# GUJARAT v. RAIPUll MFG. CO. (Shah, /.)

- **Citation:** [1967] 1 S.C.R. 618
- **Court:** Supreme Court of India
- **Decided:** 1966-09-30
- **Bench:** J. C. Shah, V. Ramaswami, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-v-raipull-mfg-co-shah-3891
- **Pages:** 9

## Headnote

B
Bombay Sales-tax Act (3 of
1~53), s.
2(6)-Dealer-"Carries on
business", lest for.
·inc rcspondent~mpany \\'as carrying on the business of manufacturing and selling cotton textiles. , In 1953-54,
because cloth, the com·
pany sold (i) old .discarded items such as stores, machinery, iron scrap~
cane;, hoxes, cotton ropes, rags etc., (ii) coal; (iii) by-products such
as
"kolsi" or cinders, and waste caustic
Jiquor.
In the case of the first
item the sales were frequent, the volume was large, and the price realis·
ed was credited in the profit and loss account of the Company, thus indirectly reducing the cost of production of the textiles.
Jn the case of
coal it was a commodity which the company required for its business and
which had heen purchased for use in that business. There was, however,
no evidence as to what was the total quantity of coal purchased by the
company and what percentage thereof was sold except that the value of
the coal sold exceeded Rs. 16,000. In the case of the third item though
the by-products could not be used by the company,
they
were goods
which were produced continuously and regularly day after day in
the
Company's manufacturing process. and for which, there was a market.
The sal°'i-tax authorities brought the turnover from the sales of all these
commodities to tax under the Bombay Sales-tax Act, 1953. The High
Court, on a reference, held in favour of the Company.
In appeal to this Court,
HELD : (I) In disposing of miscellaneous old and discarded items,
the Company ,,·as not carrying on
business of selling
those items.
In
order that receipts from the sale of a commodity
may be included
in
the taxable turnover it must be shown that the assessee was canying on
business in that particular commodity~ and to prove that fact it must be
established that the assessec had an intention to carry on business in that
commodity. The characteristics of volume, frequency, continuity
and
regularity indicating an intention to continue the activity of carryin~ on
the transactions with a profit motive must exist.
But no test is decisive
of the intention to carry on the business, and the intention has to be inferred in the light of all the circumstances.
Where a person comes
to
own in the course of bis business of i:nanufacturing or selling a commodity, 5ome other commodity which is not a
by·product or a subsidiary
product of that business, and he sells that commodity, cogent evidence
that be has intention to carry on business
of selling
that
commodity
would be required.
In the present case, no presumption can be raised,
on the fact'i:, that when the goods were acquired there was an intention
to carry on the husiness in those discarded materials, nor can it be said
that the goods became pan of or an incident
of' the main business of
selling textiles, as they were not by-product• or subsidiary products arising in the cou!":e of manufacturing textiles.
[621 B-H; 624 B-C, El
(ii) There \VCre no circumstances existing at the time when the coal
was purchased, or which have come into ex:fstencc
late, which establish
an intention to carry on a business of selling coal. The burden of provinp 1h;11 the Company was carrying on tbl"- businrs.t;
of selliDR coal Ja)
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GUJARAT V. RAIPUll MFG. CO. (Shah, /.)
619
upon the Sales-tax Authorities and if they held aaalnst the Company
merely because of. the frequency and the volume of the sales the infer-
-ence cannot be sustained.· [626 A-C]
'
·
(iii) The "Kolsi" or cinders and the waste caustic liquor were by-.
products or· subsidiary product$ in the course of manufacture of tcxtilos
and. sale thereof was incidental to the business of the Company. An in-
!en'!OD to carry on business in those commodities may be reasonably
attributed to the Company and the turnover with respect to those two
commodities would be liable to sales-tax. [624 0-H; 625 B-F)
Case law referr.ed to.
Observation on p. 685 paragraph 7 in Gorsi Dairy v. State of Kenda
[(1961) 12 S.T.C. 683] not ap

## Text

STATE OF GUJARAT
A
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M.IS. RAIPUR MANUFACTURING COMPANY LTD.
September 30, 1966
[J. C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.j
B
Bombay Sales-tax Act (3 of
1~53), s.
