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PETITIONER: GANESH PRASAD DIXIT

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX, MADHYA PRADESH

DATE OF JUDGMENT: 03/02/1969

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. GROVER, A.N.

CITATION:  1969 AIR 1276            1969 SCR  (3) 490  1969 SCC  (1) 492  CITATOR INFO :  R          1975 SC1871  (27,29)  R          1981 SC1206  (12)  D          1988 SC 997  (10,11)  D          1990 SC 781  (3,5,34)

ACT: Madhya  Pradesh General Sales Tax Act (2 of 1959), ss.  2(d) 7,  18(5) and Madhya Pradesh General Sales Tax Rules,  1959, r. 33-Notice for best judgment assessment-Time given to show cause  less  than  15  days-No  prejudice  to   tax-payer-If proceedings  liable  to be set aside-Purchases  of  building material-Material  not  resold  but  used  in  construction- Building  contractor  if dealer-Purchase price  of  building material if liable to purchase-tax.

HEADNOTE: The appellants were a firm of building contractors and  were registered as dealers under the Madhya Pradesh General Sales Tax,  1959.  They were purchasing building materials,  which were  taxable  under  the Art, and were using  them  in  the course  of  their business.  The  Sales-tax  Officer  served notices  upon them under s. 18(5) calling upon them to  show cause why best judgment assessment should not be made.   The appellants  did not offer any explanation for their  failure to  submit  returns  of their turnover,  and  the  Sales-tax Officer  assessed their turnover in respect of sales as  nil and  assessed them to Purchase-tax under s. 7 in respect  of goods  purchased  by  them for  use  in  their  construction business.  Rule 33 of the, Madhya Pradesh General Sales  Tax Rules,  1959, provides that a notice of assessment under  s. 18(5) shall not give, ordinarily, less than 15 days from the date  of the service to show cause, but, the notices in  the present  case did not give the appellants a clear period  of 15 days to show cause. On the questions: (1) Whether the notices were invalid,  and therefore, the assessment, on the basis of those notices was bad in law; (2) Whether the appellants were dealers; and (3) Whether  the  imposition of purchase-tax under s. 7  was  in order, HELD:(1)  The  terms  of  r.  33  are  not   mandatory.

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Therefore,  unless prejudice has resulted to  the  tax-payer the  proceedings  are not liable to be set  aside.   In  the instant  case  it was not the case of  the  appellants  that because  of  the insufficiency of time they were  unable  to submit their explanation.  Hence, the notice and valid. [492 E-F; 493 B] M/s.   Kajorimal  Kalyanmal v. Commissioner  of  Income-tax, U.P. 3 I.T.C. 451 and Jamna Dhar Potdar v. C.I.T., Punjab, 3 I.T.R. 112, distinguished. (2)Whether  in a particular set of circumstances a  person may  be  said  to  be a dealer carrying  on  business  in  a commodity  must depend upon the ’facts of that case  and  no general  test may be applied for determining  the  question. Merely because the turnover of the appellants in respect  of sales  was nil they did not cease to be dealers.  A  person, to be a dealer within the meaning of the Act, need not  both purchase and sell goods because, a person who carries on the business  of buying is, by the definition of the term in  s. 2(d), a dealer. [403 H; 496 F]  State  of  A.P.  v. H. Abdul Bakshi, 15  S.T.C.  644  (&C.) followed.                             491 L.M.S.   Sadak  Thamby & Co. v. State of Madras,  14  S.T.C. 753, approved. (3)By using the expression ’either consumers such goods in the manufacture of the goods for sale or otherwise’ in s. 7, the  Legislature intended that consumption of goods  Tenders the price paid for their purchase, taxable, if the goods are used  in  the manufacture of the goods for sale, or  if  the goods  are  consumed  otherwise.   Therefore,  under  s.  7, purchase tax is Payable. where no sales-tax is payable under s.  6  on the sale price of the good, by a dealer  who  buys taxable goods in the course of hi% business, and, (a) either consumes  such goods in the manufacturer of other goods  for sale;  or  (b) consumes such goods otherwise;  or  (c)  dis- poses of such goods in any manner other than by way of  sale in the State; or (d) 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.  In  the  present case  the  assessees were registered as  dealers,  they  had purchased  taxable material in the course of their  business and  had,  consumed  the materials  otherwise  than  in  the manufacture  of  goods  for sale and for  a  profit  motive. Therefore,  the  purchase price paid by  the  appellant  was taxable. [495 E-G; 496 A-B] Y.K. S. V. Sangh v. State of Maharashtra, 22 S.T.C.  116, not applicable.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  940  and 941 of 1966. Appeals  by  special leave from the  judgments  and  orders, dated  August 31, 1965 of the Madhya Pradesh High  Court  in Misc.  Civil Cases Nos. 321 and 331 of 1964. M.C.  Chagla,  B.  L. Neema, Anjali K. Varma  and  J.  B. Dadachanji, for the appellant (in both the appeals). I. N. Shroff, for the respondent (in both the appeals). The Judgment of the Court was delivered by Shah,  J.  In  respect of assessment to  sales-tax  for  two accounting  periods April 1, 1961 to June 30, 1961 and  July 1, 1961 10 September 30, 1961, the Board of Revenue,  Madhya Pradesh, referred the following questions to the High  Court of Madhya,,.  Pradesh for opinion :

