Mehta, J.
1. An interesting question which arises to be considered in this reference and other references, which are on board, is whether a person, who keeps a works contract and makes purchases for the execution of that contract, can be said to be carrying on a 'business of buying goods' within the meaning of the statutory definition of the word 'dealer' as found in section 2(11) of the Bombay Sales Tax Act, 1959 (which is hereinafter referred to as 'the Act').
2. Similar questions had arisen in several cases before the Tribunal with the result that the Tribunal has made 9 references on this question to this court. The present case being the leading case in which the Tribunal has recorded an exhaustive judgment, we have taken up this case first for hearing. We have however allowed the Advocates of the other assessees in other similar references to intervene and to argue the matter on behalf of their clients on this question.
3. For the present, so far as the facts are concerned, we shall, in this case, narrate the facts only relating to the opponent-assessee M/s. K. B. Mehta & Company.
4. The opponent is a partnership firm and is admittedly doing business as a building contractor. It is registered under the Act. For the purpose of its business, the opponent-firm purchases building materials like sand, bricks etc. but so far as this reference is concerned, we are not called upon to consider the purchases made by the opponent-assessee of such building materials. It is, however, found from the record of the case that on 9th November, 1964, the opponent-assessee purchased three trucks from M/s. Rashmi Transport Co., Ahmedabad, for the amount of Rs. 1,00,000. It transpires from the evidence that M/s. Rashmi Transport Co., Ahmedabad, are also registered dealers under the Act. The assessment proceedings, out of which this reference arises, are for the period from 1st April, 1964, to 31st March, 1965. During the course of this assessment, the concerned Sales Tax Officer proposed to levy a purchase tax under section 13 of the Act on the amount of Rs. 1,00,000, for which the above-referred three trucks were purchased by the assessee. The assessee, however, contended that it is not liable to pay the said purchase tax because the trucks in question were not purchased by it in the course of its business and also because they were purchased from registered dealers. Here, it should be noted that according to the provisions of section 13 of the Act, purchase tax is not leviable on the articles, which are purchased from registered dealers.
5. The Sales Tax Officer concerned, however, negatived these contentions of the assessee and passed an order levying purchase tax under section 13 of the Act on the turnover of the purchases of the above referred three trucks. The assessee thereupon preferred an appeal to the Assistant Commissioner, who disposed of the appeal, taking the view that the trucks, which were purchased by the assessee, were accessory for transportation of materials for the purpose of effectively carrying out the contract work undertaken by the assessee and, therefore, the purchases were liable to purchase tax under section 13 of the Act. The Assistant Commissioner also rejected the other contentions of the assessee, namely, that the purchase tax under section 13 is not leviable also on the ground that the trucks were purchased from a registered dealer. This was found by the Assistant Commissioner on the ground that M/s. Rashmi Transport Co., Ahmedabad, from whom the trucks were purchased by the assessee, were not considered as dealers during their assessment proceedings in respect of the transactions relating to these trucks.
6. Against this decision of the Assistant Commissioner, the opponent-assessee preferred second appeal before the Tribunal. It is found that before the matter reached hearing, the Tribunal had already decided one case of M/s. N. C. Patel & Co., wherein it had taken a particular view, which was in favour of the department. It was, therefore, urged before the Tribunal that that decision required reconsideration. The Tribunal, therefore, referred the matter to a larger Bench and reconsidered the whole position in view of certain decisions including the decision given by the Supreme Court in The State of Andhra Pradesh v. H. Abdul Bakshi & Bros. ([1964] 15 S.T.C. 644 (S.C.)), and the Bombay case of K. S. Films v. The State of Maharashtra ([1969] 23 S.T.C. 121).
7. While considering the contentions raised by the parties the Tribunal found that in order to hold that the assessee is liable to pay purchase tax under section 13 of the Act, it is first necessary to find whether the assessee was a 'dealer' as defined in section 2(11) of the Act. The Tribunal, therefore, proceeded to consider the definition of the word 'dealer' as given in the Act and found that the dealer is one who carries on the business of buying or selling goods. So far as the works contracts are concerned, the Tribunal proceeded to consider whether the purchases, which are made by the person in fulfilment of the works contracts, would amount to carrying on business of buying goods. On this question, the Tribunal was of the opinion that in order that a commodity may be said to have been bought in the course of business, it is necessary that such commodity must be sold or used with a profit-motive by converting it into another salable commodity or using such commodity as an ingredient or in aid of manufacturing process, which would result in production of another salable commodity.
In the opinion of the Tribunal, therefore, it was essential that the integrated activity of buying and disposal should result in production of a salable commodity in order to hold that the purchases made by a works contractor amounted to a 'business' of buying the goods. Since in a works contract, the articles purchased are neither resold nor utilised in manufacturing another salable article, the Tribunal thought that such purchases do not amount to business and, therefore, the person making such purchases during the course of a works contract is not a 'dealer'. According to the Tribunal, if such a person is not a dealer, within the meaning of that term as defined in section 2(11) of the Act, liability to pay purchase tax under section 13 of the Act cannot attach to the purchases so made.
8. In view of this, the Tribunal concluded that its previous decision given in the case of M/s. N. C. Patel & Co. did not lay down a correct law on the question of levy of purchase tax.
9. On facts the Tribunal is found to have recorded its findings in the following terms :
'Now in the present case the trucks were purchased by the appellant-firm for the purpose of carrying materials for doing the work of constructing buildings. It is not at all possible to attribute initial intention of making profit in the activity of buying trucks even though ultimately there is undoubtedly profit-motive in the business done by the appellant-firm, namely, the business as building contractor. There is also nothing on the record to show that there was volume, frequency and regularity in the purchases of trucks. The tests laid down by the Gujarat High Court and the Supreme Court on this point cannot, therefore, be said to have been satisfied in the present case. There is also nothing on the record to show that the appellant-firm had turned the trucks into its stock-in-trade.'
So far as the assessee's contention that the purchases of the trucks were made from a registered dealer and hence purchase tax was not leviable is concerned, the Tribunal said that it was not necessary for them to decide that question in view of their findings that the assessee was not a dealer as defined in section 2(11) of the Act and was, therefore, not liable to pay purchase tax contemplated by section 13 of the Act.
10. Following this decision, the Tribunal disposed of 8 other cases, wherein the assessees were found to have undertaken works contracts and had made purchases during the course of the said contracts.
11. The department being dissatisfied with the decision given by the Tribunal in this case as well as 8 other cases, referred to above, has preferred different references. So far as this reference is concerned, the following two questions are referred at the instance of the department by the Tribunal for the opinion of this court :
'(1) Whether on the facts and in the circumstances of the case the opponent-firm who is a building contractor undertaking indivisible works contracts for construction of buildings is a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959, and
(2) Whether on the facts and in the circumstances of the case the purchases of trucks made by the opponent-firm are liable to purchase tax under section 13 of the Bombay Sales Tax Act, 1959 ?'
We find that so far as the first question is concerned, it should be reframed with a view to bring out the real controversy between the parties. It is accordingly refrained as under :
'(i) Whether on the facts and in the circumstances of the case the opponent-firm who is a building contractor undertaking indivisible works contracts for construction of buildings is a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959, with reference to the purchases made by it for the execution of works contracts.'
12. It is evident from what is stated above, that the real dispute between the parties centres round the interpretation of the word 'dealer' as found in section 2(11) of the Act. It is, therefore, at this stage necessary to know how this word is defined in the Act. Sub-section (11) of section 2 of the Act, as it stood at the relevant time, gave the following definition to this word :
''dealer' means any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State, and includes a State Government which carries on such business, and also any society, club or other association of persons which buys goods from, or sells goods to, its members :
Exception. - An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause.'
It is clear from the above definition of the word 'dealer' that a dealer means any person who carries on the business of buying or selling goods in the State.
