# Ml s. Kajorfrnal Kalyanmal v. Commissioner of Income-tax, U.P. 3

- **Citation:** [1969] 3 S.C.R. 490
- **Court:** Supreme Court of India
- **Decided:** 1969-02-03
- **Case number:** Civil Appeals Nos. 940 and 941 of 1966
- **Bench:** J. C. Sh;\11, V. R.Amaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ml-s-kajorfrnal-kalyanmal-v-commissioner-of-income-tax-u-p-3-4606
- **Pages:** 7

## Headnote

Madhya Pradesh General Sales Tax A.ct (2 of 1959), ss. 2(d) 7, 18(5)
and Madhya Pradesh General Sales Tax Rules, 1959, r. 33-Notice for
best judgment assessment-Time given to show cause less than 15 day~
No prejudice to tax-payer-I/ proceedings liable to be set aside-Purchasu
of building material-Material not resold but used in construction--
Building contractor if dealer-Purchase price of building maJerial ii liable
to purchase-tax.
The appellants were a firm of building contractors and were registered
as dealers under the Madhya Pradesh General Sales Tax, 1959. They
were purchasing building materials,
which were taxable under the Act,
and were using them in the course of their business. The Sales-tax Olli·
·cer served notices upon. them under s. 18(5) calling upon them to show
cause why best judgment assessment should not be made. The appellants
did not offer any explanation for their failure to submit returns of their
turnover, and the Sales~tax Officer assessed their turnover in respect of
sales as nil and assessed them to purchase-tax under s. 7 in respect of goods
purchased by them for use in their construction business. Rule 33 of the
Madhya Pradesh General Sales Tax Rules; 1959, provides tbat a notice
of assessment under s. 18(5) shall not give, ordinarily, less than 15 days
from the date of the service to show cause, but, the notices in the present
case did not give the appellants a clear period of 15 days to show cause.
On the questions : (I) Whether the notices were invalid, and therefore, the assessment, on the basis of those notices was bad in law;
(2)
Whether the appellants were dealers; and (3) Whether the impositioo elf
purchase-tax under s. 7 was in order,
HELD: (1) The terms of r. 33 are not mandatory. Therefore, unlcos
prejudice has resulted to the tax-payer the pr<reedings are not liable to be
set aside. In the instant case it was not tht case of the appellants that
because of the insufficiency of time they We'·• unable to submit their Cl·
planation. Hence, the notice and assessmeu. could not be held to be invalid. [492 B-F; 493 BJ
~
Ml s. Kajorfrnal Kalyanmal v. Commissioner of Income-tax, U.P. 3
I.T.C: 451 and lamna Dhar Potdar v. C.l.T., Punjab, 3 I.T.R. 112, distin·
guished.
(2) Whether in a particular set of circumstances a person may be said
to be a dealer carrying on business in a commodity must depend upon the
facts of that case and no general test may be applied for determining the
question. ·Merely because the turnover of the appellants in respect of
sales was nil they did not cease to be dealers. A person, to be a dealer
within the meaning of the Act, need not both purchase and sell goods because, a person who carries on the business of buying is, by the definition
of the term in s. 2(d), a dealer.
[4<13 H; 496 Fl
State of A..P. v. H. Abdul Bakshi, 15 S.T.C. 644 (S.C.) followed.
c
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GANESH PRASAD v. c.s.T. (Shah, I.)
491
LM.S. Sadak Thamby & Co. v. State of Madras,
14 S.T.C. 753,
approved.
(3) By using. the expre!'sion
'either
consumers such goods in the
manufacture of the goods for sale or otherwi.se' in s. 7, tho Legislature intended that consumption of goods renders the price paid for their purchase
taxable, if th~ goods are used in the manufacture of the goods for sale
or if the gootb are consurned otherwise. Therefore, under s. 7, purchase..
tax is payable, where no sales-tax is payable under s. 6 on the sale price
of the goods, by a dealer who buys taxable goods in the course of his
business, and, (a) either consumes such goods in the manufacture of
other goods for sale; or (b) consumes such goods otherwise; or (c) di!-
poses of such goods in any manner other than by way of sale in tho
State; or ( d) despatches them to a place outside tho State except as ~
direct result of sale or purchase in the course of inter-State trade or commerce.