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             "(1) Whether in the facts and circumstances of               the  case  the  notice in Form  XVI  that  was               served  on  the  applicant  was  invalid   and               therefore  the assessment of the applicant  on               the basis of that notice was bad in law ?               (2)   Whether  in the facts and  circumstances               of the case the applicant was a dealer  during               the  assessment period under the Act  and  the               imposition  of purchase tax on him under s.  7               of the Act was in order 492 The High Court answered the first question in the  negative, and  the  second  in the  affirmative.   These  appeals  are preferred with special leave granted by this Court. The  appellants are a firm of building contractors  and  are registered as dealers under the Madhya Pradesh General  Sale Tax Act 2 of 1959.  The appellants purchased building  mate- rials  in the two account periods and used the materials  in the,  ,course  of their business.  The  Sales  Tax  Officer, Jabalpur  Circle, served notices under s. 18(5) of  the  Act calling  upon  the  appellants  to  show  cause  why   "best judgment" assessments should not be made, and by order dated November  30,  1961, he assessed the appellants  to  tax  in respect  of  goods purchased by the appellants  for  use  in their  construction  business and imposed a penalty  of  Rs. 200/’-  in each case.  Appeals against the ;orders  imposing tax and penalty were dismissed by the Assistant Commissioner of Sales Tax and the Board of Revenue. Rule 33 of the Madhya Pradesh General Sales Tax Rules, 1959, provides that a notice of assessment under s. 18(5) shall be in  Form XVI, and ordinarily it shall give not less than  15 days  from the date of the service to the assessee  to  show cause  why he "should not be assessed or reassessed  to  tax and/or  to  pay  penalty".   The  notices  served  upon  the appellants  did not give them a clear period of 15  days  to show cause.  But we are unable to hold on that account  that the notices and the assessments were invalid.  We agree with the  High Court that the rule is not intended to be  "either invariable or rigid", and "unless prejudice has resulted  to the  tax-payer  the  proceedings are not liable  to  be  set aside".   It  is  not even suggested  that  because  of  the insufficiency  of time the appellants were unable to  submit their  explanation  for  failure to make  their  returns  of turnover.  Two cases on which reliance was placed by counsel for  the appellants in support of the plea that the  notices were invalid have, in our judgment, no bearing.  In  Messrs. Kajorimal  Kalyanmal  v. The  Commissioner  of  Income-tax, U.P.,(1)  it  was held that a notice under s. 22(2)  of  the Income-tax Act, 1922, giving the assessee 20 days for filing the return was "entirely illegal".  In Jamna Dhar Potdar and Co. Lyallpur v. Commissioner of Income-tax, Punjab(2) it was held,  following  the  judgment  in  Kajorimal   Kalyanmal’s case(1)  that  a notice which does not give to  a  tax-payer under s. 22(2) of the Income-tax Act, 1922, clear notice for furnishing a return, of thirty days from the date of service is illegal.  But these cases were decided under s. 22(2)  of the  Income-tax  Act,  1922, before it was  amended  by  the Income-tax (Amendment) Act 7 of 1939. Under the section  as it then stood, it was enacted that the (1) 3 I.T.C. 451. (2) 3 I.T.R. 112. 493 Income-tax  Officer  shall serve a notice  upon  any  person whose  total  income  is in the opinion  of  the  Income-tax Officer of such an amount as to render that person liable to