2(6)-Dealer-"Carries on
business", lest for.
·inc rcspondent~mpany \\'as carrying on the business of manufacturing and selling cotton textiles. , In 1953-54,
because cloth, the com·
pany sold (i) old .discarded items such as stores, machinery, iron scrap~
cane;, hoxes, cotton ropes, rags etc., (ii) coal; (iii) by-products such
as
"kolsi" or cinders, and waste caustic
Jiquor.
In the case of the first
item the sales were frequent, the volume was large, and the price realis·
ed was credited in the profit and loss account of the Company, thus indirectly reducing the cost of production of the textiles.
Jn the case of
coal it was a commodity which the company required for its business and
which had heen purchased for use in that business. There was, however,
no evidence as to what was the total quantity of coal purchased by the
company and what percentage thereof was sold except that the value of
the coal sold exceeded Rs. 16,000. In the case of the third item though
the by-products could not be used by the company,
they
were goods
which were produced continuously and regularly day after day in
the
Company's manufacturing process. and for which, there was a market.
The sal°'i-tax authorities brought the turnover from the sales of all these
commodities to tax under the Bombay Sales-tax Act, 1953. The High
Court, on a reference, held in favour of the Company.
In appeal to this Court,
HELD : (I) In disposing of miscellaneous old and discarded items,
the Company ,,·as not carrying on
business of selling
those items.
In
order that receipts from the sale of a commodity
may be included
in
the taxable turnover it must be shown that the assessee was canying on
business in that particular commodity~ and to prove that fact it must be
established that the assessec had an intention to carry on business in that
commodity. The characteristics of volume, frequency, continuity
and
regularity indicating an intention to continue the activity of carryin~ on
the transactions with a profit motive must exist.
But no test is decisive
of the intention to carry on the business, and the intention has to be inferred in the light of all the circumstances.
Where a person comes
to
own in the course of bis business of i:nanufacturing or selling a commodity, 5ome other commodity which is not a
by·product or a subsidiary
product of that business, and he sells that commodity, cogent evidence
that be has intention to carry on business
of selling
that
commodity
would be required.
In the present case, no presumption can be raised,
on the fact'i:, that when the goods were acquired there was an intention
to carry on the husiness in those discarded materials, nor can it be said
that the goods became pan of or an incident
of' the main business of
selling textiles, as they were not by-product• or subsidiary products arising in the cou!":e of manufacturing textiles.
[621 B-H; 624 B-C, El
(ii) There \VCre no circumstances existing at the time when the coal
was purchased, or which have come into ex:fstencc
late, which establish
an intention to carry on a business of selling coal. The burden of provinp 1h;11 the Company was carrying on tbl"- businrs.t;
of selliDR coal Ja)
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GUJARAT V. RAIPUll MFG. CO. (Shah, /.)
619
upon the Sales-tax Authorities and if they held aaalnst the Company
merely because of. the frequency and the volume of the sales the infer-
-ence cannot be sustained.· [626 A-C]
'
·
(iii) The "Kolsi" or cinders and the waste caustic liquor were by-.
products or· subsidiary product$ in the course of manufacture of tcxtilos
and. sale thereof was incidental to the business of the Company. An in-
!en'!OD to carry on business in those commodities may be reasonably
attributed to the Company and the turnover with respect to those two
commodities would be liable to sales-tax. [624 0-H; 625 B-F)
Case law referr.ed to.
Observation on p. 685 paragraph 7 in Gorsi Dairy v. State of Kenda
[(1961) 12 S.T.C. 683] not approved.
CML APPELLATE JURISDICTION : Civil Appeal No. 603' of
1966.
Appeal by special leave from the judgment and order dated
November 14th/15th, 1963 of the Gujarat High Court in Salestax Reference No. 3 of 1962.
N. S. Bindra and R. H. Dhebar, for the appellant.
S. T. Desai, C. C. Gandhi and I. N. Shroff, for the respondents
The Judgment of the Court was delivered by
Shah, J. M/s Raipur Manufacturing Company hereinafter
called 'the Company' -carries on the business of manufacturing
and selling cotton textiles. In the. account year 1953-54 the Company besides selling cloth sold coal and 25 different items of discarded or unserviceable go.ods and waste products from the factory.
