Case Note & Summary
The respondent company carried on the business of manufacturing and selling cotton textiles. In the account year 1953-54, besides selling cloth, the company sold coal and 25 different items of discarded or unserviceable goods and waste products from the factory. These goods were classified under three heads: old containers, discarded stores, machinery and iron scrap, and miscellaneous discarded items like cotton ropes and rags; kolsi (cinders) and waste caustic liquor; and coal. The Sales Tax Authorities brought the turnover from sales of these commodities to tax under the Bombay Sales Tax Act, 1953, and the Sales Tax Tribunal confirmed the assessment. The Tribunal held that a cotton textile mill collects unserviceable articles in the course of manufacture and, to survive as an economic unit, sales of such articles must be regarded as part of the business of the textile mill if transactions are large and frequent. The Tribunal did not independently deal with the sale of coal. At the instance of the company, the High Court of Gujarat was asked whether the company was liable to be taxed on the sale of stores, old machinery and other sundry articles; the High Court answered in the negative. The State of Gujarat appealed to the Supreme Court by special leave. The core legal issue was whether the company was a 'dealer' under Section 2(6) of the Bombay Sales Tax Act, 1953, which defines dealer as any person who carries on the business of selling goods. The Supreme Court held that to tax turnover from sale of a commodity, the assessee must carry on business of selling that particular commodity, and intention to carry on business must be established from volume, frequency, continuity, regularity and profit motive. In disposing of miscellaneous old and discarded items, the company was not carrying on business of selling those items because they were not by-products or subsidiary products and there was no cogent evidence of intention. Similarly, no circumstances established an intention to carry on business of selling coal; the burden of proof lay on the revenue and mere frequency and volume were insufficient. However, kolsi or cinders and waste caustic liquor were by-products or subsidiary products arising continuously in the manufacturing process, and their sale was incidental to the main business, so the intention to carry on business in those commodities could be reasonably attributed to the company. Accordingly, the Supreme Court held that the company was not liable to sales tax on turnover from sale of discarded items and coal, but was liable on turnover from sale of kolsi and waste caustic liquor. The appeal was partly allowed, modifying the High Court's answer to the limited extent.
Headnote
A) Sales Tax - Dealer Definition - Business of Selling Particular Commodity - Bombay Sales Tax Act, 1953, Sections 2(6), 2(8), 2(13), 2(20) - To tax turnover from sale of a commodity, assessee must carry on business of selling that commodity; intention to carry on business inferred from volume, frequency, continuity, regularity and profit motive; no single test decisive - Court held that mere sale of discarded items acquired in course of manufacturing textiles does not constitute business of selling those items unless cogent evidence of intention - Held that company not a dealer for those items (Paras 621 E-H; 624 B-C, E). B) Sales Tax - Discarded Stores and Machinery - Taxation of Occasional Sales - Bombay Sales Tax Act, 1953, Section 2(6) - Where goods are not by-products or subsidiary products of main business, sale of such discarded goods does not make assessee a dealer without cogent evidence of intention - Court held that old containers, discarded stores, machinery, iron scrap, cotton ropes, rags etc. sold frequently in large volume but not by-products; no presumption of business intention arose - Held turnover not taxable (Paras 624 B-C, E). C) Sales Tax - Coal Sales - Burden of Proof - Bombay Sales Tax Act, 1953, Section 2(6) - Burden lies on revenue to prove that assessee carried on business of selling coal; frequency and volume alone insufficient without intention - Court held no circumstances at purchase or later established intention to carry on coal-selling business; sales exceeded Rs.16,000 but no evidence of total quantity or percentage - Held sales of coal not taxable (Paras 626 A-C). D) Sales Tax - By-Products and Subsidiary Products - Incidental Business Sales - Bombay Sales Tax Act, 1953, Section 2(6) - Sale of by-products or subsidiary products arising in manufacturing process is incidental to main business and intention to carry on business may be attributed - Court held that kolsi/cinders and waste caustic liquor were by-products produced continuously and regularly, with market, and sale thereof incidental to textile business - Held turnover from these two commodities taxable (Paras 624 G-H; 625 E-F).
Issue of Consideration
Whether the respondent company was a 'dealer' under Section 2(6) of the Bombay Sales Tax Act, 1953 and liable to sales tax on turnover from sales of discarded stores, old machinery, miscellaneous items, coal, and by-products/waste caustic liquor
Final Decision
The Supreme Court held that the company was not liable to sales tax on turnover from sale of old discarded items (containers, stores, machinery, iron scrap, cotton ropes, rags etc.) or coal, but was liable on turnover from sale of by-products kolsi/cinders and waste caustic liquor. The appeal was partly allowed; the High Court's answer was affirmed for discarded items and coal, but modified to hold the by-products taxable.
Law Points
- Legal points not extracted
- A person must carry on business of selling a particular commodity for turnover from sale of that commodity to be taxable under Bombay Sales Tax Act
- 1953
- intention to carry on business inferred from volume
- frequency
- continuity and regularity with profit motive
- discarded fixed assets and goods not by-products require cogent evidence of intention
- by-products and subsidiary products sold incidental to main business are taxable
