1. At the instance of the assessee-society, the following question has been referred to us for our opinion under section 69(1) of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as 'the Gujarat Act') :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant-society was a dealer within the meaning of section 2(10) of the Gujarat Sales Tax Act, 1969, and it was liable to pay sales tax on the sales of cotton-seeds effected by it
The facts leading to this reference are as under :
With a view to implement the scheme drawn by the Planning Commission of the Government of India for betterment of the quality of cotton by distribution and multiplication of hybrid quality of cotton-seeds, popularly known as 'Shanker-4' cotton, agricultural co-operative societies of cotton growers were recommended to be formed. Accordingly, the assessee-society was registered under the Bombay Co-operative Societies Act, 1925, inter alia, for the objects specified in clause 2 of its bye-laws all of which need not be referred to. The relevant objects material for purposes of this reference are as specified in clauses 2, 5 and 9. The said objects, when translated into English, read as under :
'2. To purchase, sell, take on hire, or for use, for the society, raw-goods, ready-goods, tools and machinery for the objects of the society, and to make necessary arrangement for godowns and sale centres for the said purpose.
5. To produce, multiply and sell Shanker-4 cotton-seeds for the use of the members of the society as well as non-members.
9. To obtain loans for production, multiplication and sale of the seeds, and for achieving the objects of the society.'
2. The scheme of distribution and multiplication of seeds is wholly a Government controlled one as found by the Tribunal from the following facts and circumstances :
(a) Only an agriculturist having a cotton producing agricultural land and desirous of producing Shanker-4 quality of cotton can be a member of the assessee-society.
(b) A list of such members is to be furnished to the Government by such producers' society so as to enable the authorities concerned to supply hybrid cotton-seeds at a price fixed by the Government having regard to the total area of cultivable lands of all the members.
(c) The entire work of cotton production from these seeds is strictly under the supervision of the Government experts who have to guide and supervise the production.
(d) On the production of cotton from such seeds, the society has to collect and keep kapas in separate lots so produced by each individual member.
(e) Each such separate lot is to be ginned as a result of which cotton and cotton-seeds would be separated and such separated cotton and cotton-seeds are to be separately kept and stored in the name of each individual members.
(f) The cotton-seeds are packed in small bags of one kilogram each bearing the name of each agriculturist-member from whose cotton the seeds are separated and collected.
(g) The cotton-seeds so obtained and packed are to be sold only to the members of the society or non-members as directed by the Government.
(h) The seal of the Government authorities has to be affixed on each such bags in which the seeds are packed.
(i) The supply of such cotton-seeds to the specified members, or non-members as above is also effected at a price fixed by the Government.
(j) The sale proceeds of such cotton-seeds are to be credited in the society's books to individual member's account to whom they belong.
3. The aforesaid facts constituted, in nutshell, the modus operandi of the Government scheme of production and multiplication of the hybrid Shanker-4 cotton-seeds with a view to achieve the betterment of the quality of cotton and to bring more land under cultivation of Shanker-4 cotton through the instrumentality of such producers' society. In the present reference, we are not concerned with the sale of cotton, but the dispute relates to the sale and supply of cotton-seeds. The relevant assessment periods with which we are concerned in this reference are from 1st July, 1970, to 22nd May, 1972, during which the applicant-society was not a registered dealer and from 23rd May, 1972, to 30th June, 1972, during which the assessee was a registered dealer. During these relevant periods, the State Government supplied cotton-seeds in question to the applicant-society for its members at Rs. 25 per kilogram. The assessee-society, while supplying the seeds to each of its members, collected Rs. 5 per kilogram in the nature of transport and other miscellaneous charges. Similarly, while selling cotton-seeds separated from the cotton produced by each member, the assessee-society