13. Now the contention of the department is that the word 'business' is used in this definition in a very comprehensive sense and, therefore, if a person is found engaging himself in any activity with a profit-motive, such activity amounts to 'business', and if he is either selling or buying goods in furtherance of that activity, his act of either buying or selling becomes part and parcel of his business and hence he is covered by the definition of 'dealer' as given in sub-section (11) of section 2 of the Act. It was further contended on behalf of the department that for showing that a person is conducting a business of buying or selling goods within the meaning of section 2(11) of the Act, it is not necessary to show that he disposes of the goods bought by reselling them or by utilising them in manufacturing other articles for sale, as held by the Tribunal and as contended by the assessee. According to the learned Advocate of the department, if once it is found that goods have been bought in the course of a business, the consumption of these goods for the said business would attract the liability to pay purchase tax under section 13 of the Act even though the goods are not either actually resold in the same condition or utilised in the manufacture of other articles for sale. This is, in substance, a brief summary of the contentions raised on behalf of the department in order to show that the assessee, who purchases his goods for the completion of a works contract, is a 'dealer' within the meaning of section 2(11) and is, therefore, liable to pay purchase tax contemplated by section 13 of the Act.
14. As against this, the contention which is raised on behalf of the different assessees including the assessee of this reference is that in order to bring a person within the definition of the word 'dealer', it is necessary for the department to show that he is doing business in the particular commodity on which purchase tax is sought to be levied. According to the learned Advocates of the assessees, what happens in a works contract is that the person keeping the contract intends to execute that contract and not to deal in the business of buying and selling a particular commodity, which is utilised in carrying out that contract. The argument was that the definition of the word 'dealer' contemplates business qua goods and, therefore, if the business is found to be the business of keeping works contracts, it cannot be contended successfully that the said business is qua any goods. In fact, the person keeping works contracts is not either 'buying' or 'selling' anything. Therefore, if in execution of such works contracts some goods are purchased by such a person, they are purchased only incidentally because the intention of the purchaser is not to engage himself in the business of the said purchases. The intention, the argument proceeds, is only to execute the contract undertaken by him. While discussing the meaning of the word 'business' it was further pointed out that there cannot be any 'business' of buying any goods unless there is a corresponding sale of the very same goods but as held by this court in Sales Tax Reference No. 5 of 1969, in a works contract there is no sale of goods, though there may be a mere supply of goods in execution of contract. It was further pointed out that since the definition of the word 'dealer' does not contemplate a mere 'supply' of goods by a person to become a dealer, a pure activity of buying in execution of such contracts does not amount to a 'business' qua goods purchased. It was on the strength of these arguments that the learned advocates of the assessees wanted to persuade us that a contractor, who wants to execute works contracts by making purchases of goods, is not a 'dealer' as defined by section 2(11) of the Act, and, therefore, is not liable to pay any purchase tax with regard to these purchases.
15. We have given above the broad outlines of the contentions which are raised by both the sides on the controversial points. Now before starting detailed consideration of these contentions, it would first be proper to refer to the provisions contained in section 13 of the Act, which seeks to levy purchase tax, as also to the other relevant provisions of the Act, which are likely to throw light on the controversial subject.
16. Section 13 of the Act at the period relevant to this reference was in the following terms :
'Where a dealer who is liable to pay tax under section 3 purchases any goods specified in Schedule B, C, D or E from a person or any Government who or which, is not a registered dealer then unless the goods so purchased are resold by the dealer within a period of twelve months, or such extended period not exceeding twelve months as the State Government may by notification in the Official Gazette specify for any class of taxable goods from the date of his purchase, there shall be levied, subject to the provisions of sub-section (3) of section 7 -
(1) in the case of goods specified in Schedule B, C or D, a purchase tax on the turnover of such purchases at the rate set out against them in the respective Schedule, and
(2) in the case of goods specified in Schedule E, a purchase tax on the turnover of such purchases at a rate equivalent to the rate of sales tax set out against them in Schedule E.'
A brief analysis of the provisions contained in this section reveals that purchase tax becomes payable only if the following requirements are satisfied : (a) The person concerned must be a dealer (as defined in the Act), (b) he must be liable to pay tax under section 3, (c) the purchases made by him must be from one who is not a registered dealer, and (d) the goods purchased should not have been resold within the period stipulated by the section. It is only in cases, where all these four conditions are satisfied that it can be said that a liability to pay purchase tax under this section attaches to the person concerned. It is found that section 13, in the form quoted above, was effective on and from 1st May, 1964, but even before that date, the section was substantially in the same form and embodied the four conditions, which are mentioned above, for fixing liability to pay purchase tax.
17. Now so far as the first requirement is concerned, we have already mentioned above that the dealer should be a dealer as defined in section 2(11) of the Act, which is already quoted by us in the foregoing portion of this judgment. The second requirement is about the liability to pay tax under section 3. If section 3 is perused, it will be found that such a liability arises only if the turnover of total sales or total purchases exceeds the limits specified in that section. As for the third requirement, which is as regards the purchase to be made from one who is not a registered dealer, we find that the expression 'registered dealer' means 'a dealer' who is 'registered under section 22 of the Act.' Therefore, if the purchase in question is not made from a dealer, who is registered under section 22 of the Act, then the third condition would be attracted. So far as the fourth condition is concerned, it refers to resale of the purchased, goods within a particular time. The word 'resale' is given a statutory definition by clause (26) of section 2, which is as under :
''resale' for the purposes of sections 7, 8, 9, 10, 12 and 13, means a sale of purchased goods -
(i) in the same form in which they were purchased, or
(ii) without doing anything to them which amounts to, or results in a manufacture, or
(iii) being goods specified in any entry in Schedule B, without doing anything to them which takes them out of the description thereof in that entry, and the word 'resale' shall be construed accordingly.'
This definition shows that the expression 'resale' excludes the process of manufacture and, therefore, contemplates that the goods sold should be in the same form in which they are purchased.
18. Now the dispute, which, is contemplated by the first question, which is referred to us, is only with reference to the first condition, namely, that the person concerned must be a dealer. As stated above, the consideration of this question involves the interpretation of the statutory definition of the word 'dealer' as given in section 2(11) of the Act.
19. Before undertaking the interpretation of the said statutory definition of the word 'dealer', it would be proper to make a brief reference to the scheme of the other relevant provisions of the Act with a view to properly appreciate the controversy between the parties. We, therefore, presently propose to make a brief reference to the other relevant provisions of the Act.
20. Reference to the preamble as well as the long title of the Act shows that the Act seeks to levy a tax on 'sale or purchase' of certain goods in the State. The point to be noted is that the tax is not sought to be levied on 'sale and purchase' but on 'sale or purchase'. The disjunctive word 'or' which separates the word 'sale' from the word 'purchase' is important in showing that the tax contemplated is either on sale or on purchase of certain goods, as contemplated by the Act. After having said this about the preamble as well as the long title of the Act, we proceed to refer to certain statutory definitions, which are relevant for understanding the different terms, which arise to be considered in this reference. Section 2 is the section giving various definitions, wherein clause (13) defines the word 'goods' as under :
''goods' means all kinds of movable property not being newspapers or actionable claims, or stocks, shares or securities and includes all materials, articles and commodities.'
Thus, it is apparent that the word 'goods' as used in the Sales Tax Act means only movable property. The word 'sale' is defined in clause (28) as under :
''sale' means a sale of goods made within the State, for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words 'sell', 'buy' and 'purchase', with all their grammatical variations and cognate expressions, shall be construed accordingly.'
The expressions 'turnover of purchases' and 'turnover of sales' are given different definitions in clauses (35) and (36) as under :
''turnover of purchases' means the aggregate of the amounts of purchase price paid and payable by a dealer in respect of any purchase of goods made by him during a given period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller in respect of any goods purchased from the seller and returned to him within the prescribed period;'
''turnover of sales' means the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period after deducting the amount of sale price, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period.'
