Business use of purchased inputs can attract turnover tax where materials form part of integrated manufacturing activity.

The Madras HC considered whether purchase turnover of tanning materials used in processing hides and skins was taxable as part of the dealer's business, even though the materials were not sold as such. It held that "carries on business" bears a commercial sense and covers integrated activity undertaken with profit motive. Because the tanning materials were bought as ingredients in the process of converting raw hides into finished goods for sale, their purchase was part of the assessee's business and not a detached act of consumption. The assessees were therefore liable to assessment on the purchase turnover, and the claim that they were not dealers in those materials was rejected.

---

---

Issues: Whether the purchase turnover of tanning materials used by a dealer in hides and skins was liable to tax as a transaction carried on in the course of the dealer's business, even though the materials were not sold as such.

Analysis: The relevant scheme treated a person as a dealer if he carried on the business of buying, selling, supplying or distributing goods, and the expression "carries on business" was understood in a commercial sense involving profit motive. The purchase of tanning materials was not a detached act of consumption, but part of the integrated business of purchasing raw hides, tanning them, and selling the finished product. The fact that the purchased materials were consumed in the production process did not exclude the purchase from the business of the assessee. The definitions of dealer and goods, read together, supported the view that where purchased materials are used as ingredients in goods ultimately sold, the purchase itself is in the course of business.

Conclusion: The assessees were liable to be assessed on the purchase turnover of the tanning materials, and the contention that they were not dealers in those materials was rejected.

---