recovered, besides the price of cotton-seeds, a sum of Rs. 5.90 per kilogram comprising of Rs. 2.90 per kilogram on account of expenses of grading, ginning and insurance, Rs. 2 per kilogram as supervision charges and Re. 1 per kilogram as administration and other expenses. In other words, the assessee-society, while distributing the seeds received from the Government, recovered Rs. 5 per kilogram from its members as transportation and other miscellaneous expenses, and similarly while selling the cotton-seeds separated from the cotton of each of the members, recovered Rs. 5.90 per kilogram as supervision and administrative charges and other expenses for ginning and grading. The aforesaid recovery by the society of Rs. 5 from its members at the time of distribution of cotton-seeds supplied by the Government and Re. 1 as administrative expenses while selling the cotton-seeds separated from the cotton of each of the members are shown in the books of the assessee-society as a commission received from the members. After defraying the expenses from the total amount of the recoveries, the surplus is treated as profit of the applicant-society. The agriculturist-members are entitled to interest bearing loans from the assessee-society. It appears that the Tribunal has not verified the figures of sales and purchases from the accounts from the years under reference which is obvious from the manner in which they have been incorporated in the statement of case bodily from the judgment. We have, therefore, tried to reproduce it in an intelligible manner to the best of our capacity. The annual report and the accounts of the assessee-society for the accounting year 1970-71 (1st June, 1970, to 30th June, 1971) shows the purchases of Shanker-4 quality seeds besides the purchases and sales of male and female seeds with the closing stock of Rs. 83,300 as on 30th June, 1971. Similarly the accounts for the year 1971-72 shows as under :
------------------------------------------------------------------------Nature of goods Year Purchases Sales Closing stock Rs. Rs. Rs. ------------------------------------------------------------------------ Male & female seeds 1971-72 195.00 1,342.50Shanker-4 seeds 1971-72 17,63,270.00 18,41,280.04 15,006.00Tissue bags 1971-72 1,25,116.00 1,19,524.00Male & female seeds 1972-73 2,270.00 3,109.00Shanker-4 seeds 1972-73 4,240.00 6,21,621.00Tissue bags 1972-73 4,725.00Medicines 1972-73 5,661.00Male & female seeds 1973-74 1,884.00 2,221.00Shanker-4 seeds 1973-74 1,888.00 2,28,005.00Tissue bags 1973-74Medicines 1973-74------------------------------------------------------------------------
In the course of inquiry by the concerned Sales Tax Officer, it was revealed that the assessee-society had not got itself registered though it was liable to pay tax under the Act having regard to the sales and purchases effected by it. The assessee-society, therefore, applied and obtained registration certificate with effect from 23rd May, 1972, and filed its returns for the period from 23rd May, 1972, to 30th June, 1972. The assessee-society contended before the Sales Tax Officer as well as before the Assistant Commissioner of Sales Tax (Appeals) that the society was formed to implement the scheme of the Government for betterment of the quality of cotton by distribution and multiplication of hybrid cotton seeds popularly known as 'Shanker-4 cotton', and if, in course of achieving that purpose, the society has undertaken certain activities of sales and purchases and recovered charges to meet with the administrative and other incidental expenses, it cannot be said to be carrying on business, and therefore, liable as a dealer to pay tax. This contention did not find favour with the Sales Tax Officer who assessed the assessee-society which assessment was confirmed by the Assistant Commissioner of Sales Tax while dismissing the appeal.
4. The assessee-society, therefore, carried the matter in second appeal before the Gujarat Sales Tax Tribunal. It was urged before the Tribunal on behalf of the assessee-society that at no stage of sale and supply the cotton-seeds received though all the transactions were routed through it. The assessee, therefore, could not have been treated as a dealer under the Gujarat Act. The Tribunal did not agree with this contention and confirmed the order of the sales tax authorities that the assessee-society was rightly held to be a dealer under the Gujarat Act. The Tribunal, however, removed the penalties imposed under section 45(2)(c) and section 45(6) of the Gujarat Act by the sale tax authority. It is in this backdrop that the question set out above has been referred to us for our opinion.
