08 April 1964
Supreme Court
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STATE OF ANDHRA PRADESH Vs ABDUL BAKHI AND BROS.

Case number: Appeal (civil) 473 of 1963


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PETITIONER: STATE OF ANDHRA PRADESH

       Vs.

RESPONDENT: ABDUL BAKHI AND BROS.

DATE OF JUDGMENT: 08/04/1964

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SUBBARAO, K. SIKRI, S.M.

CITATION:  1965 AIR  531            1964 SCR  (7) 664  CITATOR INFO :  R          1967 SC1066  (4,7)  R          1967 SC1131  (7)  R          1967 SC1826  (5,14)  RF         1969 SC 348  (2,8)  R          1969 SC1276  (5)  R          1970 SC 253  (9)  F          1972 SC  87  (45)  F          1985 SC1748  (5)

ACT: Sales  Tax-Total Turnover included price for buying  tanning bark-That  price  is  taxable--Dealer-Meaning  of  Hyderabad General Sales Tax Act, 1950, s. 2(e), 2(m)-Sales Tax  Rules, rr. 5-(1), 5(2).

HEADNOTE: The  respondents  are  registered dealers  carrying  on  the business  of tanning hides and skins and selling the  tanned skins.   The authorities under the Hyderabad  General  Sales Tax Act, 1950 assessed the respondent for the total turnover which  included  the  price  paid  by  the  respondent   for purchasing  tanning bark used in the tanning  process.   The respondent contended that the price paid for the purchase of tanning  bark should be excluded from the  taxable  turnover because  the tanning bark was bought by the  respondent  for consumption  and not for sale and hence the  respondent  was not  "dealer" qua the tanning bark.  His contention was  not accepted by the Tax authorities.  In a petition to the  High Court under s. 22(1) of, the Hyderabad General Sales Tax Act the  contention  of  the respondent  was  accepted  and  the assessment  was  modified.   In appeal  filed  with  special leave, Held:     The  High  Court was in error in  holding  that  a purchaser  is liable to pay tax under r. 5(2) of  the  Sales Tax  Rules only when he is carrying on a business of  buying and selling a commodity specified in sub-r. (2) and not when he buys it for consumption in a process for manufacturing  a commodity to be sold by him. (ii) To  regard  an activity as a business there must  be  a course of dealing either actually continued or contemplated. to  be continued with a profit motive and not for  sport  or

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pleasure.   But to be a dealer a person need not follow  the activity   of  buying,  selling  and  supplying   the   same commodity.   The  Act  requires merely that  buying  of  the commodity  mentioned  in r. 5(2) must be in  the  course  of business; that is it must be for sale or use with a view  to take  profit out of the integrated, activity of  buying  and disposal.   The  commodity  may  itself  be  converted  into another  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. (iii)     In  the  present  case the tanning  bark  was  not bought  by the respondent for any purpose  unconnected  with the  business.   Consumption  of the  tanning  bark  in  the manufacturing   process  did  not  therefore   exclude   the respondents  from the definition of dealer qua  the  tanning bark. Sadak Thamby and Company v. State of Madras, 14 S.T.C.  753, approved.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 473 of  1963. Appeal  by special leave from the judgment and  order  March 22,  1960, of the Andhra Pradesh High Court in Tax  Revision Case No. 88 of 1960. A.   Ranganadham  Chetty,  B.  R.  G. K.  Achar  and  R.  N. Sachthey, for the appellant. The respondent did not appear. 665 April 8, 1964.  The Judgment of the Court was delivered by SHAH, J.-The respondents who are registered as dealers under the  Hyderabad  General  Sales Tax Act, 1950  carry  on  the business  of  tanning  hides and skins and  of  selling  the tanned skins in the town of Hyderabad.  For the purposes ’of their business the respondents purchase undressed hides  and skins and also tanning bark and other materials required  in their  tannery.  For the assessment year 1954-55 the  Sales- tax  Officer,  Circle IV, Hyderabad, found  that  the  total turnover of the respondents was Rs. 5,70,417-12-4 (O.S.)  in respect  of  the hides, skins, wool and tanning  bark.   The respondents  disputed  their  liability to pay  tax  on  Rs. 61,431-14-9 (O.S.) included in the turnover contending  that this  amount represented the price paid for  buying  tanning bark required in their tannery.  They submitted that tanning bark  was bought for consumption in the tannery and not  for sale, and they were accordingly not dealers in tanning  bark and therefore the price paid for buying tanning bark was not liable  to duty under the Hyderabad General Sales  Tax  Act. The  Sales-tax  Officer  rejected  the  contention  of   the respondents,  and his order was confirmed in appeal  by  the Deputy  Commissioner, C. T., Hyderabad Division and also  by the  Sales Tax Appellate Tribunal, Hyderabad.  But the  High Court  of Andhra Pradesh in a petition under s.  22(1)  read with  rule 40 framed under the Andhra Pradesh General  Sales Tax Act VII of 1957 modified the order passed by the  taxing authorities and excluded from the computation of the taxable turnover  the price paid by the respondents for the  tanning bark used in the tannery.  With special leave, the State  of Andhra Pradesh has appealed to this Court. Section 2(e) of the Hyderabad General Sales Tax Act  defines "dealer"  as meaning any person. local  authority,  company, firm,   Hindu  undivided  family  or  any   association   or associations  of persons engaged in the business of  buying, selling  or supplying goods in the Hyderabad  State  whether

