TaxTMI 
TaxTMI 
1966 (10) TMI 101
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....section 2(6) of the Bombay Sales Tax Act, 1953, and whether the sale of 411 bales of Californian cotton effected by them during the assessment year 1953-54 can be included in their total turnover and be charged to sales tax. The petitioners are manufacturers of cotton textile goods and for the purpose of conducting their aforesaid business, they have necessarily to purchase cotton from time to time. During the year 1953-54, the petitioners purchased cotton of the value of Rs. 47,75,769 and out of the cotton so purchased, they sold 411 bales of Californian cotton for Rs. 3,89,445 in two lots on the 31st of May, 1953, to the Khatau Mills Ltd., and the Edward Textile Mills Ltd. The price paid by the petitioners for these 411 bales was Rs. 3,91,433, whereas the price realised by them as a result of the said two sales came, as aforesaid, to Rs. 3,89,445, resulting actually in the loss of Rs. 1,988. The Sales Tax Officer included these two sales in the turnover of the petitioners and charged sales tax thereon. Aggrieved by this order, the petitioners first went in appeal before the Assistant Collector and thereafter in revision before the Additional Collector and in second revision....
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....s of Association of the company provided that the company had power to buy and sell cotton-seeds, cotton etc. The Tribunal at the same time observed that though a large number of objects are usually mentioned in the Memorandum of Association of companies, all such objects are not necessarily implemented or realised. However, the Tribunal was of the view that there had always been a possibility of surplus cotton having to be sold and that as the imported Californian cotton in question could not be used in the mills, that cotton should be treated as surplus cotton liable to be sold. According to the Tribunal, this possibility must have been present in the mind of the petitioners from the beginning and though occasions for such sales had not been numerous "it can be said that when the necessity or the occasion has arisen, the applicants have been selling cotton as a matter of business, with the expectation either of profit or the avoidance of loss, and not with any idea or motive suggesting that the transactions were not of the nature of a business." The question that falls for our determination is whether the petitioners can be said to be dealers in cotton, that is to say, whether....
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....m America. They, therefore, entered into a contract with Gopal Mills Co. Ltd., on the 31st of January, 1953, for the purchase of 300 bales of the same type of cotton. To their surprise, the indented goods arrived much earlier than was expected, namely, on the 8th of April, 1953. It was in these circumstances that there was a surplus of cotton and consequently, they had to look out for a buyer to purchase the aforesaid surplus cotton. Since the indented goods were to arrive at Bombay, they entered into contracts of sale with Bombay purchasers in order to save such expenses as freight etc. According to this letter, these sales had to be resorted to by them so that their investment may not unnecessarily be blocked up in surplus cotton. They also made it clear that they had purchased the cotton in question under an user's import licence which clearly indicated that the purchase made by them of this cotton was not with any intention to trade in the indented cotton or to sell it as and when there was a possibility of their making any profit. It is fairly clear from the supplemental statement of the case that though the petitioners have been selling cotton from the year 1946 onwards, e....
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....r a dealer liable to be registered. Now, the fact that the Memorandum of Association of the petitioner-mills or article 87 of the Articles of Association, gave power to the petitioners to deal in cotton-seeds, cotton, silk, wool etc., does not mean, as the Tribunal itself has observed, that the petitioners have been dealing in those commodities and, therefore, that fact by itself would not be a determinative factor. Similarly, the fact that the petitioners have effected sales of cotton during the years prior to the assessment year, though an indication, is not a conclusive criterion, as the determination of the question before us depends upon the cumulative effect of the facts and circumstances due to which the sales were effected by the petitioners. As we have held in our main judgment in Reference No. 34 of 1963 in the case of Ambica Mills Ltd. v. State of Gujarat(1), frequency and volume of sales, though a relevant factor, do not amount to a conclusive factor. The Tribunal however has held that there was always a possibility of there being surplus cotton which the petitioners had had to sell and that this possibility must have been present in the mind of the petitioners an....
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....rofit or for the purpose of avoiding loss, that is to say, loss in the business of manufacturing textile goods. The facts in the case clearly disclose that the petitioners purchased the cotton for the purpose of using it in their business of manufacturing cotton textiles, that they sold the surplus cotton, not with the object of making profit, but because it was redundant, and if not sold, would mean unnecessarily blocking up of their finance which no businessman with any reasonable prudence would do. Merely because there was a possibility in a manufacturing business of there being some surplus of raw materials left over, even if coupled with the circumstance that the businessman was aware of such possibility, would not render the disposal of such surplus as part of or incidental to his business. If such a conclusion were to be arrived at, it would make a manufacturing business almost impossible, or in any event, extremely difficult, for, no manufacturer can ever anticipate the exact and precise quantity of raw materials, such as cotton in this case, which he would require during a particular period, and there is therefore bound to be some surplus left over or likely to be left ove....
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....o be taxed." In July, 1959, the High Court called for a supplementary statement of the case from the Tribunal observing: "The statement of facts does not indicate whether the assessee was as an incident of its normal business disposing of cotton purchased by it, nor does it indicate whether the sale of cotton in question was one of many such transactions in the course of its business. If the sale of 411 bales of Californian cotton was a casual transaction, not as an incident of the business of the assessee, but because the cotton was regarded as unsuitable for manufacturing yarn or for some other similar reasons, it cannot be said that it became a part of the business activity of the assessee and made it a dealer in cotton." The Tribunal, thereafter, submitted a supplementary statement of the case which consisted substantially of the report submitted by the Deputy Commissioner of Sales Tax (Appeals), Gujarat State, which incorporated a letter from the respondents to that officer setting out the circumstances in which the sale was made. After the reorganisa- tion of the State of Bombay, the reference was transferred to the High Court of Gujarat. The High Court....
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....d to find customer in Bombay, and disposed of the cotton in Bombay after taking permission of the Textile Commissioner of the Government of India, without which permission no sales can be effected. We sold off our indented goods, as we did not intend to sell the bales purchased from Gopal Mills Ltd., because there would be some saving in freight; if we would bring the indented goods to Ahmedabad, and sell the cotton bales purchased from Gopal Mills and despatch them to Bombay, there would be an unnecessary expenditure for charges of freight etc. 5.. The sales had to be effected because, otherwise, our finance also would have been blocked up. 6.. Again, as we had purchased the goods sold under an user's import licence, there was definitely no intention to trade in the indented cotton. Hence, the sales cannot be imputed the character of having been effected in the course of our business." The cotton bales were agreed to be purchased under an user's import licence. The respondents believed when the order was placed with M/s. Ramdas Khimji Bros., Bombay, that the cotton bales would rearch India after about six months, and in the meanwhile to meet their immediate requirements a....