In the present case the assessees were registered as dealers, they
had purchased taxable material in the course elf their business and b

## Text

GANESH PRASAD DIXIT
ll.
COMMISSIONER OF SALES TAX, MADHYA PRADESH
February 3, 1969
[J. C. SH;\11, V. R.AMASWAMI AND A. N. GROVER, JJ.]
Madhya Pradesh General Sales Tax A.ct (2 of 1959), ss. 2(d) 7, 18(5)
and Madhya Pradesh General Sales Tax Rules, 1959, r. 33-Notice for
best judgment assessment-Time given to show cause less than 15 day~
No prejudice to tax-payer-I/ proceedings liable to be set aside-Purchasu
of building material-Material not resold but used in construction--
Building contractor if dealer-Purchase price of building maJerial ii liable
to purchase-tax.
The appellants were a firm of building contractors and were registered
as dealers under the Madhya Pradesh General Sales Tax, 1959. They
were purchasing building materials,
which were taxable under the Act,
and were using them in the course of their business. The Sales-tax Olli·
·cer served notices upon. them under s. 18(5) calling upon them to show
cause why best judgment assessment should not be made. The appellants
did not offer any explanation for their failure to submit returns of their
turnover, and the Sales~tax Officer assessed their turnover in respect of
sales as nil and assessed them to purchase-tax under s. 7 in respect of goods
purchased by them for use in their construction business. Rule 33 of the
Madhya Pradesh General Sales Tax Rules; 1959, provides tbat a notice
of assessment under s. 18(5) shall not give, ordinarily, less than 15 days
from the date of the service to show cause, but, the notices in the present
case did not give the appellants a clear period of 15 days to show cause.
On the questions : (I) Whether the notices were invalid, and therefore, the assessment, on the basis of those notices was bad in law;
(2)
Whether the appellants were dealers; and (3) Whether the impositioo elf
purchase-tax under s. 7 was in order,
HELD: (1) The terms of r. 33 are not mandatory. Therefore, unlcos
prejudice has resulted to the tax-payer the pr<reedings are not liable to be
set aside. In the instant case it was not tht case of the appellants that
because of the insufficiency of time they We'·• unable to submit their Cl·
planation. Hence, the notice and assessmeu. could not be held to be invalid. [492 B-F; 493 BJ
~
Ml s. Kajorfrnal Kalyanmal v. Commissioner of Income-tax, U.P. 3
I.T.C: 451 and lamna Dhar Potdar v. C.l.T., Punjab, 3 I.T.R. 112, distin·
guished.
(2) Whether in a particular set of circumstances a person may be said
to be a dealer carrying on business in a commodity must depend upon the
facts of that case and no general test may be applied for determining the
question. ·Merely because the turnover of the appellants in respect of
sales was nil they did not cease to be dealers. A person, to be a dealer
within the meaning of the Act, need not both purchase and sell goods because, a person who carries on the business of buying is, by the definition
of the term in s. 2(d), a dealer.
[4<13 H; 496 Fl
State of A..P. v. H. Abdul Bakshi, 15 S.T.C. 644 (S.C.) followed.
c
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GANESH PRASAD v. c.s.T. (Shah, I.)
491
LM.S. Sadak Thamby & Co. v. State of Madras,
14 S.T.C. 753,
approved.
(3) By using. the expre!'sion
'either
consumers such goods in the
manufacture of the goods for sale or otherwi.se' in s. 7, tho Legislature intended that consumption of goods renders the price paid for their purchase
taxable, if th~ goods are used in the manufacture of the goods for sale
or if the gootb are consurned otherwise. Therefore, under s. 7, purchase..
tax is payable, where no sales-tax is payable under s. 6 on the sale price
of the goods, by a dealer who buys taxable goods in the course of his
business, and, (a) either consumes such goods in the manufacture of
other goods for sale; or (b) consumes such goods otherwise; or (c) di!-
poses of such goods in any manner other than by way of sale in tho
State; or ( d) despatches them to a place outside tho State except as ~
direct result of sale or purchase in the course of inter-State trade or commerce.
