JUDGMENT
Madon, J.
1. The question which has been submitted to us for our determination in this reference under section 61(1) of the Bombay Sales Tax Act, 1959, made at the instance of the Commissioner of Sales Tax is :
“Whether, on the facts and in the circumstances of this case, the Tribunal erred in holding that the sale of positive film, 50,000 feet in length, effected by the respondents to their customer on 3rd August, 1971, for Rs. 8,868 was not in the course of the business of the respondents ?”
2. The respondents are a public limited company carrying on the business of processing films and taking prints on raw or unexposed positive film supplied by their customers who are movie producers. For this purpose, the respondents own and conduct a cine laboratory. The respondents also own a film studio which they hire out to movie producers. The respondents had applied to the Commissioner of Sales Tax under section 52 of the said Act inter alia to determine the question whether they were dealers and, if so, whether they were manufacturers within the meaning of that expression as defined in section 2(17) of the said Act. The Deputy Commissioner of Sales Tax, who heard the said application, held that the respondents were dealers and manufacturers. Thereupon the respondents were registered as dealers under the said Act. The matter ultimately came before us and in Famous Cine Laboratory and Studio Ltd. v. State of Maharashtra ([1975] 36 S.T.C. 104.), we held that the respondents were not dealers in respect of the purchases of materials made by them for the maintenance of their studio or for making film sets which remained their own property which they hired out. We further held that in purchasing chemicals and other processing materials in order to process the films of their customers the respondents were carrying on the business of buying goods and were, therefore, dealers within the meaning of that expression as defined in section 2(11) of the said Act.
3. The respondents process their customers’ movie films on unexposed positive film supplied to them by their customers. For the purpose of processing such films, the respondents demand from their customers an extra length of five per cent. of unexposed positive film for the purposes of threading the film, wastage and reprints necessary for making and processing rushed and released prints. In some cases, it happens that after a film is processed, some portion of the additional length of five per cent. which the respondents have taken from their customers remains with them. In other cases, it happens that the additional length required over and above the length of unexposed positive film required for processing and printing movie films is more than the additional five per cent. taken by the respondents from their customers. In such a case, the respondents make good the deficit from the portions of the extra length left over with them from the processing of other movie films. Under the terms of their agreements with the movie film producers, the respondents do not give separate account in respect of this extra five per cent. of unexposed positive film taken by them nor do they return any part, in case any portion is saved, to the producers who have delivered it to them. The portions of extra length which have not been ultilised remain with the respondents and on 3rd August, 1971, such additional portions, aggregating to 50,000 feet in length, were sold by the respondents to Messrs. Bhagyodaya, Chitra for a sum of Rs. 8,868. By an application dated 20th November, 1971, made under section 52(1) of the Bombay Sales Tax Act, 1959, the respondents applied to the Commissioner of Sales Tax to determine the question whether the aforesaid transaction was a sale within the meaning of section 2(28) of the said Act. The matter was heard by the Deputy Commissioner of Sales Tax. On a misreading of the judgment of the Supreme Court in the case of State of Gujarat v. Raipur Manufacturing Co. Ltd. , the Deputy Commissioner held that this transaction was one made by the respondents in the course of their business of buying and selling goods as a dealer and was not a casual sale. He further directed that this decision would have effect from the date of the said decision of the Supreme Court. The respondents filed an appeal to the Tribunal against this decision of the Deputy Commissioner. The Tribunal, on a correct application of the ratio of the said Supreme Court decision, allowed the appeal and held that the said transaction of sale was a casual sale and was not one made by the respondents in the course of their business. It is from this judgment of the Tribunal that the question which we have set out earlier has been referred to us.