5. Mr. K. H. Kaji, the learned counsel, appearing for the assessee-society, advanced two main contentions. In the first place, he urged that on the true construction and effect of the objects of the assessee-society formed solely with a view to implement the Government scheme for betterment of the quality of cotton by distribution and multiplication of hybird seeds, and particularly in the context of the modus operandi of the scheme, the Tribunal committed an error of law in concluding that the assessee-society is a person who buys or sells goods in connection with its business with profit-motive, and therefore 'a dealer' under the Gujarat Act. Alternatively, it was urged that assuming that the assessee-society sold and purchased goods such as cotton-seeds, tissue bags, medicines, etc., in the course of its activities undertaken for implementing its objects, it cannot be said that it was carrying on some trade, commerce or adventure in the nature of trade or commerce since the activity in effect and substance was the mere service rendered to its members in the implementation of the Government scheme. In any case, it was urged, the assessee-society is not a dealer since it acts as an agent of its agriculturist-members who, through the society, sell exclusively the agricultural produce, namely, cotton including cotton-seeds, grown on their lands and cultivated by them personally.
6. Two points, therefore, arise in this reference : (i) Whether purely a service co-operative society can be said to carry on business merely because it sells and purchases in the course of its activity, and (ii) whether an agent is liable as a dealer when his principal is not, and, if the answer to the second question is in the affirmative, whether the assessee-society cannot be deemed to be a dealer since it claims to sell the cotton produced by its agriculturist-members on their own lands under their personal cultivation.
7. Before we proceed to deal with the contentions urged on behalf of the assessee-society, it should be stated at the outset that the definition in section 2 of the Gujarat Act in so far as it defines the terms 'dealer' as well as 'business' has made a material departure from those obtainable under the Bombay Sales Tax Act, 1959. Section 2(10) of the Gujarat Act defines the term 'dealer' in the following terms :
'2. (10) 'dealer' means any person who buys or sell goods in connection with his business; and includes Central Government, a State Government or any local authority and also any society, club or other association of persons which buys goods from or sells goods to its members or to other persons.
Exception I. - An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause;
Exception II. - A charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions for achieving its avowed objects, shall not be deemed to be a dealer within the meaning of this clause;
Exception III. - An individual who sells exclusively any fish or any sea-food caught by him personally or by any member of his family on account of or on behalf of such individual, shall not be deemed to be a dealer within the meaning of this clause.'
Section 2(4) of the Gujarat Act provides for the definition of the term 'business' which reads as under :
'2. (4) 'business' includes -
(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and
(ii) any transaction of buying, selling or supplying plant, machinery, raw material, processing materials, packing materials, empties, consumable stores, waste products, or such other goods, or waste or scrap of any or them which is ancillary or incidental to or resulting from such trade, commerce, manufacture, adventure or concern; but does not include any activity in the nature of mere service or profession.'
8. It should be recalled that exceptions II and III to the definition of 'dealer' in section 2(10) of the Gujarat Act were not there in the definition of the said term in the Bombay Act. The term 'Business' has been sought to be defined by the legislature for the first time in the Gujarat Act since there was no definition of the term 'business' in the preceding Acts on the subject, namely, Bombay Sales Tax Act, 1959, or the Bombay Sales tax Act, 1953. It should also be noted that the definition of the term 'business' in the Gujarat Act is substantially identical with that of the said terms in the Tamil Nadu General Sales tax Act, save and except to the extent of clear exclusion of any activity which may be, in the nature of mere service or profession. It should be emphasised that the attempt of the legislature of defining the term 'business' in the Gujarat Act is to neutralise the effect of the decisions of the Supreme Court in State of Gujarat v. Raipur .  19 STC 1 (SC) and in State of Gujarat v. Vivekanand Mills  19 STC 103 (SC), where the Supreme Court had ruled that whether a person carried on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of the transactions of purchase and sale in a class of goods ordinarily with a profit-motive, though it is not necessary that profit must, in fact, be earned. The learned counsel for the assessee-society has rested his case on the exclusion clause in the definition of the term 'business' and exception I to the definition of the term 'dealer' in the Gujarat Act. The neat points of law which, therefore, arise are : whether the activity of the assessee-society is in effect and substance of mere service, and assuming that the assessee-society is carrying on business, can it be held liable as a dealer since it is merely acting as an agent of its agriculturist-members, and therefore, its liability as an agent is co-extensive to that of principal, who, as agriculturists, are not liable to be treated as 'dealer' under exception I to the definition of the term 'dealer' in section 2(10) of the Gujarat Act.
