1. Sale of rubber sheets produced from latex grown on own lands — Determination of status as dealer under Section 2(b), Central Sales Tax Act, 1956. (Para 1 )
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1967 Supreme(SC) 127
IN THE SUPREME COURT OF INDIA
J.C. Shah, S.M. Sikri, V. Ramaswami-i, JJ.
DEPUTY COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX, QUILON
Versus
TRAVANCORE RUBBER AND TEA CO.
Tax Revision Case No. 49 of 1963, Civil Appeal No. 753 of 1965
Decided On: Decided On : 10-04-1967
Advocates Appeared:
Dr. V.A. Seyid Muhammed, Advocate-General for the State of Kerala (A.G. Pudissery and M.R. Krishna Pillai with him), for the appellant
S.T. Desai, Senior Advocate, (J. Joseph and B. Dutta and O.C. Mathur of J.B. Dadachanji & Co. with him), for the respondent.
Dr. V.A. Seyid Muhammed, Advocate-General for the State of Kerala (A.G. Pudissery and M.R. Krishna Pillai with him), for the appellant
S.T. Desai, Senior Advocate, (J. Joseph and B. Dutta and O.C. Mathur of J.B. Dadachanji & Co. with him), for the respondent.
An agriculturist selling their own produce, after minimum processing for transport and marketing, is not a 'dealer' under the Central Sales Tax Act unless the taxing authority proves a primary intention to carry on a business of selling, distinct from agricultural operations.
Headnote:(A) Central Sales Tax Act, 1956 - Section 2(b) - Definition of 'Dealer' - A person who carries on the business of buying and selling goods is a dealer. To be considered as carrying on a 'business', there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive, characterized by volume, frequency, continuity, and regularity. The mere sale of agricultural produce grown by the person, even after subjecting it to minimum requirements necessary for transport and marketing, does not necessarily constitute the person as a dealer. Such sale is the culmination of agricultural operations and not a separate and distinct business of selling.
(B) Burden of Proof - The burden of proving that a person is carrying on a business of selling goods lies upon the taxing authorities. An inference of carrying on business cannot be sustained merely based on the frequency and volume of sales without further investigation into the intention, the organization set up for selling, and other relevant facts.
Facts of the case:
An entity grows rubber trees, converts the tapped latex into sheets—a process essential for transport and marketing—and sells these sheets to customers. The taxing authority sought to classify the entity as a 'dealer' under the relevant sales tax legislation based on these transactions.
Findings of Court:
The court found that the department failed to discharge the onus of proving that the entity was engaged in the business of selling. The conversion of latex to sheets was deemed a necessary step for marketing the produce rather than a manufacturing process that would transform the activity into a business of selling.
Issues: Whether a person who regularly sells rubber sheets produced by the conversion of latex obtained from trees grown on their own lands is a 'dealer' under Section 2(b) of the Central Sales Tax Act, 1956, and whether such sales constitute a business carried on by them.
Ratio Decidendi: An agriculturist selling their own produce, after performing minimum processing necessary for transport and marketing, is not a 'dealer' because the sale is an extension of agricultural operations. To be a 'dealer', the person must be engaged in the business of selling, which requires evidence of a profit-motive and a systematic course of dealings distinct from the primary agricultural activity.
Result: Appeal dismissed.
Legal Category Hierarchy
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tax law
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sales tax
- dealer definition
- agricultural produce
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sales tax
Table of Contents
JUDGMENT
SIKRI, J.
This appeal by special leave is directed against the judgment of the Kerala High Court in Tax Revision Petition No. 49 of 1963, dismissing the revision filed by the Deputy Commissioner, Agricultural Income-tax and Sales Tax, Quilon. The High Court held that the respondent, Travancore Rubber and Tea Co., hereinafter referred to as the assessee, was not a "dealer" within section 2(b) of the Central Sales Tax Act, 1956.
The facts on record are scanty. In the assessment order in respect of the assessment year 1960-61, with which we are concerned, the Sales Tax Officer, Special Circle, Alleppey, determined the turnover of the assessee at Rs. 6,14,713.92, but did not discuss the question whether the assessee was a "dealer" or not within the Central Sales Tax Act. The Additional Appellate Assistant Commissioner of Agricultural Income-tax and Sales Tax, in the appeal filed by the assessee, dealt with the point raised by the assessee that it was not a dealer, as follows :
"My reading of the relevant definitions under the Act and the records and the rules issued thereon leads me to the conclusion that the officer has perfectly considered the aspect and the appellant is a 'dealer' as defined in the Act and the sale effected by him is liable for tax."
The Full Tribunal in the second appeal framed the question for consideration as follows :
"Whether on the admitted facts of the case, namely, the appellants only selling rubber sheets produced by conversion of latex obtained from trees grown on lands belonging to them, they could be held to be dealer within definition in the Act ?"
The Tribunal, following the decision of the Kerala High Court in Muhammed v. Stales Tax Officer, Kozhikode ([1962] 13 S.T.C. 54), held that the assessee was not a "dealer". It observed :
"Now the definition in the Central Sales Tax Act is the same as the definition in the General Sales Tax Act as it was before the amendment. It would follow therefore that applying the principles laid down in the decision quoted above the definition in the Central Sales Tax Act being what it is, the appellant cannot be held to be a dealer liable to be taxed. In this view we hold that the appellant is not liable to be taxed in respect of the sale by him of rubber sheets produced by conversion of latex collected from rubber trees grown by him."
We may mention that the Kerala High Court in the above case had held that "the mere sale by a person of rubber sheets produced by conversion of latex collected from rubber trees grown by him is not sufficient to constitute him a dealer."
But the learned Judge, S. Velu Pillai, J., went on to observe :
"But if, for example, in addition to rubber produced by trees grown by him, he collects or buys latex or rubber sheets from other growers or suppliers and sells them, he may be said to engage himself in the business of selling, depending on the nature of such activity; in other words, in addition to being an agriculturist, using that term in its wide and generic sense, and not as one growing what is agricultural produce as defined in the Act, he can be a dealer, as envisaged by the proviso above referred to, in the same commodity, but this is a question of fact."
The only facts mentioned in the judgment of the High Court are as follows :
(1) All that the company does is to convert the latex tapped from its rubber trees into sheets and effect a sale of those sheets to its customers;
(2) Latex is an opaque liquid resembling milk; the usual method of selling it is after converting it into sheets, and that the conversion is not manufacturing process but a process essential for the transport and marketing of the produce concerned.
On these facts, the High Court held as follows :
"We take the view that an agriculturist selling his own produce either as gathered or after subjecting it to the minimum requirements necessary for transport and marketing cannot be considered to be a person engaged in the business of selling. The sale whic