4. Since both Deputy Commissioner and the Tribunal have decided the matter on the basis of the said decision of the Supreme Court, we would first turn to this decision before dealing with the arguments advanced at the Bar. State of Gujarat v. Raipur Manufacturing Co. Ltd. , referred to earlier, was a case under the Bombay Sales Tax Act, 1953. The definition of “dealer” as given in the said Act is in pari materia with the definition given in the Bombay Sales Tax Act, 1959. In that case, the respondent-company carried on the business of manufacturing and selling cotton textiles. In the accounting year 1953-54, the respondent-company, besides selling cloth, also sold coal and 25 different items of discarded or unserviceable goods and waste products from their factory. These goods feel under three heads : (1) old containers such as cans, boxes, etc., discarded stores, machinery and iron scrap; miscellaneous discarded items such as cotton ropes, chindis (rags), etc., (2) kolsi (that is, cinders) and waste caustic liquor and (3) coal. The sales tax authorities sought to assess the turnover of sales of all the above items. On appeal, the Sales Tax Tribunal confirmed the orders of the sales tax authorities. At the instance of the respondent-company a case was stated and the matter referred to the Gujarat High Court. The High Court decided the reference in favour of the respondent-company. The State of Gujarat appealed to the Supreme Court. The Supreme Court held that none of the sales made by the respondent-company were taxable, except sales of kolsi and waste caustic liquor. The Supreme Court pointed out that in order to be a dealer within the meaning of that term as defined in the Bombay Sales Tax Act, 1953, which, as mentioned earlier, is in pari materia with the definition in the Act with which we are concerned, a person must carry on the business of selling those goods the price of which is sought to be included in the turnover, that is to say, he must carry on the business of selling a commodity before his turnover from sale of that commodity is taxable. The Supreme Court observed :
“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. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression ‘profit-motive’, it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity ……. But where a person comes to own in the course of his business of manufacturing or selling a commodity, some other commodity which is not a by-product or a sub-sidiary product of that business and he sells that commodity, cogent evidence that he has intention to carry on business of selling that commodity would be required. Where a person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise.”
5. The Supreme Court further observed that the mere sale of a commodity which a dealer was required to do for the purpose of his business and which had been purchased for use in that business would not justify an inference that the business of selling that commodity was intended, unless there was circumstances existing at the time when the commodity was purchased or which had come into existence later which established such an intention. The Supreme Court further held that the burden of proving that the dealer was carrying on the business of selling the commodity in question lay upon the sales tax authorities. During the course of the judgment, the Supreme court referred to some decisions given by different High Courts with approval. One of them was Commissioner of Sales Tax, Madhya Pradesh, Indore v. Ram Dulare Balkishan and Bros. ([1963] 14 S.T.C. 202.) In that case, the assessees carried on the business of providing transport and operating buses. They sold unserviceable cars, trucks, tyres and other used motor accessories to various persons. The question was whether the assessees were a “dealer” in respect of these sales and were liable to pay sales tax. The Madhya Pradesh High Court held that :
“An activity though continuous, serious and large cannot assume the characteristics of a business unless it is an activity coming within the definition of ‘dealer’ given in the Act (that is, the C.P. and Berar Sales Tax Act, 1947) …… The true test is not whether the selling activity is continuous or repeated but whether the carrying on of continuous operations is with a view to earn profit.”
6. Applying the principles laid down by it, the Supreme Court held that though the sales of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags, etc., were frequent and the volume was large, it could not be presumed that when these goods were acquired there was an intention to carry on the business in those discarded materials nor were these discarded goods, by-products or subsidiary products of, or arising in, the course of manufacturing process. The Supreme Court observed that these goods were either fixed assets of the respondent-company or were goods which were incidental to the acquisition or use of stores or commodities consumed in the factory. The Supreme Court held that in order that receipts from sale of a commodity may be included in the taxable turnover, it must be established that the assessee was carrying on business in that particular commodity and, to prove that fact, it must be established that the assessee had an intention to carry on business in that commodity. The Supreme Court further held that a person who sold goods which were unserviceable or unsuitable for his business did not, on that account, become a dealer in those goods, unless he had an intention to carry on the business of selling those goods. So far as sales of kolsi was concerned, the Supreme Court held that kolsi could be appropriately regarded as a subsidiary product in the course of manufacture. It further held that the principle laid down by the Bombay High Court in Aryodaya Spinning and Weaving Company Limited v. State of Bombay ([1960] 11 S.T.C. 141.) applied to the sales of kolsi in the case before it. In the Bombay case ([1960] 11 S.T.C. 141.), the textile manufacturing company, which carried on the business of manufacture of cloth and yarn, produced cotton waste in the course of such manufacture. The cotton waste which was not required for use in the factory wa disposed of regularly. Cotton waste was regarded by the Bombay High Court as a subsidiary product or incident of the business of the assessee. So far as the sales of waste caustic liquor were concerned, the Supreme Court held that sales of this product could also be regarded as a by-product or a subsidiary product in the course of manufacture and the sale thereof was incidental to the business of the respondent-company. So far as the sales of coal were concerned, the Supreme Court observed that merely because coal of the value exceeding Rs. 16,000 was sold would not by itself make the respondent-company a dealer carrying on business in coal. It further pointed out that there was no evidence on the record of the total quantity of the coal purchased by the respondent-company nor of the percentage thereof which was sold and that no investigation had been made as to the circumstances in which such coal was sold. The Supreme Court further observed that the sales tax authorities had come to the conclusion that these were sales made in the course of business merely because of the frequency and volume of the sales and that this inference drawn by the sales tax authorities could not be sustained.