21. After having these definitions we get Chapter II which is about 'Incidence and Levy of Tax'. Sections 3 to 19 are put in this Chapter. Section 3 is the charging section, which says that every dealer whose turnover either of all sales or of all purchases, exceeds the relevant limit specified in the section, shall be liable to pay tax under the Act on his turnover of sales as well as purchases. Section 4 has no relevance for the purpose of this reference. But section 5 provides for exemption of certain goods from payment of tax under the Act and for this purpose, it makes a reference to goods specified in Schedule 'A'. Section 6 contemplates an impost, which is levied in accordance with sections 7 to 10, which follow that section. Now these sections 7 to 10 provide for the levy at different rates on different articles mentioned in different Schedules to which each of the section refers. These sections also provide for deduction from turnover before the tax liability attaches. Broadly speaking these deductions are of three categories, namely : (1) turnover of resales of goods on the purchase on which the dealer is liable to pay purchase tax under section 13 or 14, (2) turnover of resales of goods purchased by a dealer on or after the appointed day from a registered dealer and (3) turnover of sales or resales of goods, which do not fall under the above two categories and which are made to an authorised dealer, or a commission agent or a recognised dealer, on a certificate as provided by section 12. Each of the sections 7 to 10 makes a reference to different Schedules, which are Schedules 'A' to 'E'. These Schedules contain classification of goods for the purpose of levy of tax at specified rates. For the purpose of this and other references, it is not necessary to go into the details as regards these Schedules. It is, however, necessary to note at this stage the relevance and the nature of the deductions from the total turnover as contemplated by sections 7 to 10. A close study of these deductions shows that so far as possible, the Legislature has intended to levy sales tax only at one point. It is with this object in mind that the three categories of deductions which are mentioned above, have been contemplated in all these different sections.
22. Proceeding further we get sections 11 and 12. Both these sections are with reference to certain types of certificates which are required to be given by an authorised dealer or a recognised dealer or a licensed dealer. These different categories of dealers are contemplated by the Act with a view to facilitate commercial transactions. Each of these categories is defined by section 2. So far as this reference is concerned, we are not concerned with these definitions. But the point to be noted is that according to section 11, an authorised dealer is enabled to pay a reduced rate of tax if he certifies in the prescribed form that the taxable goods, which are sold, would be despatched, in the same form in which they were purchased, within three months from the date of the purchase to his own place of business outside the State. Similar provisions are also found in this section for a commission agent, who has purchased goods for his principal. Thus, section 11 contemplates a reduced rate of tax on goods, which are meant for inter-State trade or commerce. Section 12 contemplates deductions from the turnover of sales, of the sale of goods to an authorised dealer, a recognised dealer or a licensed dealer or to a commission agent, if certificates, which are contemplated by that section are given by these different categories of dealers. By these certificates, the authorised dealer is expected to certify that the goods are purchased for resale in the course of inter-State trade or commerce or in the course of export outside the territory of India, and a recognised dealer is expected to certify that the goods are purchased by him for being used in the manufacture of taxable goods for sale. A licensed dealer is expected to give a different type of certificate. On such certificates being given, the section contemplates a deduction of the turnover represented by such goods from the total turnover of sales. Obviously, the provisions of this section are enacted with a view to facilitate inter-State or international trade and the sales effected for the purpose of manufacturing other goods for sale.
23. Then follows section 13 to which we have already made a reference in the foregoing portion of this judgment. Sections 13 and 14 are the two sections which create liability to pay 'purchase' tax. The foregoing sections, which are referred to above, create liability to pay 'sales' tax. Under section 13 if the goods are purchased by a dealer from a registered dealer, then no liability to pay sales tax attaches on such purchases. The reason appears to be that under section 46 of the Act, a registered dealer is enabled to collect from his customers the tax, which he is himself liable to pay to the department. Therefore, section 13 provides that if purchases have been made from a registered dealer, then purchase tax would not be levied. However, if the goods are purchased from a dealer, who is not registered, and are not resold within the period of 12 months, liability to pay purchase tax is attracted. The reason appears to be that a dealer, who is not a registered dealer, is not authorised by any of the provisions of the Act to collect tax from his customers and if purchases are made from such a dealer, the goods would go totally free of tax. Provisions of section 13, therefore, clearly point out the intention of the Legislature to levy the tax, at least at one point, on the goods, which are dealt with in trade and commerce. The same seems to be the object of section 14 which seeks to impose purchase tax if a dealer uses, or fails in reselling, or despatching the goods, contrary to the certificates given by him under section 11 or 12. It may be recalled that while section 11 contemplates the payment of tax at reduced rates, section 12 contemplates the total deduction on the strength of the certificates given under these sections. Therefore, if a breach of any of the conditions mentioned in these sections is made, then section 14 intervenes and levies tax in the form of purchase tax only to the extent to which it was short levied on account of the certificates. This aspect of the matter again emphasises the fact that on commercial goods, the tax is contemplated to be levied at least at one point either on sale or on purchase.
24. It is in the context of the scheme of levying tax at one point and at least once, that we should appreciate the contentions raised by the parties with regard to the controversial point.
25. Now coming to the main controversy, if we refer to the statutory definition of the word 'dealer' as given in section 2(11) of the Act, we find that the following ingredients are necessary to be proved in order to bring a person within the ambit of this definition. This definition shows that to be a dealer (a) the person concerned must do a 'business', (b) this 'business' should be of buying or selling, (c) such buying or selling should be of 'goods' as defined in the Act, and (d) the 'business' in question should be within the State. Bearing these ingredients in mind, we now proceed to consider the various contentions raised by the parties in support of the stand taken by them in the matter.
26. It is evident from the above analysis of the definition of the word 'dealer' that a mere buying or selling would not attract this definition. A person may make a series of purchases for personal consumption or may sell a number of articles in a casual manner. However, such transactions of purchases and sales would not make him a 'dealer' within the meaning of this definition. The first requirement of being a dealer, according to the definition under consideration, is that the concerned person should enter into the transactions of sales or purchases as 'business'. In other words, it is 'business' which draws him within the definition of the word 'dealer'. What then is meant by the word 'business' The Act does not define this word. But one has not to enter into any legal research for finding out its meaning because, by now, there is a plethora of judicial pronouncements on the meaning of this word. While deciding the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax ([1954] 26 I.T.R. 765 (S.C.)), the Supreme Court dealt with the meaning of this word, and S. R. Das, J. (as he then was) defined it as connoting 'some real, substantial and systematic or organised course of activity or conduct with a set purpose'. This meaning given to the word is obviously very wide and comprehensive. Even this court is found to have exhaustively dealt with the subject in Ambica Mills Ltd. and Another v. The State of Gujarat and Another ([1964] 15 S.T.C. 367). After reviewing various authorities this court has summarised the connotation of this expression in the following words :
'The word 'business' having a wide connotation, spreading over a vast and an indefinite field of activity, the courts have to apply different tests to different types of sales involving a variety of articles or goods in order to ascertain whether they fall under the category of sales effected in the course of business. In the nature of things, therefore, it would be impossible to lay down a hard and fast rule which would uniformly or in a symmetry govern all cases. Therefore, though different tests governing different sets of circumstances have been laid down, such as volume and degree of frequency, continuity and regularity of transactions, the nature of the goods sold, the initial intention at the time of their manufacture or purchase etc., each test so laid down must be taken as governing the facts to which it was applied, and at best, is an indication which however would be liable to be offset by other circumstances existing in a given case.'
The Supreme Court has in the State of Andhra Pradesh v. H. Abdul Bakshi and Bros. ([1964] 15 S.T.C. 644 (S.C.)) explained the expression 'business' in the following terms :
'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.'