In the present case the assessees were registered as dealers, they
had purchased taxable material in the course elf their business and bad
consumed the materials otherwise than in the manufacture of goods for
sale and for a profit motive. Therefore, the purchase price paid by tho
appellant. was .taxable.
[495 E--0; 496 A-BJ
V. K. S. V. Sangh v. State of Maharashtra, 22 S.T.C. 116, not applicable.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos.
940
and 941 of 1966.
Appeals by special leave from the judgments and orders
dated August 31, 1965 of the Madhya Pradesh High Court in
Misc. Civil Cases Nos. 321 and 331 of 1964.
M. C. Chagla, B. L. Neema, Anja/i K. Varma and J. B.
Dadachanji, for the appellant (in both the appeals).
I. N. Shroff, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Shalt, J. In respect of assessment to sales-tax for two accounting periods April 1, 1961 to June 30, 1961 and July 1, 1961
to September 30, 1961, the Board of Revenue, Madhya Pradesh,
referred the following questions to the High Court of Madhya
Pradesh for opinion :
" ( 1 ) Whether in the facts and circumstances of
the case the notice in Form XVI that was
served on the applicant was invalid and
therefore the assessment of the applicant on
the basis of that notice was bad in law ?
( 2) Whet)ler in the facts and circumstances of
the case the applicant was a dealer during
the assessment period under the Act and tho
imposition of purchase tax on him under ~
7 of the Act was in order ?"
(92
SUPREME COURT REPORTS
(1969] 3 S.C.R.
The High Court answered the first question in the negative, and
the second in the affirmative. These appeals are preferred with
special leave granted by this Court.
•
The appellants are a firm of building contractors and are
registered as dealers under the Madhya Pradesh General Sales
Tax Act 2 of 1959.
The appellants purchased building materials in the two account periods and used the materials in the
course of their business.
The Sales Tax Officer,
Jabalpur
Circle, served notices under s. 18 ( 5) of the Act calling upon
the appellants to show cause why "best judgment" assessments
should not be made, and by order dated November 30, 1961,
he assessed the appellants to tax in respect of goods purchased
by the appellants for use in their construction business and imposed a penalty of Rs. 200/- in each case. Appeals against the
orders imposing tax and penalty were dismissed by the Assistant
Commissioner of Sales Tax and the Board of Revenue.
Rule 33 of the Madhya Pradesh General Sales Tax Rules,
1959, provides that a notice of assessment under s. 18 ( 5) shall
be in Form XVI, and ordinarily it shall give not less than 1 ~
days from the date of the service to the assessee to show rause
why he "should not be assessed or re-assessed to tax and/or to
pay penalty".
The notices served upon the appellants did not
give them a clear period of 15 days to show cause. But we are
unable to hold on that account that the notices and the assescSments were invalid.
We agree with the High Court that the
rule is not intended to be "either invariable or rigid", and "unless
prejudice has resulted to the tax-payer the proceedings are not
liable to be set aside". It is not even suggested that because of
the insufficiency of time the appellants were unable to submit
their explanation for failure to make their returns of turnover.
Two cases on which reliance was placed by counsel for
the
appellants in support of the plea that the notices were invalid
have, in our judgment, no bearing. In Messrs.
Kajorimal
Kalyanmal v. The Commissioner of Income-tax, U.P., (1) it was
held that. a notice under s. 22(2) of the Income-tax Act. 1922,
giving the assessee 20 days for filing the return was "entirely
illegal".
In Jamna Dhar Potdar and Co. Lyallpur v.
Commissioner of Income-tax, Punjab(') it was
held, following the
judgment in Ka;orima/ Kalyanmal's case(') that a notice which
does not give to a tax-payer under s. 22(2} of the Income-tax
Act, 1922, clear notice for furnishing a return, of thirty days
from the date of service is illegal. But these cases were decided
under s. 22 ( 2) of the Income-tax Act, 1922, before it wa~
amended by the Income-tax (Amendment) Act 7 of 1939.
Under the section as it then stood, it was enacted that the
(I} 3 l.T.C. 451.
(2) 3 I.T.R. ll2.
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GANESH PRASAD v. C.S.T. (Shah, J.)
493
Income-tax Officer shall serve a notice upon any person whose
total income is in the opinion of the Income-tax Officer of such an
amount as to render that person liable to pay income-tax.