7. Mr. Dhanuka, learned counsel for the applicant, before us has strongly relied upon the decision of the Bombay High Court in Aryodaya Spinning and Weaving Company Limited v. State of Bombay ([1960] 11 S.T.C. 141.). Mr. Dhanuka submitted that this case had been approved by the Supreme Court in Raipur Manufacturing Co.’s case and that the instant case fell squarely within the ratio of that case. It is undoubtedly true that this case was approved by the Supreme Court in Raipur Manufacturing Co.’s case , but the second part of Mr. Dhanuka’s submission is not correct. The Supreme Court, while approving this decision, has pointed out that cotton waste was a subsidiary product or incident of the business of the assessee. It is not possible to equate the excess length of unexposed positive film, which is not ultilised in the process of processing and printing films, as a by-product. Unexposed positive film is really one of the raw materials for processing and printing films. If the respondents were themselves purchasing unexposed positive film and storing it for the purpose of processing and printing the movie films made by their customers, the stock of raw films so purchased by them would be the stock of raw materials and when they sell those parts of unexposed positive film they would really be disposing of discarded stores and stores not required by them. Thus, on the principles laid down in Raipur Manufacturing Co’s. case , this would not be sales made in the course of their business of processing and printing films.
8. Mr. Dhanuka next relied upon another decision of this High Court, namely, A. Ebrahim and Company v. State of Bombay ([1962] 13 S.T.C. 877.). In that case, the assessees, who were doing wholesale and retail business selling separated parts of ship machinery and ferrous and non-ferrous metals, purchased a ship from an Indian company, reserving an option to themselves of either using the ship for trading or breaking and selling its separated parts. The assessees then entered into an agreement with a Costa Rica Company to sell the ship to that company. Under the agreement the purchasers were at liberty to use the vessel for trading or for breaking up at their option. The High Court held that the test was to consider whether the sale had any reasonable connection with the normal course of the business of the assessees and whether the intention of the assessees was to effect the sale in the course of their business. The High Court pointed out that the circumstances clearly indicated that the assessees had purchased the ship in the course of their usual business activity of purchasing ships, breaking them up and selling separated parts thereof, though, in the case before it, an option was also reserved by the assessees to use the ship for trading purposes and that the circumstances further showed that soon after the purchase of the said ship the assessees found a purchaser who possibly was in need of separated parts of the ship and, therefore, instead of breaking up the ship and selling separated parts the assessees had sold the entire ship to the Costa Rice Company, giving it an option to break it up. The High Court held that in view of these circumstances the activity of the assessees in selling the ship to the Costa Rice Company had a very close connection with and akin to the normal course of business of the assessees and was, therefore, in the course of their business activity and the sale proceeds were, therefore, liable to be included in the assessees’ turnover of sales. We fail to see how this authority helps the applicant before us.
9. It is an admitted position that it is not the business of the respondents to purchase unexposed positive film and sell it. In fact, they do not even purchase unexposed positive film for the purpose of processing and printing their customers’ films but only process and print the films of their customers when their customers supply them with unexposed positive film for this purpose. Disposal by sale of such portions of unexposed positive film given to them by their customers which had remained unutilised with the respondents cannot, therefore, be said to have a close connection or be akin to the normal course of the business of the respondents. It should also be borne in mind that the case of A. Ebrahim an Company ([1962] 13 S.T.C. 877.) was decided before the Supreme Court delivered its judgment in Raipur Manufacturing Co.’s case . However, as that case is distinguishable on its facts from the case before us, we have not thought it necessary to consider the question how far the decision of our High Court in A. Ebrahim and Company’s case ([1962] 13 S.T.C. 877.).) can be said to be good law after the aforementioned decision of the Supreme Court.