Quite recently, in Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh ([1969] 24 S.T.C. 343 (S.C.)), the Supreme Court has emphasised the peculiar nature and facts of each case as the main test to determine whether a particular activity amounts to 'business'. This is clear from the following words :
'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 no general test may be applied for determining that question.'
It is clear from these attempts for the explanation of the expression 'business' that in order to determine whether a particular activity is business or not, no single test would be sufficient and that the question should be determined with reference primarily to the facts of each case. It can, however, be safely stated that an activity becomes a business, if the same is systematic, continuous and organised and is guided by a profit-motive. If we apply these tests to the facts of the case under consideration, it cannot be disputed that keeping of a works contract is a 'business' within the meaning of section 2(11) of the Act. The keeping and execution of a works contract is undoubtedly an activity which is real, substantive, systematic and organised, and surely, that activity is undertaken by the person concerned with a set purpose of making gains. It cannot be gain-said that the whole course of that activity, which begins from entering into the contract and ends till the final execution thereof is motivated by a desire to make profit. It, therefore, follows that the works contract taken as a whole constitutes a 'business' activity.
27. The learned Advocates of the assessees do not dispute the position that a works contract is a 'business'. But their contention is that if goods are purchased in execution of that contract, these purchases do not amount to a 'business' because they are merely incidental to the dominant and all pervading purpose of carrying out the contract. They contended that in such cases the intention of the person, who makes the purchases, is not to deal with the goods, which are purchased but to discharge the legal obligations which are incurred at the time of entering into the contract. It was further pointed out by them that the profit-motive, which is entertained by the contractor at the time of keeping the works contract, does not enure for the purpose of the goods, which are consumed during the course of the execution of that contract. They, therefore, contended that at the time of scrutinising whether the requirements of section 2(11) of the Act are fulfilled, what the court is expected to see and consider is whether there was any 'business' activity qua goods purchased and not whether the goods were purchased during the course of a 'business' activity, which was not intended to be an activity for the purpose of purchase or sale of the goods.
28. We must admit that the argument advanced on the above lines prima facie appears to be attractive. We, however, find that they are not able to stand a close scrutiny. This will be evident from the discussion which follows.
29. In order to find out the real character of the purchases, which are made in execution of a works contract, it is first necessary to understand the true nature of the relationship which such purchases bear to the main contract. Like every contract, the works contract necessarily involves a series of integrated activities culminating in its final execution. However, every important step taken in execution of the contract is bound to be so inter-dependent, inter-laced and dovetailed with each of the other steps so taken, that the fulfilment of the contract would not be rendered possible without taking that step. Therefore, each of such steps taken in execution of the contract in question plays the role of a link in a chain of events which are motivated by a desire to fulfil the obligations arising from the said contract. If the contract in question is for constructing a building, and if the contractor concerned has undertaken to execute that contract by using his own materials, it would be impossible for him to carry out that contract without possessing the required building materials such as bricks, mortar, sand and iron and wood. If, therefore, for obtaining these building materials, the contractor has to make their purchases from the market, such purchases would obviously become an integral part of the business undertaken by the contractor. Thus 'business' activity represented by the works contract of constructing a building cannot be carried out without making purchases of the building materials. The purchase of these materials, therefore, becomes an unavoidable and integral part of the whole business activity in question. In other words, the purchases, which are found to be essential for executing a works contract, form a necessary corollary to the business in question. This position, therefore, completely reveals the nature of the relationship which different purchases made with a view to execute the works contract, bear to the main contract itself. In our opinion, therefore, if the purchases are essential and unavoidable for fulfilling the contractual obligations, then they become an integral part of the contract itself.
30. If this is so, the question which would arise to be considered is, whether the individual steps, which become an integral part of an activity, and for the absence of which, the said activity would be rendered practically impossible, would possess any character, which is different from the character of the activity itself. In our opinion, the correct answer to this question must necessarily be in the negative. If the 'business' is a continuous, systematic and organised activity for a set purpose, as said by the Supreme Court, then every step essential for the furtherance of that activity is a part of that business and does necessarily partake of the character of the business in question. We, therefore, find it difficult to resist the conclusion that all the essential steps for the absence of which 'business' activity is not possible, are engrained or impressed with all the characteristics of that 'business'. That being the position, if purchase of building materials for the execution of a contract for construction is found to be such an essential step, then that purchase would prima facie be in the nature of a 'business'.
31. The learned Advocates of the assessees then contended that a contractor, who has kept a works contract, has no profit-motive qua the goods which are purchased in execution of that contract and in the absence of any such profit-motive, the purchases in question cannot come within the scope and ambit of the expression 'business'. We find that even this contention is not acceptable for the simple reason that the same profit-motive, which has impelled that person to keep a works contract, guides him to make the purchases in question. It cannot be disputed that the purchases in question have to be made only pursuant to the terms of the contract. It is a contract as a whole, which supplies the profit-motive and it is in the fulfilment of the contract, that the profit-motive also seeks its own fulfilment. Therefore, if an integrated view of the whole contract is taken, it is not necessary to discern profit-motive in respect of each and every individual part of the 'business'. Under the circumstances, it cannot be contended successfully that the profit-motive which has guided a person to keep a works contract, is absent in any of the integral parts of that contract.
32. Another contention which was canvassed on behalf of the assessees by their learned Advocates was as regards the intention. It was strenuously argued that in order to decide whether a particular activity amounts to 'business' activity, it would be very much relevant to consider whether the sales or purchases made during the course of that activity were made with the intention to treat the goods purchased or sold as 'business' commodity. It is undoubtedly true that while construing the word 'business' in a commercial sense, the courts have quite often looked at the initial intention or the object with which the goods are purchased or sold. In this connection, we may only refer to the following pertinent observations made by the Supreme Court in The State of Gujarat v. Vivekanand Mills ([1967] 19 S.T.C. 103 at p. 107 (S.C.)) :
'Nevertheless, there is to a certain extent consensus of opinion in those decided cases that the word 'business' has to be construed in a commercial sense and that the initial intention or object with which the goods in question are purchased is a relevant factor in deciding whether the sale thereof was a part of the business or a business activity of the assessee and that if the initial intention in purchasing the goods in question was to use the goods in the business of the assessee, such as manufacturing goods or articles, then, unless that factor was offset by circumstances showing that the assessee intended to indulge in a business activity by entering into transactions of sale, the mere fact that the assessee sold the goods so purchased would not render him a dealer.'
These observations do establish a principle that one of the important factors to be scrutinised at the time of deciding whether a particular activity is 'business' activity, is the intention or the object with which the goods in question have been purchased. But we find it difficult to comprehend how this principle would help the assessee in this and other references. It is obvious that when goods are purchased to accomplish a business activity, they are undoubtedly purchased with the intention to use them in the 'business' covered by that activity. If that be so, can it be said that the intention at the time of purchasing these goods was any other than that of continuing the 'business' successfully and of utilising these goods in the conduct of this business. We, therefore, find that even the test of looking at the initial intention would be satisfied if once it is found that the goods were essential for carrying out the contract in question and were purchased only for the purpose of the execution of that contract.
33. In view of the foregoing discussion, we find it impossible to subscribe to the broad proposition canvassed on behalf of the assessees that when goods are purchased for execution of a works contract, such purchase would always be incidental and should, therefore, be treated independently of the main contract for considering whether they partake of the character of 'business' within the meaning of the word 'dealer' given in section 2(11) of the Act.
34. The next important contention advanced on behalf of the assessees was that a commercial activity would result in a 'business' only if purchase of goods is followed by their resale and that sale is preceded by a corresponding purchase. It was contended that there cannot be a commercial activity merely of buying or merely of selling and, therefore, whenever we find that there is a case of purchase not followed by a corresponding sale, it ceases to be a 'business' activity. In elaboration of this argument it was pointed out that the mere buying is possible only for the purpose of consumption but not for a 'business' purpose. Thus, according to the learned Advocates of the assessees, unless it is shown with regard to a particular transaction that a purchase of goods is followed by a corresponding sale, the said purchase cannot be treated as a 'business'. Talking of a works contract, it was pointed out that in such a contract there is no sale of the purchased goods as these goods are merely consumed in the execution of the contract.
