Shah, J. - (1.) The respondents who are registered as dealers under the Hyderabad General Sales Tax Act, 1950 carry on the business of tanning hides and skins and of selling the tanned skins in the town of Hydarabad. For the purposes of their business the respondents purchase undressed hides and skins and also tanning bark and other materials required in their tannery. For the assessment year 1954-55 the Sales-tax Officer, Circle lV, Hyderabad, found that the total turnover of the respondents was Rs, 5,70,417l2-4 (O.S.) in respect of the hides, skins, wool and tanning bark. The respondents disputed their liability to pay tax on Rs.61,431-14-9 (O.S.) included in the turnover contending that this amount represented the price paid for buying tanning bark required in their tannery.T hey submitted that tanning bark was bought for consumption in the tannery and not for sale, and they were accordingly not dealers in tanning bark and therefore the price paid for buying tanning bark was not liable to duty under the Hyderabad General Sales Tax Act. The Sales-tax Officer rejected the contention of the respondents, and his order was confirmed in appeal by the Deputy Commissioner, C. T. Hyderabad Division and also by the Sales Tax Appellate Tribunal, Hyderabad. But the High Court of Andhra Pradesh in a petition under S.22(1) read with rule 40 framed under the Andhra Pradesh General Sales Tax Act VII of 1957 modified the order passed by the taxing authorities and excluded from the computation of the taxable turnover the price paid by the respondents for the tanning bark used in the tannery. With special leave, the State of Andhra Pradesh has appealed to this Court.
(2.) Section 2 (e) of the Hyderabad General Sales Tax Act defines "dealer" as meaning any person, local authority, company, firm, Hindu undivided family or any association or associations of persons engaged in the business of buying, selling or supplying goods in the Hyderabad State whether or a commission, remuneration or otherwise and includes a State Government which carries on such business and any society, club or association which buys or sells or Supplies goods to its members. Section 2(m) defines "turnover" as meaning an aggregate amount for which goods are either bought by, or sold by a dealer, whether for a cash or for deferred payment or other Valuable consideration. By S. 4 a tax at the rate of three pies in the rupee in I. G. currency on so much of the turnover for the year as is attributable to transactions in goods other than exempted goods is imposed. Rule 5(1) provides that save us provided in sub-rule (2) the turnover of a dealer for the purpose of the rules shall be the amounts for which goods are sold by the dealer. Rule 5(2) provides that in the case of certain commodities the turnover of a dealer for the purposc of the rules shall be the amounts for which goods are bought by the dealer. Those commodities are: (a) Groundnut (shelled or unshelled) (b) Bidi leaves. (c) Tarwar and other tanning barks. (d) Til, Karad and castor seeds. (e) Cotton including kappas. (f) Linseed, turmeric, dhania and other agricultural produce including all kinds of dals and paddy (husked or unhusked) not otherwise exempted under the said Act, but excluding cotton seed, sugarcane, tea and coffee seeds. (g) Hides and skins. (h) Wool, bones and horns.
(3.) The High Court of Andhra Pradesh rejected the claim of the taxing authorities to tax the tanning bark bought by the respondents on the ground that a purchaser is liable to pay tax under Rule 5(2) only when he is carrying on business of buying and selling a commodity specified in the sub-rule (2) and not when he buys it for consumption in a process for manufacturing an article to be sold by him. Therefore, in the view of the High Court if a dealer buys any commodity included in Rule 5(2) for consumption in his business but not for sale he is not to be regarded as engaged in the business of buying, selling or supplying that commodity and the price paid for buying the commodity is not liable or tax.;