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pay income-tax.  The section was held to be mandatory.   But the  terms of r. 33 of the Madhya Pradesh General Sales  Tax Rules  are plainly not mandatory.  The answer given  by  the High Court on the first question must be accepted. TO  appreciate  the scope of the enquiry under  the,  second question,  the  relevant  provisions  of  the  Act  may   be summarised.   By  s.  2 (d) of the Act,  insofar  as  it  is relevant,  the  expression "dealer" is defined  as  meaning, amongst  others, "any person who carries on the business  of buying,  selling, supplying or distributing goods,  directly or otherwise".  By s. 4 (2) every dealer is liable to tax in respect  of  sales or supplies of goods effected  in  Madhya Pradesh  with  effect from the date on  which  his  turnover calculated  during  a period of  twelve  months  immediately preceding  such  date first exceeds the Emits  specified  in sub-s.  (5).  Section 6 provides that the tax payable  by  a dealer under the Act shall be levied on his taxable turnover relating  to  the  goods specified in  Sch.   H.  Section  7 provides :               "Every  dealer  who  in  the  course  of   his               business  purchases  any  taxable  goods,   in               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  manner  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 :               Provided 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 s. 7. The  appellants  are  registered dealers  under  the  Madhya Pradesh General Sales Tax Act, 1958 (Act 2 of 1959).  It  is true  that  in  respect of the periods  their,  turnover  in respect of sales was assessed as "nil".  But on that account they  did  not  cease to be registered  dealers  within  the meaning  of  the Act.  A person to be a  dealer  within  the meaning of the Act need not Sup. CI-69-13 494 both,  purchase and. sell goods a person who carries on  the business  of  buying is, by the express, definition  of  the term in s. 2(d) a "dealer".  This Court held in.  The  State of Andhra Pradesh v. M. Abdul Bakshi and  Bros, (1) that  it is,  not  predicted of a dealer that he must  carry  on  the business of buying and selling the same goods.  A person who buys goods for consumption in the, process of manufacture of articles to be sold by him is a dealer within the meaning of the Hyderabad General Sales Tax Act 14 of 1950.  In H. Abdul Bakshi  and Bros’s case(1) the assessees sold  skins,  after tanning  hides and skins purchased by them.  In the  process of tanning, they had to use tanning bark purchased. by them. This Court held that the turnover arising out of the tanning bark purchased by the assessees for consumption in the  pro- ces  of  tanning was liable to tax on the footing  that  the assessees  were  carrying on the business of  buying  goods,

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even though the goods bought were consumed in the process of tanning.   In dealing with the question whether an  activity of   purchase  of  goods  required  for  consumption  in   a manufacturing  process  may be regarded as a  business,  the Court observed (at p. 647) :               "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  I  dealer within, the meaning  of  the               Act,  but a person who consumes, a com  modify               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 the very article               bought by a person a condition for treating in               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               (1)15 S.T.C. 644.               495               saleable  commodity, or it may be used  as  an               ingredient  or  in  aid  of  a   manufacturing               process  leading  to the  production  of  such               saleable commodity." This Court agreed with the view expressed in L. M. S.  Sadak Thamby  & Co. v. The State of Madras(1) in which  a  similar question  was decided by the High Court of Madras.  In  that case  the  assessee  had  purchased  tanning  bark  and  had consumed  it  in tanning raw hides.  The Madras  High  Court held that the buying of goods was in the course of  business since  it  was associated with the business  of  tanning  of hides  carried  on  with  a  profit-making  motive.,   These decisions  support  the contention of the State  that  price paid  for goods bought for consumption in  manufacturing  an article  for  sale is exigible to purchase-tax even  if  the goods  purchased  are either destroyed or  transformed  into another species of goods. Counsel  for  the appellants urged that in the cases  of  H. Abdul  Bakshi and Bros.(1) and L. M. S. Sadak Thamby &  Com- pany(2)  the  assessees  were carrying on  the  business  of selling  goods manufactured by them and for the  purpose  of manufacturing those goods certain other goods were purchased and  consumed  in the process of manufacture, but  here  the goods  are not consumed in producing another  commodity  for sale, and on that account the two cases are distinguishable. The  answer to that argument must be sought in the terms  of s.  7.  The  phraseology used in that  section  is  somewhat