The goods sold may be classified under three heads :
li) Old containers-cans, boxes etc ; discarded stores,
machinery & iron scrap ; miscellaneous discarded
items, such as, cotton ropes, chindis (rags) etc.
(2) Kolsi (cinders), waste caustic liquor.
(3) Coal.
The Sales-tax authorities brought the turnover from sales of those
commodities to tax under the Bombay Sales Tax Act, 1953 and
their order was confirmed in appeal by the Sales Tax Tribunal.
The Tribunal was of the view that "a cotton textile mill manages
to collect unserviceable articles in the course of manufacture of
cloth" and since these articles have to be sold, if it is to survive as
an economic unit, sales of those articles must be regarded "as· part
of the business of the textile mill" if the transactions of sale are large
and frequent. The Tribunal did not deal with the sale of coal
independently of the sale of other goods.
At the instance of the Company, three questions were referred
to the High Court of Gujarat, out of which one alone is material
in this appeal :
~20
SuPRllMB COUllT lEPOllTS
(1967] I S.C.ll.
"Whether on the facts and in the circumstances of
the case, was the Tribunal correct in holding that the applicants were liable to be taxed on the sale of stores and
old machinery and other sundry articles ?"
The High Court answered the question in the negative. With special
leave, the State of Gujarat has appealed to this Court.
Section 5 of Bombay Act 3 of 1953 imposes a general tax at
specified rates on his taxable turnover in respect of sale of goods
upon C\'ery dealer who was liable to pay general tax under the
Bombay Sales Tax Ordinance No. III of 1952 whose turnover in
respect of all the sales exceeds Rs. 30,000/- during the year commencing on April I, 1952. The expression "dealer" is defined in
s.
2( 6) as meaning "any person who carries on the business of
selling goods in the State of Bombay, whether for commission,
remuneration or otherwise · · ·". Section 2(8) defines "goods" as
. meaning "all kinds of movable property other than newspapers,
actionable claims, stocks, shares and securities, and includes all
materials, articles and commodities." Section 2(13) defines "sale"
as meaning "a sale of goods made within the State of Bombay
for cash
or deferred payment or other valuable consideration
and includes any supply by a society or club or an association to
it~ members on payment of price or on fees or subscription, but does
not include
. . ." Section 2(14) defines "sale price" as meaning "the amount payable to a dealer as valuable consideration for
the sale cf any goods, less any sum allowed as cash discount according to trade practice,
. . .". ''Turnover" is defined in s.
2(20) as meaning "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 reriod after deducting the amount, if any.
refunded by a dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period."
Under the Bombay Saks Tax Act, 1953, the aggregate of the
price received and reeei\·ablc by a perscn carrying on business
of selling goods is liable to be included in his taxable turnover.
It follows as a corollary that in the turnover of a person carrying
on the business of selling one commodity will not be included
the price received by him by sale of another commodity unless he
carries on the business of selling that other commodity. That is
so, bec3use. within the meaning of s. 2(6) of Bombay Act 3 of 1953
to be a dealer a person must carry on the business of selling those
goods, price whereof is sought to be included in the turnover.
Jn other words, he must carry on the business of selling a commodity before his turnover from sale of that commodity is taxable.
As pointed out by this Court in State of Andhra Pradesh v. M/s
Abdul Bakshi and Bros.(1) a person to be a dealer must be engaged
----
11) lt964l 7 S.C.R. 664 : A.l.R. 1965 S.C. SJI.
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GUJARAT v. RAIPUR MFG. CO. (Shah, /.)
62?
