STATE OF GUJARAT versus M/S. RAIPUR MANUFACTURING COMPANY LTD.

Citation: [1967] 1 S.C.R. 618 · Decided: 30-09-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Case Partly allowed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

STATE OF GUJARAT 
A 
,. 
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 manufac-
turing 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 in-
directly 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 in-
ferred 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 commo-
dity, 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 aris-
ing 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 prov-
inp 1h;11 the Company was carrying on tbl"- businrs.t; 
of selliDR coal Ja) 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
' 
G 
B 
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 Sales-
tax Reference No. 3 of 1962. 
N. S. Bindra and R. H. Dhebar, for th

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