9. We will first deal with the second point, namely, whether the assessee-society cannot be held to be a dealer since it claims to sell the cotton produced by its agriculturist-members who sell exclusively agricultural produce grown on the land cultivated by them personally and are excluded by the deeming fiction provided in explanation to section 2(10) of the Gujarat Act from the definition of the term 'dealer'. It was urged on behalf of the assessee-society that it is well-settled on principle and on authority that if the principal is not a dealer then the agent, who carries on transactions on his behalf, cannot also be a dealer, since the liability of the agent is co-extensive with that of a principal : vide State of Madras v. Cement A. & C. Organisation  29 STC 114 (SC). In the submission of the learned counsel for the assessee-society, so far as the present reference is concerned, the activity of the assessee-society comprises of sale of cotton-seeds extracted from the produce of kapas of its agriculturist-members, and therefore, the assessee-society cannot be held to be a dealer since it merely deals in the agricultural produce of its members who are agriculturists raising the produce of cotton. In support of his submission, the learned counsel relied on a number of decisions of the difference High Courts. He invited our attention to the decision of the Madras High Court in State of Madras v. T.C.M. Society Ltd.  16 STC 760. It was a revision preferred by the Madras State against the order of the Sales Tax Appellate Tribunal under the Madras General Sales Tax Act, 1959. The assessee, which was a co-operative marketing society, claimed exemption in respect of the sales of agricultural produce of its members from the assessment under the proviso to section 2(r) of the Madras General Sales Tax Act, 1959. The claim of the society was rejected by the Commercial Tax Officer as well as by the Appellate Assistant Commissioner. The contention of the assessee-society before the Tribunal was that there was no sale by the assessee at all in the transactions in question and the only role of the society therein was to secure for the agriculturist-members the most advantageous price for his produce which was paid to the concerned agriculturist on spot from the loan which the assessee used to advance to the purchasers of such agriculturist produce. The Tribunal, without determining the nature of the transaction, revealed by the documents and in the light of the contention urges, remanded the matter for fresh disposal. The Tribunal, however, while remanding the matter, construed the proviso to section 2(r) granting exemption to the proceeds of agricultural produce and gave certain directions on this point of law which the subordinate revenue authority had to bear in mind before deciding afresh the case which was remanded. The proviso to section 2(r) in that case provided to the effect that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea, grown within the State of Tamil Nadu by himself or on any land in which he has an interest shall be excluded from his turnover. In that context, the Division Bench of the Madras High Court held that where the turnover is that of the agent himself under the statutory definition of 'dealer' given in the 1959 Act, exemption under the proviso to section 2(r) can be granted only it the agricultural produce is grown by the agent himself or grown on a land in which he has an interest and as long as the produce does not satisfy this condition, the benefit of the proviso will not be available to the agent.