In the business of buying or selling or supplying goods. The expression "business" though extensively used in trucing statutes, is
a wotd of indefinite import. In taxing statutes, it is used in the
sense of an occupation, or profession which occupies the time,
attention an.d 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. Whether a person carries on business in a particular commodity must depend
upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a dass of goods and the transactions
must ordinarily be entered into with a profit motive. By the use
of the expression "profit motive'~ it is not intended that profit
must in fact be earned. Nor does the expression cover a mere
desire to make some monetary gain out of a transaction or even a
series of transactions. It prediqtes a motive which pervades the
whole series of transactions effected by the person in the course
of his activity. In actual practice, the profit motive may be easily
diScernible in some transactions : in others it would have to be inferred from a review of .the circumstances attendant upon the
transaction. For instance, where a person who purchases a commodity in bulk and sells it in retail it may be readily inferred that
he has a profi, motive in entering into the series of transactions of
purchase and s.1le. A similar inference may be raised wherP a
person manufactures finished goods from raw materials belonging
to him or purchased by him, and sells them. But where a person
comes to own in the course of his business of manufacturing or
selling a commodity, some other commodity which is not a byproduct or a subsidiary product of ~hat business and he sells that
commodity, cogent evidence that he has intention to carry on
business of selling that commodity would be required. Where a
person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods
acquired in the course of the business, an inference' that he desired
to carry on the business of selling his machinery or fixed assets ot
discarded goods would not ordinarily arise. To infer from a course
of transactions that it is. intended thereby to carry on business
ordinarily the characteristics of volume, frequency, continuity and
regularity indicating an intention to continue the activity of carrying
on the transactions must exist. But no test is decisive of the intention to carry on the business: i'n the light of all the circumstances
an inference that a person desires to carry on the business of selling
goods may be raised.
A large number of cases were cited at the Bar in support of the
contention that the goods sold by the Company must be deemed to
have been sold as part of the business of the Company, and on
that account the turnover in respect thereof was liable to taxation.
622
SUPDMB OOUllT JlBPOJlTS
(1967) I S.C.R.
It is not necessary to enter upon a detailed examination of those
cases, because a majority of those cases are merely illustrative of
the general principles set out herein before. A few representative
cases may be briefly referred to. In State of Bombay v. The Ahmedabad Education Society(') certain goods manufactured or imported
by an Education Society for the purpose of its own use were, when
found surplus, disposed of at cost, without any profit. The Bombay High Court held that no business of selling or supplying was
intended to be carried on in those goods. In State of M.P. v.
Bengal Nagpur Cotton Mills Ltd.(2) a Company which carried on
the business of manufacturing textiles, supplied steel and cement
on several occasions to their contractors, who were constructing
buildings for the Company, and debited the price of the materials
to the contractor's account. 'It was held that the Company was
not liable to pay sales tax as the Company was not a dealer carrying
on the business of selling steel and cement. Jn Commissioner of
Sales Tax, MadJrya Pradesh, Indore v. Ram Du/are Balkislum and
Bros,.(l) a transport operator who sold unserviceable cars, trucks,
tyres and motor accessories was held not to be a dealer even though
the activity was "continuous, serious and large." In The State of
Mysore v. The Bangalore Woollen, Cotton and Silk Mills Co. Ltd,. (4)
the assessee a manufacturer of textiles who sold unserviceable goods
like waste cotton, useless ropes, scrap iron, worn out and broken
parts of machinery, old paper, and tubes, was held not to be a dealer.
In that case, no distinction (presumably because there was no evidence in that case justifying the distinction) was made between
waste cotton and other commodities sold.
It is clear from these cases that to attribute an intention to
carry on business of selling goods it is not sufficient that the assessee
was carrying on business in some commodity and he disposes of
for a price articles disc1rded, surplus or unserviceable. It was
urged, however, on behalf of the State that where a dealer with a
view to reduce the cost of production disposed of unserviceable
articles used in the manufacture of goods nnd credits the price
received in his accounts, he must be deemed to have a profit motive,
for it would be uneconomical for the business to store unserviceable
articles and to survive as an economic unit.
But the question
is of intention to carry on business of selling any particular class
of gocrds.
Undoubtedly from the frequency, volume, continuity
and regularity of transactions carried on with a profit motive,
an inference that it was intended to carry on business in the commodity may arise. But it does not arise merely hecause the price
received by sale of discarded goods enters the accounts of the trader
and may on an overall view enhance his total profit, or indirectly
reduce the cost of production of goods in the business of selling
of which he is engaged. An attempt to realize price by sale of
(I) 7 S.T.C. 497.
(2) 12 S.T.C. 333.
