales Tax Act, 1954, which defined a "dealer " as meaning any person who carried on the business of buying or selling or supplying or distributing goods. In arriving at its decision, the Rajasthan High Court relied upon the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh[1969] 24 S.T.C. 343 (S.C.). On behalf of the respondents the two Supreme Court cases, referred to above, and the aforesaid decisions of the Gujarat and the Rajasthan High Courts were sought to be distinguished on the ground that in each of these cases the assessee was a registered dealer. In our opinion, this is not a valid distinction. Registration as a dealer is not necessarily conclusive. A Division Bench of this High Court has also, in the case of Aryodaya Spinning and Weaving Company Limited v. State of Bombay[1960] 11 S.T.C. 141., held that the application submitted by an assessee for getting himself registered as a dealer and the registration certificate issued to him might not be decisive of the question whether the assessee was a dealer in a particular commodity or not. The real question is whether, when a person purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability to purchase tax was accordingly attracted. It was next submitted by the learned counsel for the respondents that purchase and sale are integrated activities and there can be no purchase of goods until it is linked with the ultimate disposal of the goods by sale. We are unable to accept this argument. Purchase and sale are two aspects of the same transaction. Viewed from the point of view of a seller, a transaction is a sale. Viewed from the point of view of a purchaser, the same transaction would be a purchase. It is open to a State Government, in exercise of the legislative powers conferred upon it by the relevant entry in the Legislative List in the Constitution, to tax either of these aspects of a transaction of sale and purchase. It may levy tax in respect of such transaction on the seller or it may levy it on the purchaser. Provided the goods are purchased in the course of the business of purchasing goods, the tax under the Act would be attracted subject to the other statutory conditions being fulfilled. The real question is, when can a person be said to be carrying on the business of purchasing goods? A person carries on business with a profit-motive and in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of the business of buying goods, for without building materials there would be no business of building construction, but stationery, account books and similar articles which are required in the carrying on of a business would not be goods of this type; they are adjuncts to the carrying on of a business. In the modern commercial world it may wellnigh be impossible to carry on business without account books or without stationery, but it is not the account books or stationery which constitutes the business of a manufacturing company or a bank or an insurance company. These goods are adjuncts to the carrying on of the actual business activity of such company. In the case before us, the respondents purchased building materials which they admittedly used in carrying on of their business activity of building construction and building repairs. Without the building materials, their business would not have existed. These building materials were not adjuncts to the carrying on of their business of building contractors and, therefore, in purchasing these building materials the respondents were carrying on the business of buying these goods. Accordingly, we answer the question referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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