35. In this connection we should note that in Sales Tax Reference No. 5 of 1969, we have taken a view that when in an execution of a works contract, which is an indivisible contract for supply of labour and materials, some materials are supplied by the contractor to the owner, the said supply does not amount to 'sale' as contemplated by the Act. The reason, which has prompted us to take that view was that in such a case, goods are not sold qua goods and property therein passes from the contractor to the owner only incidentally. It is in view of this decision that it is argued that the goods which are purchased in execution of the works contract and which are used up in that execution, are not 'sold' but are only 'consumed'.
36. In view of this contention, the question which arises to be considered is, what is the effect of the above stated position on the character of the purchases made in execution of a works contract. While considering this point, the first pertinent question which requires to be answered is whether in order to render the purchase of goods in execution of a works contract a 'business', it is necessary that these purchases should always be followed by corresponding sales. We find that in answer to this question, some of the High Courts in our country have taken a view that an activity can amount to a 'business' activity only if the goods are purchased with the object of resale or with a view to utilise them in the manufacture of other articles 'for sale'. This line of reasoning seems to have been adopted earlier by the High Court of Bihar in Raja Visheshwar v. Province of Bihar ([1951] 2 S.T.C. 129). Even the High Courts of Orissa and Assam seem to have followed suit, respectively in Ramakrishna Deo v. The Collector of Sales Tax, Orissa ([1955] 6 S.T.C. 674) and Raja Bhairabendra Narayan Bhup v. Superintendent of Taxes, Dhubri, and Others ([1958] 9 S.T.C. 60). All these were cases where the respective Sales Tax Acts made an impost only on sales but not on purchases. We have gone through these decisions and we find that though it is true that they are laving down a proposition that an activity would amount to a 'business' activity only if the goods are purchased with an object of resale, we find that none of these decisions is applicable to the facts of the present case. Reference to these decisions shows that they are with regard to the sale of agricultural produce, which was spontaneously acquired from the landed estate of the different assessees. None of the assessees had made any special effort to plant trees from which the produce was obtained, nor any of them had established any trade, industry, or 'business' with a view to put the produce in question in the market. In other words, it was quite apparent from the facts of each case that the sale in question was not a part of any 'business' activity. This cannot be said about the purchases, with which we are concerned in this and other references. In fact, reference to all these three decisions shows that they are clearly based on the principle that the sale was not the result of any organised activity on the part of the assessees. In our opinion, therefore, none of these decisions would be of any help to the assessees.
37. In this connection, reliance was placed on behalf of the assessees on the decision given by the Supreme Court in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co. ([1967] 20 S.T.C. 520 (S.C.)). In that case the facts were that the assessee converted the latex tapped from its rubber trees into sheets and effected sale of those sheets to its customers. It was an admitted position that conversion of latex into sheets was a process essential for the transport and marketing of the produce. The taxing authorities sought to levy tax on the turnover represented by the sale of sheets. The Supreme Court did not approve of this on the ground that the conversion of latex into sheets and the subsequent sale of those sheets did not constitute a 'business' activity as the primary intention of the assessee in engaging himself in such activities was not to carry on the 'business' of sale or supply of agricultural produce. It is obvious that here also the decision is primarily based on the finding that the sale of sheets was not a part of any 'business' activity.
38. All the above referred cases are cases wherein tax was sought to be levied on the turnover of sales. It is an admitted position that the various Sales Tax Acts, which were previously in force in different States in India, made no specific impost on purchases. It is also an admitted position that so far as this State is concerned, impost on purchases was specifically made by the Sales Tax Act, 1953, with effect from 1st April, 1954.
39. So far as the levy of purchase tax is concerned, we find that a similar question arose before the Andhra Pradesh High Court in the case of H. Abdul Bakshi & Brothers, Hyderabad v. The State of Andhra Pradesh ([1960] 11 S.T.C. 526). That case was subsequently taken to the Supreme Court and the decision given by the Supreme Court in that case is the main bone of contention between the parties. It would, therefore, be in the fitness of things to state shortly the facts relating to that case. The assessee in that case was a firm of merchants carrying on business in hides and skins in the name of M/s. A. Bakshi & Bros., Tanners, Hyderabad. During the year 1954-55 this firm purchased tanning bark of the value of Rs. 61,431-14-9 for use in the process of tanning raw hides and skins. The department chose to tax this purchase of tanning bark on the ground that it fell within the purview of rule 5(2) of the Hyderabad General Sales Tax Rules, 1950. The liability to pay purchase tax claimed by the department was disputed by the assessee-farm on the ground that rule 5(2) above referred to, was inapplicable as it was not a dealer in the commodity of tanning bark for the purpose of the said rule. This contention was overruled by the department, which imposed a tax on the turnover in dispute. Subsequent appeals against the imposition of tax proved unsuccessful with the result that the assessee approached the High Court of Andhra Pradesh. The High Court took the view that for attracting the provisions of rule 5(2) of the Hyderabad General Sales Tax Rules, 1950, the assessee must be found carrying on business in the particular category of articles specified in the sub-rule and since tanning bark, on the turnover of which the purchase tax was sought to be levied, was not the category of article regarding which the assessee carried on business and since the said article was merely consumed in the manufacturing process, no purchase tax was attracted. Thus disposing of this point, the High Court is found to have made the following observations :
'In our opinion, it is only an assessee doing business in the particular type of goods mentioned therein that would be governed by this rule. The mere purchase of some goods for consumption would not bring it within the ambit of rule 5. The profit-motive must be with regard to the commodities in regard to which the impost is sought to be levied. There can be little doubt that the expression 'business' in the definition of 'dealer' is used in a a commercial sense. A person who buys large quantities of any category of goods for the purpose of consumption or for any other purpose unconnected with the business in that commodity, cannot be regarded as a businessman within the mischief of rule 5.'
It should be noted at this stage that according to the Andhra Pradesh General Sales Tax Act, under the provisions of which this decision is given, the definition of the word 'dealer' was to a certain extent similar to the definition of that word given in the Act. That definition was as under :
''Dealer' means 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 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.'
40. In view of this decision of the Andhra Pradesh High Court, the department approached the Supreme Court. The decision given by the Supreme Court is reported as The State of Andhra Pradesh v. H. Abdul Bakshi and Brothers ([1964] 15 S.T.C. 644 (S.C.)). By this decision, the Supreme Court reversed the decision of the High Court and is found to have made certain observations which are very pertinent for the purpose of this and other references. After noting the facts and the law on the point, the Supreme Court said that they were unable to agree with the view taken by the High Court. The Supreme Court then proceeded to define the expression 'business'. This definition is already quoted by us in the foregoing portion of this judgment. After defining the expression 'business', the Supreme Court is found to have made the following observations, which are very pertinent :
'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 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 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.'
Proceeding further, the Supreme Court has observed as under :
'Consumption in the business and not sale of the commodity bought therefore does not exclude the respondents from the definition of dealer qua the tanning bark.'