10. Another decision to which our attention was invited is of the Andhra Pradesh High Court in J. Moosa & Sons v. Commercial Tax Officer, First Circle, Hyderabad  23 STC 133. The assessee moved the High Court of Andhra Pradesh for appropriate writs, orders and directions, challenging the order of assessment made by the Commercial Tax Officer holding the petitioner-firm to be liable to pay tx under the Andhra Pradesh General Sales Tax Act, 1957. The assessee challenged the assessment on the ground that they were not a dealer within the meaning of the said Act, and they were not liable to be assessed particularly because none of their principal who had entrusted the articles to them as auctioneers have taxable turnover. Section 2(1)(e) of the Andhra Pradesh Act defined the term 'dealer' so as to include an auctioneer also. In that context, the Division Bench of the Andhra Pradesh High Court held that where a principal carrying on business of buying, selling, etc., carries on business through an agent, the latter will also be a dealer from whom tax can be collected; but if the principal is not a dealer, then the agent who carries on the transactions on his behalf cannot be held as a dealer within the meaning of section 2(1)(e) of the Andhra Pradesh Act. The Andhra Pradesh High Court also referred to its earlier decision in Irri Veera Raju v. Commercial Tax Officer  20 STC 501 and held that the necessary condition of the tax liability is that the principal should be liable under the Act, and the principal is liable only if the transaction is one which is not less than Rs. 10,000 and if the liability of an agent directly arises as a consequence of the liability of his principal, then there would be no force in the contention that the total transactions of an agent in respect of the several principals would make him liable to tax on his total turnover of these several principals under section 5 when in fact in respect of the transactions of each of the principals, he is not liable under section 11. In other words, the court held that if the turnover of each of the principals is less than Rs. 10,000 the agent would not be liable as a dealer, because his liability is co-extensive with that of the principal.
11. The third decision on which reliance was placed on behalf of the assessee-society is again of the Madras High Court in Murray & Co. v. Government of Madras  25 STC 323. The assessees in that case claimed before the Sales Tax Officer that in respect of certain transactions of sales at a public auction in the assessment years 1959-60, 1960-61 and 1961-62, they were not dealers, since they were acting as brokers for such transactions and their role was to bring together the seller and the buyer while auctioning the goods of the owner. The claim was not accepted by the taxing officer or by the Appellate Assistant Commissioner. The Tribunal, after weighing the legal contentions, urged on behalf of the assessees, reached the conclusion that the assessees were not brokers but they were persons who were to be treated as dealers not only under the common law but also under the provisions of the Madras General Sales Tax Act. In that context, the Division Bench of the Madras High Court observed that the liability of an agent is no doubt co-extensive with that of the principal and if the principal is not liable to tax, the agent may also not be liable thereto. The High Court, however, could not uphold the claim of the assessees since they had failed to place relevant material and evidence before the High Court to satisfy that they were merely brokers.
12. It is in the light of the above settled legal position that the learned counsel for the assessee urged that if the liability of an agent is co-extensive with the principal, which cannot be doubted on matter of principle or authority, he cannot be held liable if the principal is not liable himself. He, therefore, submitted that if these cotton-seeds were sold by the agriculturists themselves instead of selling through the assessee-society, they could not have been held liable as dealer in view of exception I to section 2(10) of the Gujarat Act. The contention appears ex facie to be formidable but on the close scrutiny, we are afraid, it cannot be sustained. The reasons are obvious. The learned counsel was right when he contended that an agent cannot be held liable as a dealer if his principal cannot be treated as a dealer under a fiscal statute since his liability is co-extensive with that of his principal. However, merely on this premise it cannot be urged successfully that the assessee-society in the present case cannot be held liable as a dealer under the Gujarat Act since it merely carries on the activity of the sale of cotton-seeds belonging to its agriculturist-members. An agriculturist merely selling his produce would not be entitled to claim successfully that he is not a dealer. The qualifying conditions prescribed in exception I to section 2(10) of the Gujarat Act are : (i) that he must be selling exclusively the agricultural produce, and (ii) that such produce must have been grown on the land cultivated by him personally. It is, therefore, as the Madras High Court held in T.C.M. Society's case  16 STC 760, that as long as the produce does not satisfy the conditions prescribed in exception I, the benefit of the deeming fiction will not be available to the agriculturist himself. No material has been placed on the record before the taxing authorities to establish that the produce in question, namely, the cotton-seeds, was of a particular agriculturist who was selling exclusively his agricultural produce grown on land cultivated by him personally. It is essentially a question of fact which question has not been urged or attempted to be resolved before the authorities below, and therefore, it is not possible for the assessee-society to invoke the principle of co-extensive liability of the agent with that of the principal and claim successfully that it cannot be treated as a dealer.