The
section was held to be mandatory. But the terms of r. 33 of the
Madhya Pradesh General Sales Tax Rules are plainly not mandatory. The answer given by the High Court on the first question
must be accepted.
To appreciate the scope of the enquiry
under the second
question, the relevant provisions of the Act may be summarised.
By s. 2 ( d) of the Act, insofar as it is relevant, the expression
"dealer" is defined as meaning, amongst others, "any person who
carries on the business of buying, selling, supplying or distributing
goods, directly or otherwise''. By s. 4(2) every dealer is liable
to tax in respect of sales or supplies of goods effected in Madhya
Pradesh with effect from the date on which his turnover calculated
during a period of twelve months immediately preceding such
date first exceeds the limits specified in sub-s. ( 5). Section 6
provides that the tax payable by a dealer under the Act shall be
levied on his taxable turnover relating to the goods specified in
Sch. II.
Section 7 provides :
"Every dealer who in the course of his business purchases any taxable goods, in circumstances in which no
tax under section 6 is payable on the sale price of such
goods and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes Of
such goods in any manner other than by way of sale in
the State or despatches them to a place outside the State
except as a direct result of sale or purchase in the
course of inter-State trade or commerce, shall be liable
to pay tax on the purchase price of such goods at the
same rate at which it would have been leviable on the
sale price of such goods under section 6 :
Provided
"
Counsel for the appellants submitted that the appellants were
not "dealers" within the meaning of the Act because they did not
carry on the business of buying goods, and that in any event, the
goods pll!chased by them for use in their construction business
were not liable to tax under s. 7.
The appellants are registered dealers under
the
Madhya
Pradesh General Sales Tax Act, 1958 (Act 2 of 1959). It is
H
true that in respect of the periods their tl}mover in ·respect of
sales was assessed as "nil".
But on that account they did not
cease to be registered dealers within the meaning of the Act. A
person to be a dealer within the meaning of the Act need not
8 Sup. CJ.69-13
494
SUPREME COURT REPORTS
[1969] 3 $.C.R.
both purchase and sell goods: a person who carries on the business of buying is by the express definition of the' tetm in s. 2(d)
a "dealer". This Court held in The Stgte of Aruihra Pradesh v. H.
Abdul Bakshi and Bros.(') that it is not predicted'OOJa dealer
that he must carry on the business of buying and selling the same
goods. A person who buys goods for consumption in the process of manufacture of articles to be sold by him is a dealer within the meaning of the Hyderabad General Sales Tax Act 14 of
1950. In H. Abdul Bakshi arli!l Bros's case(') the assessees sold
skins, after tanning hides and skins purchased by them. In the
process of tanning, they had to use tanning bark purchased by
them.
This Court held that the turnover arising out of the tanning bark purchased by the assessees for consumption in the process of tanning was liableflto tax on the footing that the assessees
were carrying on the busifill!is of buying goods, even though the
goods beught were consum\!l:l'in the process of tanning. In dealing with the question whether an activity of purchase of goods
required for consumption in a manufacturing process may be
regarded as a business, the Court observed (at p. 647) :
"A person to be a dealer must be engaged in the
business of buying or selling or supplying goods. The
expression 'business' though extensively used is a word
of indefinite import. In taxing statutes it is used in the
sense of an occupation, or profession which occupies
the time, attention and labour of a person, nonnally
with the object of making profit. To regard an activity
as business there must be a course of dealings, either
actually continued or contemplated to be continued
with a profit motive, and not for sport or pleasure. But
to. be a dealer a person need not follow the activity of
buying, selling and supplying the same commodity.
Mere buying for personal consumption, i.e. without a
profit motive, will not make a person dealer within the
meaning of the Act, but a person who consumes a commodity bought by him in the course of his trade, or use
in manufacturing another .commodity for sale, would
be regarded as a dealer. The Legislature has not made
sale of the very article bought by a person a condition
for treating him as a dealer; the
definition merely
requires that the buying
of the commodity
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
(I) 15 S.T.C. 641.
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GANESH PRASAD v. c.s.T. (Shah, J.)
saleable commodity, or it may be used as an ingredient
or in aid of a manufacturing process leading to the production of such saleable commodity."