41. It would be seen from the decision of the High Court of Andhra Pradesh that it had accepted virtually the same line of argument which is adopted by the assessees in this and other references. Broadly speaking, the Andhra Pradesh High Court has enunciated two principles while deciding the case before it. These two principles are : (1) that before a tax is imposed, the dealer should be dealing in the very commodity, which is sought to be taxed, and (2) profit-motive must be with regard to the commodities on which the impost is sought to be levied. When the matter went to the Supreme Court, the Supreme Court seems to have rejected both these principles. If the short judgment, which is delivered by the Supreme Court, is again perused, as it is found in the above quoted extract, it will be noticed that the Supreme Court has made four important propositions while repelling the assessees' contention and reversing the judgment of the Andhra Pradesh High Court. These four propositions are : (1) To be a dealer, a person need not follow the activity of buying and selling and supplying the same commodity. (2) A person, who consumes the commodity bought by him in the course of his trade or use in manufacturing another commodity for sale, would be regarded as a dealer. (3) Buying of a commodity must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. (4) Consumption in the business and not sale of the commodity bought does not exclude the respondents-assessees from the definition of dealer qua the tanning bark. These four propositions made by the Supreme Court, in our opinion, clearly establish that in order to bring the purchases within the ambit and scope of the word 'business' it is not always necessary that the said purchases must be followed either by a sale or by the utilisation of the goods purchased in manufacturing some other articles for sale. It is apparent that according to the Supreme Court's words, what is needed is 'consumption' in the course of business. It is, therefore, evident that the contention raised by the assessees on this point is squarely covered by this decision of the Supreme Court.
42. We however find that the same line of reasoning persuaded the High Court of Madras in deciding a similar case of Sadak Thamby & Co. v. State of Madras ([1963] 14 S.T.C. 753). The assessees in that case were also dealers in tanned hides and skins. They were assessed to tax under the Madras General Sales Tax Act, 1959, on a certain sum representing the purchase value of tanning materials, which were liable to tax at the point of last purchase in the State under item 59 of the First Schedule to the Act. The assessees contended that they were not dealers in tanning materials, that the tanning materials had been consumed in the course of tanning of raw hides and that unless it was found that they sold the tanning materials as such, they could not be regarded as dealers in tanning materials and, therefore, they were not liable to pay tax. It should be noted that these arguments were quite on par with the arguments which were advanced before us by the learned Advocates of the assessees. The High Court of Madras repelled these arguments by making the following observations after reviewing the case law cited on the point :
'It seems to us that none of the above decisions deals with the point that we have to deal with in the present case. The assessees are undoubtedly dealers in hides and skins. They purchase the tanning materials for the purpose of tanning raw hides (which also they purchase) and selling the tanned product. It is impossible to say that the purchase of the tanning materials is wholly devoid of profit-making motive. The use of the tanning materials in the tanning process contributes to the making of profit as a dealer and it should therefore follow that even the business of purchasing these tanning materials involves the profit-motive. If the existence of the profit-motive in entering into the transaction brings the series of transactions within the expression 'in the course of business', there seems to be no room for doubt that the process of buying had the profit-motive as a necessary ingredient.'
Proceeding further, they have observed as under :
'Under the Madras General Sales Tax Act also, dealer means 'any person who carries on the business of buying, selling, supplying or distributing goods directly or otherwise'. In so far as the definition is concerned, the buying of the goods must be in the course of business, which decisions have interpreted to mean that it should be associated with the profit-motive. It does not appear to be necessary that having bought goods the dealer should sell them as such. It may be that the dealer is engaged in the production of goods in the course of which the goods which he purchased are utilised and converted into other goods or are necessary ingredients in the manufacture of the goods sold. It seems difficult to see why the purchase should be deemed to be devoid of the profit-motive in an integrated transaction of that nature.'
These observations, in our opinion, contain a complete answer to the contentions raised by the learned Advocates of the assessees in these references. The point to be noted is that the Supreme Court has specifically referred to this decision of the Madras High Court in the above referred case of H. Abdul Bakshi ([1964] 15 S.T.C. 644 (S.C.)) and has approved the same. The above referred reasoning of the Madras High Court is adopted again by the same High Court in Fiaz Ahmed & Co. v. The State of Madras ([1964] 15 S.T.C. 201). This was also the case where tanning materials were purchased and utilised by the assessees in their occupation to tan hides and skins for certain specified charges. This case is more apposite to the facts of the case under our consideration because the assessees therein were not selling hides and skins after tanning them. They were simply charging the customers for tanning hides and skins given to them. However, in spite of these facts, the High Court held that the assessment on the purchase of the tanning materials for the purpose of levying purchase tax was valid and proper.
43. One of the contentious raised on behalf of the assessees by their learned Advocates was that the 'business' which is contemplated by the definition of the word 'dealer' in the section 2(11) of the Act is the business 'of' buying or selling goods. It was pointed out on behalf of the assessees that the use of the word 'of' is significant inasmuch as it suggests that the business in question should be that of the goods which are bought. In other words, the contention was that what is contemplated is the 'business' 'of' 'buying and selling' and not buying and selling 'in the course of' business. We find that the answer to this contention is supplied by the Supreme Court in the above referred decision of H. Abdul Bakshi ([1964] 15 S.T.C. 644 (S.C.)), wherein the expression 'business of buying or selling' is clearly construed as buying or selling 'in the course of business'. Such an interpretation gives support to our own reasoning that a part of an integrated activity is impressed with the character of the whole of which it is a part and that profit-motive, which is attached to the business activity, is running as a common thread through all the different parts of that activity.
44. We find that the Tribunal has sought to distinguish the above referred decisions of the Madras High Court as well as the decision of the Supreme Court on the ground that the definition of the word 'dealer', which is given in the Sales Tax Acts, prevalent in the Andhra Pradesh and Madras included therein even a concept of supplying along with the concept of buying and selling. So far as the actual position is concerned, it is undoubtedly true that unlike the Gujarat Act, the Acts, which were prevalent at the relevant time in the Andhra Pradesh and Madras, contemplated that even a person who does the business of supplying goods would be covered by the definition of the word 'dealer'. There is, thus, undoubtedly this much difference between the statutory definition given to the word 'dealer' in these States. But the question is whether that difference in the definition is in any manner material. Neither of the High Courts has based its decision in any manner on this difference. They have simply interpreted the words 'carrying on the business of buying or selling goods' as appearing in these enactments. Exactly the same words are found even in the Act under our consideration. In our opinion, therefore, neither the Supreme Court decision nor the above referred decisions of the Madras High Court can be distinguished in the manner in which the Tribunal has preferred to do.
45. The above referred decisions given by the Andhra Pradesh High Court, the Supreme Court and the Madras High Court are the decisions regarding the goods purchased for the manufacture of articles for sale. But we find that in the Madhya Pradesh case of Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh ([1966] 17 S.T.C. 14), there was a clear case of goods purchased for the execution of a works contract. Since this decision has a direct bearing on the facts of the case under our consideration, and since it has also been considered by the Supreme Court in appeal against the judgment given by the High Court of Madhya Pradesh, we propose to refer to its facts. The assessee in that case was a building contractor, registered as a dealer under the Madhya Pradesh General Sales Tax Act, 1958. In the course of his business, he purchased certain goods and materials for the execution of contracts undertaken by him. The sales tax authorities and the Tribunal held that although during the relevant period the assessee's turnover of sales was nil as he had purchased building materials from unregistered dealers, he was liable to pay purchase tax on these purchases under section 7 of the Madhya Pradesh Act. The High Court, after considering two of its previous decisions as well as the decision given by the Supreme Court in H. Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)), held that the assessee was a 'dealer' as contemplated by the Act and was, therefore, liable to pay purchase tax under section 7. While giving its decisions, the High Court has made the following observations, which are very pertinent :
'What is essential is that in that period he must have either consumed the goods purchased in the manufacture of goods for sale or otherwise or disposed of such goods in any manner other than by way of sale in the State or despatched 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 matter was thereafter taken by the assessee to the Supreme Court (Ganesh Prasad Dixit v. Commissioner of Sales Tax, M.P. [1969] 24 S.T.C. 343 (S.C.)). The Supreme Court while considering the merits of the case, also referred to its own decision given in H. Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)) and observed as under :
'A person to be a dealer within the meaning of the Act need not both purchase and sell goods : a person who carries on the business of buying is by the express definition of the term in section 2(d) a 'dealer'. This court held in State of Andhra Pradesh v. H. Abdul Bakshi & Bros. ([1964] 15 S.T.C. 644 (S.C.)), that it is not predicated 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, 1950 (14 of 1950).'