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for  a commission, remuneration or otherwise and includes  a State  Government  which carries on such  business  and  any society, club or association which buys or sells or supplies goods  to its members.  Section 2(m) defines "turnover"  as, meaning  an  aggregate  amount for which  goods  are  either bought by or sold by a dealer, whether for a cash or for de- ferred payment or other valuable consideration.  By. s. 4  a tax at the rate of three pies in the rupee in I. G. currency on  so much of the turnover for the year is is  attributable to  transactions  in  goods other  than  exempted  goods  is imposed.  Rule 5(1) provides that save as provided  in  sub- rule  (2)  the turnover of a dealer for the purpose  of  the rules  shall be the amount for which goods are sold  by  the dealer.   Rule  5(2) provides that in the  case  of  certain commodities the turnover 666 of a dealer for the purpose of the rules shall be the amount for which the goods are bought by the dealer.  Those  commo- dities are: -               (a)   Groundnut (shelled or unshelled);               (b)   Bidi leaves;               (c)   Tarwar and other tanning barks;               (d)   Til, karad and castor seed;               (e)   Cotton including kappas;               (f)   Linseed,  turmeric,  dhania  and   other               agricultural  produce including all  kinds  of               dhals  and  paddy  (husked  or  unhusked)  not               otherwise  exempted  under the said  Act,  but               excluding  cotton  seed,  sugarcane,  tea  and               coffee seeds;               (g)   Hides and skins;               (h)   Wool, bones and horns. The  High Court of Andhra Pradesh rejected the claim of  the taxing  authories  to  tax the tanning bark  bought  by  the respondents on the ground that a purchaser is liable to  pay tax under Rule 5(2) only when he is carrying on business  of buying and selling a commodity specified in the sub-rule (2) and  not  when he buys it for consumption in a  process  for manufacturing  an article to be sold by him.  Therefore,  in the  view of the High Court if a dealer buys  any  commodity included  in Rule 5(2) for consumption in his  business  but not  for  sale, he is not to be regarded as engaged  in  the business of buying, selling ’or supplying that commodity and the  price  paid for buying the commodity is not  liable  to tax. We are unable to agree with this view of the High Court.   A person  to  be a dealer must be engaged in the  business  of buying or selling or supplying goods.  The expression "busi- ness"  though extensively used 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

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mentioned  in Rule 5(2) must be in the course  of  business, i.e. must be for sale 667 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 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. It cannot be said in the present case that the tanning  bark was  bought  by the respondent for any  purpose  unconnected with the business carried on by them, viz., manufacture  and sale  of  dressed  hides  and  skins.   Consumption  in  the business and not sale of the commodity bought therefore does not  exclude the respondents from the definition  of  dealer aua  the tanning bark.  This is the view which has,  in  our judgment,  been rightly taken by the Madras Hight  Court  in the interpretation of a similar statute in operation in  the State  of Madras in L.M.S. Sadak Thamby and Company  v.  The State of Madras(1). The appeal is therefore allowed and the order passed by  the High  Court is set aside and order passed by  the  Sales-tax Appellate Tribunal restored.  No order as to costs. Appeal dismissed. (1) 14 S.T.C., 753 668