10. Mr. Dhanuka then relied upon a decision of the Andhra Pradesh High Court in State of Andhra Pradesh v. Gannon Dunkerley and Co., Madras (Private) Ltd. ([1965] 16 S.T.C. 120.) In that case, the assessee carried on the business of construction of buildings, bridges, etc. they sold materials such as cement, casuarina poles and hardware goods which were left over after completion of the construction and collected sales tax from their purchasers. They contended that these sales were not made by them as dealers. The Andhra Pradesh High Court held that the tests for inclusion of sales in the taxable turnover were whether the sales effected were connected with the nature of the business carried on by the assessees and whether the entire course of business activity of the assessees was intended to be engaged in with a profit-motive. The court found on the facts that these tests were satisfied in the case before it. With respect to the Andhra Pradesh High Court we must point out that the tests as enunciated by it run counter to the tests laid down by the Supreme Court in the case of State of Gujarat v. Raipur Manufacturing Co. Ltd. We are bound by the decision of the Supreme Court. Since a decision of another High Court is a persuasive authority, no doubt entitled to respect, in view of the clear pronouncement of the Supreme Court, we do not find it necessary to discuss this case further or to consider it in any detail or to give any definite finding that it is no longer good law.
11. Mr. Dhanuka next submitted that in the present case there was cogent evidence to show the intention of the assessees. According to Mr. Dhanuka, the Deputy Commissioner of Sales Tax had investigated and ascertained that in the year 1968-69 the assessees had effected four such transactions of sale aggregating to Rs. 21,092.29, in the year 1969-70 they had effected eleven such transactions for an aggregate sum of Rs. 81,148.90 and in the year 1970-71 they had effected five such transactions, including the transaction in question, for an aggregate sum of Rs. 10,261.39. According to Mr. Dhanuka, this showed that sales of this were constant, frequent and large in number and were clear evidence of the intention of the respondents to carry on the business of selling for profit the unutilised portions of unexposed positive film given to them by their customers. We are, however, unable to accept this submission of Mr. Dhanuka. All that the Deputy Commissioner has ascertained is the number of such transactions effected by the respondents in the year in question and the preceding two years. He has not ascertained the total length of unexposed positive film given to the respondents by their customers nor has he ascertained the percentage which the length of film disposed of by the respondents bear to the length of film actually supplied by the different customers of the assessees. It is pertinent to note that the respondents do not themselves purchase unexposed positive film. It is equally pertinent to bear in mind that they are given five per cent. extra length of films by movie film producers because the parties know that in the course of processing and printing and for the purpose of taking out rushed and released prints a certain extra length was required as also certain amount of wastage must necessarily occur.
12. The facts, therefore, clearly show that there was no intention on the part of the respondents, while taking this extra length, to sell such extra length. The intention was to protect themselves against wastage and against contingencies requiring additional portion of unexposed positive film. The facts on the record also clearly show that sometimes the additional length which is required exceeds the five per cent. which the respondents take from their customers. The few transactions that have taken place in the course of these three years can hardly be dignified with the adjectives “continuous”, “frequent” and “repeated” and, even were they so, the Supreme Court in Raipur Manufacturing Co.’s case has clearly held that because sales of this type were frequent and the volume was large, it cannot be presumed that there was an intention to carry on business in those discarded materials.
13. In this connection, we may usefully refer to another decision of the Supreme court to which our attention was invited by Mr. Shah, learned counsel for the respondents, namely, State of Gujarat v. Vivekanand Mills ([1967] 19 S.T.C. 103 (S.C.).). In that case, the respondent-mills were carrying on the business of manufacturing cotton fabrics. They agreed to purchase under their user’s import licence 500 bales of Californian cotton in January, 1953. Believing that the shipment would arrive after six months, the respondent-mills made arrangements to purchase 300 bales of similar cotton to meet their immediate requirements. The consignment of Californian cotton arrived unexpectedly in April, 1953, and the respondent-mills had to take delivery thereof. Thus a large sum of money belonging to the respondent-mills was blocked up and, with the sanction of the authorities, the respondent-mills sold 411 bales out of this consignment to other mills in two lots on May 31, 1953. It was held by the Supreme Court that in selling these bales with a view to avoid locking up of their funds, it could not inferred that the respondent-mills had sold that goods with the intention to carry on the business of selling cotton and the sales were, therefore, not liable to be taxed.
14. In the result, we answer the question submitted to us in the negative. The applicant will pay to the respondents the costs of this reference.
15. Reference answered in the negative.