(3) 14 S.T.C. 202.
(4) 13 S.T.C. 106.
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GUJARAT V. RAIPUR MFG. CO. (Shah, J.)
623
surplus unserviceable or discarded goods does not necessarily lead
to an inference that business is intended to be carried on in those
goods, and the fact that unserviceable goods are sold and not stored
so that badly needed space is available for the business of the
assessee also does not lead to the inference that business is intended
to be carried on in selling those goods.
Counsel for the State strongly relied upon a judgment of this
Court in State of Andhra Pradesh v. H. Abdul Bakhi & Bros.(') in
support of the contention that goods purchased for the purpose
of being used in a manufacturing process are liable to purchase
tax since the manufacturer must be deemed to be carrying on busine~:s of purchasing those goods. It was held in H. Abdul Bak hi' s
case(') that a person who consumes a commodity bought by him
in the course of his trade or uses it in manufacturing another commodity for sale, is a dealer, since the Legislature has not made
sale of the very article bought by a person a condition for treating
him as a dealer. But the principle of that case has no application
in the present case. In that case this Court declined to accept the
view which prevailed. with the High Court of Andhra Pradesh
that unless a person is carrying on business both of purchasing
and selling the same commodity, purchase of articles used in the
course of manufacture of another commodity is not in the course.
of carrying on the business of purchasing that article.
Counsel for ihe State also relied upon the judgment of the
Kerala High Court in Gosri Dairy, Vyttilav. The State of Kera/a(2).
In that case the assessee firm which was registered as 11 dealer in
dairy products sold a part of its live-stock every year ii,nd replaced
the same by fresh stock. The question arose whether .the proceeds of such sales were to be treated as part of the turnover of the
assessee liable to sales tax. It was held that the frequency, regiilarity and volume of sale transactions by the assessee were such
that they could be regarded as "an activity in the course of the
business of the assessee", and therefore the assessee's sales of
cattle were part of its business. The Court in that case inferred
that the transactions by the assessee in respect of its assets disclosed
an intention to carry on the business in those assets. We are not
c:mcerned to decide in this case whether the ultimate decision of
the Court was correct, but we are unable to agree with the view
expressed by the High Court. that "as regards sales tax all the sales
of a dealer in the course of his business attract taxation". Merely
because a person is carrying on business of selling a commodity,
it cannot be inffered from sale by him of another commodity in
the course of that business that he is carrying on business in that
o !her commodity also.
(I ) A.I.R. 1965 S.C. 53.
(2) 12 S.T.C. 683.
624
SUPREME COURT REPORTS
(1967] I S.C.R.
We may now consider whether the turnover from the goods
sold by the Company was taxable. The goods sold broadly fall,
as already observed, under three heads: viz., old discarded machinery, stores and scrap and miscellaneous goods ; coal ; and byproducts and subsidiary products such as ''koisi" and waste caustic liquor, though' not usable by the factory arc goods regularly
and continuously produced in its manufacturing processes.
We
are unable to hold that in disposing of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans, boxes,
cotton ropes, rags etc. the Company was carrying on business of
selling those items of goods. These sales were frequent and the
volwne was large, but it cannot be presumed that when the goods
were acquired there was an intention to carry on the business in
those discarded materials ; nor are the discarded goods, by-products or subsidiary product of or arising in the course of the manufacturing process. They are either fixed assets of the Company
or are goods which are incidental to the acquisition or use of stores
or commodities consumed in the factory. Those goods are sold
by the Company for a price which goes into the profit and loss
account of the business .and may indirectly be said to reduce the
cost of production of the principal item, but on that account disposal of those goods cannot be said to become part of or an incident of the main business of selling textiles. Jn order that receipts
from sale of a commodity may be included in the taxable turnover, it must be established that the assessee was carrying on business in that particular commodity, and to prove that fact it must
be established that the asscsscc had an intention to carry on business in that commodity. A person who sells goods which are unserviceable or unsuitable for his business docs not on that account
become a dealer in those goods, unless he has an intention to carry
on the business of selling those goods.
But in dealing with the liability to pay tax on the price fo ·
sale of "koisi" and "waste caustic liquor" different considerations
arise.