It is apparent from these observations that the Supreme Court has again reaffirmed the principle that in order to find whether particular purchases are covered by the expression 'business', it is not always necessary that these purchases should be followed by corresponding sales. Of course, while deciding this case, the Supreme Court has also relied upon the provisions of section 7 of the Madhya Pradesh Act but that does not make any difference in view of the fact that the principle established in H. Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)) is reaffirmed by this decision even apart from the provisions of section 7 of the Madhya Pradesh Act.
46. Here, we may also note that there are two previous decisions of the Madhya Pradesh High Court which give colour to the view that the business of a dealer must be selling or supplying the particular commodity, which is sought to be taxed. Such a view was taken by the Madhya Pradesh High Court in State of Madhya Pradesh v. Bengal Nagpur Cotton Mills Ltd. ([1961] 12 S.T.C. 333) and in another case of Commissioner of Sales Tax v. Ram Dulare Balkishan & Bros. ([1963] 14 S.T.C. 202). However, both these cases were cases of sale of goods. They are referred to by the same High Court in the above referred case of Ganesh Prasad Dixit ([1966] 17 S.T.C. 14) and are distinguished on the ground that these decisions cannot be read as meaning that when the turnover of sales of a dealer is nil in respect of a particular period, he cannot be treated as having carried on, during that period, the business of buying. At any rate, the case with which we are dealing is the case of purchases made during the course of business, and is completely covered by the Supreme Court decision referred to above.
47. In this line of authorities, the last decision which remains to be considered is the Bombay case of K. S. Films v. The State of Maharashtra ([1969] 23 S.T.C. 121), on which great reliance is placed on behalf of the assessees. Since this decision of the Bombay High Court is the direct decision on the interpretation of the meaning of the word 'dealer' given in section 2(11) of the Act, we propose to refer to it in some detail. The facts of that case were that the assessees were producing motion pictures with the ultimate object of making profit by exhibition of these pictures. They did not sell the pictures so produced by them but gave them away for exhibition under certain financial arrangements, retaining with themselves the ownership in the pictures including the copyright. They used to buy raw films as and when required for the purpose of producing the said pictures. Therefore, the question which arose before the assessing authorities was whether these assessees were carrying on the business of buying films and were, therefore, failing within the definition of the word 'dealer' as given in section 2(11) of the Act. On behalf of the assessees, it was argued before the High Court that the activity of buying materials, such as raw films, must be a part of the integrated activity of buying and disposal, in the sense of buying and selling the said materials either in the original form or in some form of manufactured goods in which that material has been used. On behalf of the revenue, however, it was contended before the High Court that the correct ratio of the decision given by the Supreme Court in H. Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)) was that any activity of buying goods in the business of a dealer will qualify for his being considered a 'dealer' within the meaning of the Sales Tax Act, provided the article bought by the person is consumed by him in the course of trade, or the commodity is itself converted into another salable commodity or is used in aid of or as an ingredient in the manufacturing process for producing any commodity which is salable. In other words, what was contended on behalf of the revenue was that it is not essential in order that a buying activity in the course of business should attract the charge under the Sales Tax Act that the article, which is used or consumed in producing some other article is necessarily sold in the market. Thus, the department's contention in that case was exactly the same as in the case before us, namely, that the question whether the ultimate article is sold or not, is not decisive of the question whether raw materials used in the production of such an article should be considered as goods bought during the course of business so as to make sales tax or purchase tax leviable.
48. On these contentions, the learned Judges of the Bombay High Court, who have decided this case, expressed an opinion that the ratio of the decision of the Supreme Court, as contended by the revenue 'ought to be accepted'. The learned Judges have read the purport of the Supreme Court decision given in H. Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)] as under :
'In our opinion, the observations in the judgment of the Supreme Court that the goods may be used as an ingredient or in aid of manufacturing process leading to the production of a salable commodity mean that the commodity which is produced, of which the goods purchased may be an ingredient or in the making of which the goods purchased may have figured as an aid in the process of manufacture, must have salability.'
They, however, proceeded to observe that at the same time they were, not inclined to accept the contention urged on behalf of the revenue that the moment it is shown that the goods are purchased by a person in the course of business, whatever be the nature of business, the mere act of purchase of the goods in the course of business attracts the liability for payment of the tax and that it is not necessary that the goods must be used as a part of an integrated activity of production and disposal. While observing this, the learned Judges have also taken care to state that though they were unable to accept the contention of the learned counsel for the applicants that the disposal must necessarily be in one manner, viz., by sale and not otherwise, it is still the requirement of law that the goods produced must be capable of being disposed of by sale, whether they are, in fact, so disposed of or not.
49. After saying this and after referring to the two decisions of the Madras High Court given in Sadak Thamby & Co. ([1963] 14 S.T.C. 753) and Fiaz Ahmed & Co. ([1964] 15 S.T.C. 201), the learned Judges have observed as under :
'In our opinion, it is not possible to sustain the contention urged on behalf of the revenue that purchases of any material by a person, whatever be the nature of his business and whatever be the use to which the material so purchased is put, attract the charge of purchase tax, irrespective of whether the material or goods so purchased form or do 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 are marketable. The liability having been created under the Sales Tax Act, in our opinion, it is incumbent that, even if the liability for payment of purchase tax is created under the Act in respect of any goods purchased, such goods must be a part of the activity of the business, namely, the business of purchase and sale or supply of goods. If the purchase of goods is for an altogether different purpose unconnected with the production of any goods, or if it is not for the purpose of making other goods which are capable of being sold, we do not think the mere purchase of goods will attract a charge under section 13.'
Then proceeding further the learned Judges are found to have made the following observations, which appear to be completely in favour of the stand taken by the learned Advocates of the assessees during the course of hearing before us. They say :
'As observed by the Supreme Court, the goods purchased must be either consumed or used in the manufacture of another commodity for sale; or, to put it differently, the business for which the goods are purchased must form part of the integrated activity of buying and disposal. Thus, a nexus must be established between the article purchased and the article produced, for the production of which the article purchased is used, and the article so produced must be salable, i.e., capable of being sold. We are, therefore, unable to follow the decision of the Madras High Court in the case of Fiaz Ahmed & Co. v. The State of Madras ([1964] 15 S.T.C. 201).'
We have extensively quoted from this decision of the Bombay High Court because these quotations and especially the last one, substantially support the stand taken by the learned Advocates of the assessees during the course of the hearing before us. The last quotation conveys an idea that unless a nexus is established between the article purchased and the article produced as a result of manufacture, purchase tax cannot be levied. It is also clear from the other portions of the judgment, which are extracted that according to the learned Judges there should be an element of salability with reference to the goods which are sought to be taxed under section 13 of the Act.
50. With respect to the learned Judges, we find it impossible to agree with this view. The Supreme Court has nowhere said in Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)) that in order to render purchase of goods into business it should always be found that the goods purchased are salable, either in the same form or in a manufactured form. Of course, if the purchased goods are either resold or utilised in manufacturing other articles for sale, the transaction of purchase would undoubtedly amount to a 'business'. But these are not the only two categories which would render the purchase transactions into a 'business'. In our opinion, there is a third category also, namely, the category of goods, the purchase of which has resulted in their total consumption, in furtherance of a business. In fact, it is this third category with which the Supreme Court was concerned in Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)). The tanning bark, which was purchased in that case was totally consumed in the manufacturing process, which was the business activity of the concerned assessee in that case. However, the Supreme Court took the view that the said consumption was in the course of and for the purpose of the concerned business and, therefore, the purchase of the consumed goods must be treated as 'business'. The fact that the said business activity resulted in manufacture of articles, which were salable, was purely incidental. In other words, there is no justification for the belief that salability of the purchased goods either in the same form or in any form, is considered by the Supreme Court in Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)) as a sine qua non of a business.