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involved,  but the meaning of the on the sale price  of  the goods, purchase-tax is payable by a dealer who buys  taxable goods in the course of his business, and (1) either consumes such  goods in the manufacture of other goods for  sale,  or (2.) consumes such goods otherwise; or (3) disposes of  such goods in any manner other, than by way of sale in the State; or  (4) despatches them to a place outside the State  except as  a  direct result of sale: or purchase in the  course  of interState trade or commerce.  The assessees are  registered as dealers and they have purchased building materials in the course of their business: the building materials are taxable under  the  Act,  and  the  appellants  have  consumed   the materials  otherwise than in the manufacture of  goods,  for sale  and for a profit-motive.  On the plain words of  s.  7 the purchase price is taxable. Mr. Chagla for the appellants urged that the expression  "or otherwise" is intended to denote a conjunctive introducing a specific  alternative  to  the words  for  sale  immediately preceding.   The clause in which it occurs means,  says  Mr. Chagla,  that  by  s.  7 the price  paid  for  buying  goods consumed  in the manufacture of other goods, intended to  be sold or otherwise disposed of, (1) 14 S.T.C. 753.                   (2)15 S.T.C.644. 496 alone is taxable.  We do not think that that is a reasonable interpretation of the expression "either consumes such goods in  the manufacture of other goods for sale  or  otherwise". It is intended by the Legislature that consumption of  goods renders  the price paid for their purchase taxable,  if  the goods are used in the manufacture of other goods for sale or if the goods are consumed otherwise. The decision in Versova Koli Sahakari Vahatuk Sangh Ltd.  v. The State of Maharashtra(1) on which reliance was placed  by Mr.  Chagla has, in our judgment, no application.   In  that case  a  society registered under  the  Bombay  Co-operative Societies Act, 1925, carried on the business of transporting fish  belonging to its members from fishing centres  to  the markets  and vice versa.  For preserving fish in the  course of  transport,  the society used to purchase  ice,  and  the members,  whose fish was transported, were charged  for  the quantity  of  ice required in respect of  their  baskets  of fish.  The difference between the price paid by the  society for ice purchased and the charge made by the society for ice supplied  was brought to tax by the Sales Tax Officer  under the  Bombay Sales Tax Act, 1959.  The High Court  of  Bombay held  that  the  society  was not  supplying  ice  with  the intention  of  carrying  on business in  ice,  and  on  that account the society was not a "dealer" within the definition of that term in s. 2(11) of the Act in regard to the supply. of  ice  by  it to its members.  In  that  case  the  taxing authority did not seek to impose purchase-tax : he sought to bring  to tax the difference between the price paid  by  the society  for  purchasing ice and the charges which  it  made from its members for supplying ice, and the High Court  held that  in  supplying  ice the society  was  not  carrying  on business  in  ice, and on that account was not  a  "dealer". Whether in a particular set of circumstances a person may be said  to be carrying on business in a commodity must  depend upon  the  facts of that case and.,to general  test  may  be applied for determining that question. The appeals fail and are dismissed with costs.  One  hearing fee. V.P.S.                              Appeals dismissed (1) 22 S.T.C. 116. 497

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