Ganesh Prasad Dixit Vs. Commissioner of
Sales Tax, Madhya Pradesh  INSC 21 (3 February 1969)
03/02/1969 SHAH, J.C.
CITATION: 1969 AIR 1276 1969 SCR (3) 490 1969
SCC (1) 492
R 1975 SC1871 (27,29) R 1981 SC1206 (12) D
1988 SC 997 (10,11) D 1990 SC 781 (3,5,34)
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 constructionBuilding
contractor if dealer-Purchase price of building material if liable to
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
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.
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,
(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.
(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) disposes 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.
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
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 :
"(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 materials 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 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 dispatches 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 proces of
tanning was liable to tax on the footing that the assessees were carrying on
the business of buying goods, 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, oruse 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 ofbuying 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 & Company(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 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) dispatches 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. 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
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 centers 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
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
The appeals fail and are dismissed with
costs. One hearing fee.
V.P.S. Appeals dismissed (1) 22 S.T.C. 116.