495
This Court agreed with the view expressed in L. M. S. Sadak
Thamby & Co. v. The State of Madras(') in which a similar
question was decided by the High Court of Madras. In that case
the assessee had purchased tanning bark and had consumed it in
tanning raw hides. The Madras High Court held that the buying
of goods was in the course of business since it was associated with
the business of tanning of hides carried on with a profit-making
motive. These decisions support the contention of the State that
price paid for goods bought for consumption in manufacturing
an article for sale is exigible to purchase-tax even if the goods
purchased are either destroyed or transformed into another
species of goods.
Counsel for the appeHants urged that in the cases of H.
Abdul Bakshi a11d Bros.(') and L. M. S. Sadak Tham by & Compa11y(1) the assessees were carrying on the business of selling
goods manufactured by them and for the purpose of manufacturing those goods certain other goods were purchased and consumed in the process of manufacture, but here the goods are not
consumed in producing another commodity for sale, and on that
account the two cases are distinguishable. The answer to that
argument must be sought in the terms of s. 7. The phraseology
used in that section is somewhat involved, but the meaning of the
section is fairly plain. Where no sales tax is payable under s. 6
on the sale price of the goods, purchase-tax is
payable by a
dealer who buys taxable goods in the course of his business, and
( 1) either consumes such goods in the manufacture of other
goods for sale, or (2) consumes such goods otherwise; or (3)
disposes of such goods in any manner other than by way of sale
in the State; or ( 4) despatches them to a place outside the State
except as a direct result of sale or purchase in the course of inter -
State trade or commerce. The assessees are registered as dealers
and they have purchased building materials in the course of their
business: the building materials are taxable under the Act, and
the appellants have consumed the materials otherwise than in the
manufacture of goods for sale and for a profit-motive. On the
plain words of s. 7 the purchase price is taxable.
Mr. Chagla for the appellants urged that the expression "or
otherwise" is intended to denote a conjunctive introducing a specific alternative to the words for sale immediately preceding. The
clause in which it occurs means, says Mr. Chagla, that bv s. 7
the price paid for buying goods. consumed in the manufacture
of other goods, intended to be sold or otherwise disposed of,
(I) 14 S.T.C. 753.
(2) 15 S.T.C.644.
496
SUPREME COURT REPORTS
[1969] 3 S.C.R.
alone is taxable. We do not think that that is a reasonable interpretation of the expression "either consumes such gooCls in the
manufacture of other goods for sale or otherwise". lt is intended
by the Legislature . lhat consumption of goods renders the price
paid for their purchase taxable, if the goods are used in the
manufacture of other goods for sale or if the goods are consumed
otherwise.
The decision in Versova Kali Sahakari Vahatuk Sangh Ltd. v.
The State of Maharashtra(') on which reliance was placed by
Mr. Chagla has, in our judgment, no application. In that case
a society registered under the Bombay Co-operative Societies Act,
1925, carried on the business of transporting fish belonging to its
members from fishing centres to the markets and vice versa. For
preserving fish in the course of transport, the society used to purchase ice, and the members, whose fish was transported, were
charged for the quantity of ice required in respect of their baskets
of fish.
The difference between the price paid by the society for
ice pu.rchased and the charge made by the society for ice supplied
was brought to tax by the Sales Tax Officer under the Bombay
Sales Tax Act, 1959. The High Court of Bombay held that the
society was not supplying ice with the intention of carrying on
business in: ice, and on that account the society was not a "dealer"
within the definition of that term in s. 2 (11 ) of the Act in regard
to the supply of ice by it to its members. In that case the taxing
authority did not seek to impose purchase-tax : he sought to
bring to tax the difference between the price paid by the society
for purchasing ice and the charges which it made from its members for supplying ice, and the High Court held that in supplying
ice the society was not carrying on business in ice, and on that
account was not a "dealer". Whether in a particular set of circumstances a person may be said to be carrying on business in a
commodity must depend upon the facts of that case and no
general test may be applied for determining that question.
The appeals fail and are dismissed with costs.
One hearing
fee.
V.P.S.
Appeals dismissed.
(I) 22 S.T.C. 116,
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