As· found by the High Court "kolsi" (cinders) are small
pieces of coal which are not fully burnt. It appears that "koisi"
is ndt capable of "extreme fuel potency required in the furnaces"
of the appellant Company, but it is still capable of being used in
"lighter furnaces". This "koisi" is discharged from the furnaces
regularly and continuously day after day. The Company collect~
that "kolsi" and sells it to· intending purchasers in bulk. "Kolsi"
would be appropriately regarded as a subsidiary product in the
course of manufacture. "Kolsi" results from coal which remains
unburnt : it is on that account a subsidiary product. When such
subsidiary product is turned out in the factory regularly and continuously and is being sold from time to time, an intention to c.arry
on business in "kolsi" may be reasonably attributed to the Company.
In this connection, the principle in the judgment of the
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GUJARAT v. RAIPUR MFG. CO. (Shah, J.)
625
Bombay High Court in The Aryodaya Spinning and Weaving Company Ltd v. The Staie of Bombay(') would apply. In that case a
textile manufacturing Company produced "cotton waste" in the
course of its manufacture of doth and yarn. The cotton waste
which was not required for use in the factory was disposed of regularly and the Bombay High Court regarded that as a subsidiary
product or incident of the business of the assessee. The normal
business of the assessee in that case was the business of manufacturing and selling cotton textiles and cotton yarn, but it could still
be regarded as allied or incidental to business activity. The
same principle, in our judgment, applies to the disposal of, "kolsi"
which was discharged continuously and regularly out of the furnaces of the appellant Company.
"Waste caustic liquor" is also regularly and continuously
accumulated in the tanks in the process of.mercerisation of cloth.
As pointed out by the High Court, sodium hydroxide in water is
used in different processes for mercerisation of cloth. The liquid is
kept in a tank iri which cloth is dipped. After this process is over,
cloth passes through other tanks where water is sprinkled over it
and in that process .some of the sodium hydroxide falls into the
tank. The liquid is a light solution of sodium hydroxide whlch
cannot be used in the process of mercerisation, nor for other process in the factory of the .Company. This waste material
which is called "waste caustic liquor" bas still a market amongst
other manufacturers or launderers. For reasons which we have
already set out in dealing with "kolsi", we are of the view that
waste caustic liquor may be regarded as a by-product or a subsi•
diary product in tlie course of manufacture and the sale thereof
is incidental to the business of the Company and the turnover in
respect of both "kolsi" and "waste caustic liquor" wpuld be liable
to sales tax.
It appears from the statement furnished that coal of the value
of Rs. 16,083/- was sold by the Company under 12 bills in the
year 1953-?4. Coal is purchased by the Company for the purpose
of lighting its furnaces and heating boilers, A part of the coal
purchased was sold. The Tribunal merely stated in respect of all
the items 'of goods sold that looking to the volume and frequency
of their sale, the Company should be regarded as a dealer in respect of those goods. Unless there is evidence to show that there
was an intention to carry on business of selling coal, the mere fact
that coal of the value exceeding Rs. 16,000/- was sold will not by
itself make the Company a dealer carrying on business in coal.
We have· no evidence on the record as .to what the total quantity
of the coal purchased by the Company was, and what percentage
thereof was sold. No investigation has been made as to the cirC11mstances in which the coal came to be sold. Mer!! .sale of a com-
(!) 11 S.T,C. 141.
626
SUPUMI OOUIT lllPOllTS
[1967] I S.C.R.
modity which a Company requires for the purpose of its business
A
and which has been purchased for use in that business will not
justify an inference that a business of selling that commodity was
intended, unless there are circumstances existing at the time when
the commodity was purchased or which have come into existence
later which establish such an intention. It may be pointed out
that the burden of proving that the Company was carrying on
ll
business of selling coal lay upon the Sales-tax authorities and if
they made no investigation and have come to the conclusion merely
because of the frequency and the volume of the sales, the inference
cannot be sustained.
On that view of the case, the answer recorded by the High
Court on the first question will be modified as follows :
C
"In the negative, except as to 'kolsi' and waste caustic
liquor".
There will be no order as to costs in this appeal.
V.P.S.
Appeal allowed in part.