51. Speaking of the works contract, when the contractor enters into a composite contract for supply of labour and materials, he fixes his rates only after taking into consideration the cost of the materials with the result that the supply rates always reflect the price of the materials supplied. Now even if it is believed that such a supply of materials does not legally amount to 'sale' qua those materials, the fact remains that the said supply was purely a part of the whole business and that the contractor concerned gets the consideration for the said supply from the composite contract rates, which are agreed upon. Therefore, the consumption of the purchased materials, though not amounting to 'sale' in the strict sense of the term is not the personal consumption of the contractor, nor is it a consumption for 'sport or pleasure', to use the words of the Supreme Court in Abdul Bakshi's case ([1964] 15 S.T.C. 644 (S.C.)). Further, the consumption of these articles in the accomplishment of the works contract would necessarily appreciate the value of the work accomplished. In the case of building contracts, such a supply does bring into being a valuable property. It does not matter whether this property is covered by the definition of the word 'goods' as given in the Sales Tax Act because the point to be borne in mind is that but for the consumption of the purchased goods, a real property having substantial market value would not have come into existence. If this point is borne in mind, there would be no difficulty in comprehending that the consumption of the purchased goods has resulted in a business of a substantial nature. Since the purchase was intended from its very inception for such a consumption, it is difficult to conclude that such a purchase did not amount to 'business'.
52. The view which we are taking is in consonance with the scheme of the Act, which we have already discussed in the foregoing portion of our judgment. We have shown therein that the Legislature has so framed the provisions of the Act that before the goods are finally consumed, they should bear the impost at least at one point. If the impost is not levied on sale, then it should be levied on purchase before the article is finally consumed, and ceases to be an article of commerce. Now, if the goods are finally consumed in a business activity and if their purchases are made from a non-registered dealer, the purchaser would totally escape the tax incidence if the view which the learned Advocates of the assessees have canvassed in this case, is accepted. But it is just this, which the Legislature did not want to happen, and it is perhaps for this very reason that the concept of tax on purchases was later on introduced in the sales tax statutes all over India. This also seems to be the reason why the word 'or' carrying the disjunctive sense is used between the words 'buying' and 'selling' in the definition of 'dealer' in section 2(11) of the Act.
53. Again it should be noted that if the assessees' contention is accepted, it is likely to result in preference to an unregistered dealer. It should be recalled that tax liability under section 13 is invited only if the purchase in question is made from a dealer, who is not a registered dealer. Now if the assessees' contention about the interpretation of section 2(11) of the Act is accepted, the assessee, who makes purchases from an unregistered dealer, would not have to pay any purchase tax. Since he makes purchases from an unregistered dealer, the said unregistered dealer would be unable to collect any sales tax from him. But the assessee, who would make purchases from a registered dealer, would be liable to the collection of sales tax by the said registered dealer as provided by section 46 of the Act. It is thus evident that in a works contract, it would be more profitable to the contractor to make purchases from an unregistered dealer rather than a registered dealer, if the interpretation put by the learned Advocates of the assessees on section 2(11) of the Act is accepted. In other words, acceptance of this interpretation would result in preference to an unregistered dealer, which the Legislature could not have contemplated.
54. For these reasons, with due respect to the learned Judges, who have decided the Bombay case of K. S. Films ([1969] 23 S.T.C. 121), we do not find it possible to hold that ultimate salability, as contemplated by the Sales Tax Act, is an essential factor to bring the purchases within the meaning of the word 'business' as used in section 2(11) of the Act.
55. It follows, therefore, that there can be a business of buying goods even though the said goods are bought for executing a works contract.
56. But can it be said that every purchase made 'during the course of a business', is a business of buying goods within the meaning of section 2(11) of the Act Suppose, the nature of goods purchased is such that their purchase was not quite essential for carrying out the contract, or suppose the goods purchased are goods of capital nature, can it be said that these purchases amount to 'business' simply because they are made 'during the course' of the main business activity
57. The answer to this question would, in our opinion, depend upon the facts of each case. It would, however, be possible to formulate some broad principles to be applied to the facts of each case. In our opinion, these principles would be as under :
(1) If the goods purchased are found to be indispensable for the purpose of carrying on the business activity of the assessee and were, in fact, purchased with the intention of being consumed or used up in execution of that business activity, then they prima facie become liable to the payment of tax under section 13 the Act, as such purchases become an integral part of the business itself and, therefore, bear all the imprints of every characteristic of that business.
(2) If it is shown that the goods purchased were not indispensable for the purpose of carrying on the business of the assessee, then the mere fact that they were purchased 'during the course of' business activity, would not create any prima facie presumption.
(3) If an article purchased during the course of business activity is of capital nature and not totally consumed or used up during the course of that activity, no such presumption about the purchase tax liability would arise. For instance, if for the execution of a contract for building construction, the articles like stone crusher, cement mixture or motor trucks are purchased, they would prima facie be capital assets and since such capital assets are not consumed or used up in execution of the contract, the prima facie presumption referred to above, does not arise in their case.
(4) The prima facie presumption about the liability to pay purchase tax under section 13 would a rebuttable one and can be rebutted by an assessee by leading evidence to show that, for some reason, the purchase did not amount to business. While doing so, it would always be open to him 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.
In our opinion, these are the four broad principles on which liability for payment of purchase tax in a works contract can be conveniently worked out.
58. We find that there is no other contention raised by the learned Advocates of the assessees, which remains to be considered. Therefore, before closing this judgment, we would like to sum up what we have stated above. We find that the following principles emerge from the above discussion :
(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 essential for the purpose of executing a works contract and if such goods were purchased with the intention of being consumed or used up in execution of that business, then the said purchase becomes an integral part of the business.
(5) Such integral parts of a business bar the imprints of all the main characteristics of that business and, therefore, the purchases, which thus become the integral parts of a 'business', are themselves 'business' within the meaning of section 2(11) of the Act.
(6) Such purchases are purchases of 'goods' and hence a person, who makes such purchases (i.e. the purchases referred to above) is a person carrying on the 'business' of buying goods as contemplated by section 2(11) of the Act.
(7) For inquiring whether buying of goods amounts to 'business' it is not necessary to find that the goods purchased are resold or are used in manufacturing other articles for sale. It is enough if it is found that they are disposed of by consumption or otherwise for the purpose of the business concerned.
(8) Purchase of goods, as referred to in the proposition No. (4) above, prima facie becomes liable to payment of tax under section 13 of the Act.
(9) If, however, it is found that the goods purchased were not indispensable for the execution of business, then the mere fact that they were purchased 'during the course of' a particular business activity would not create any such prima facie presumption.
(10) If an article purchased during the course of execution of a works contract, is of capital nature, and not totally consumed or used up during the course of that activity, no such prima facie presumption about the purchase tax liability would arise with regard to such an article.
(11) The prima facie presumption referred to above, regarding the liability to pay purchase tax under section 13 is a rebuttable one.
This then is the summary of the principles, which emerge from the above discussion.
59. Now speaking of the facts involved in this reference, the only purchases on which the purchase tax is sought to be levied are the purchases of three motor trucks. With regard to these purchases, we have already quoted the findings of the Tribunal as found in para. 34 of its judgment. These findings contain some findings of facts and it is evident from them that the trucks constitute capital assets and that there is nothing in the record of the case to show that they were purchased with the initial intention of making profit. Since the first question is confined only to these purchases, and since no other purchase of articles, such as building materials, are involved in the facts of this case, our answer to question No. (1) is in the negative. In view of this answer, question No. (2) does not arise to be considered. We, therefore, dispose of this reference accordingly. In view of the answer, which we have given to question No. (1), it is ordered that the applicant shall bear the costs of the respondent in this reference.
Reference answered accordingly.