13. This takes us to the first and the most important point, whether the assessee-society cannot be held to be a dealer since the activity which it has undertaken and is carrying on is in the nature of mere service to its members. It would be profitable to shortly recapitulate the legal position which prevailed under the Bombay Sales Tax Act, 1959, as was in force in Gujarat before the Gujarat Sales Tax Act, 1969, was put on the statute book wherein the legislature attempted to define the term 'business'. Three leading decisions of the Supreme Court on the subject are : (i) State of Gujarat v. Raipur .  19 STC 1 (SC), (ii) Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd.  21 STC 317 (SC) and (iii) Director of Supplies and Disposals v. Member, Board of Revenue  20 STC 398 (SC), which should be briefly referred to at this stage.
14. In Raipur Mfg. Co.'s case  19 STC 1 (SC), which was a case under the Bombay Sales Tax Act, 1953, the Supreme Court was concerned with the question as to whether a company manufacturing cotton textiles can be said to be carrying on business of selling goods when it sold old discarded goods, coal, by-products and subsidiary products. The Supreme Court referred in this connection to its earlier decision in State of Andhra pradesh v. H. Abdul Bakshi and Bros.  15 STC 644 (SC) that a person to be a dealer must be engaged in the business of buying or selling or supplying goods. Shah, j., speaking for the court in Raipur Mfg. Co.'s case  19 STC 1 (SC) considered the width and import of that term 'business'. Be it noted that the Bombay Act did not define the term 'business', Shah, J., in that case ruled as under :
'The expression 'business' though extensively used in taxing statutes, is a word of indefinite import. In taxing statues, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a cause 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 paticular 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 ...... To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business : in the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised.'
15. In Enfield India Ltd. Canteen's case  21 STC 317 (SC), the Supreme Court was concerned with the question whether a co-operative society running a canteen could be held to be a dealer liable to pay tax under the Madras General Sales Tax Act, 1959. The Supreme Court held that the co-operative society to be a dealer having regard to the definition of the term 'business' under section 2(d) of the Madras General Sales Tax Act, 1959, which defined 'business' to mean 'any trade, commerce or manufacture, whether or not any profit accrues' from such trade, commerce, manufacture, adventure or concern. The Supreme Court, therefore, ruled that a scheme for supplying goods to its members by a society for price may partake of the activity of the nature of adventure or concern in the nature of trade, even if the activity was not actuated by a profit-motive.
16. In Director of Supplies and Disposals' case  20 STC 398 (SC), the Supreme Court was concerned with the Directorate of Disposals which was an organisation of the Government of India responsible for disposal of the surplus American war equipment which had been taken over by the Government of India. The surplus goods were sold to public in a series of transactions, and therefore, a question that arise was as to whether the Director of Supplies and Disposals carried on business of selling the goods in West Bengal within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act, 1941. The majority of the court comprising of Sikri and Ramaswami, JJ., held, on consideration of the totality of circumstances, that the activity of disposal was merely realisation of the assets, and therefore, not sales liable to be taxed under the said Act, and the Director was not a dealer within the meaning of section 2(c) thereof. Ramaswami, J., in his concurring judgment in that case held as under :
'The expression 'business' though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. 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; there must be some real and systematic or organised course of activity or conduct with a set purpose of making profit. To infer from a course of transactions that it is intended thereby to carry on business, ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a profit. But no single test or group of tests is decisive of the intention to carry on the business. It must be decided in the circumstances of each particular case whether an inference could be raised that the assessee is carrying on the business of purchasing or selling of goods within the meaning of the statue.'
It is also necessary to briefly refer to the three leading decisions - one of the Bombay High Court and two of this Court - on the point at issue so that the rational underlying the definition of the term 'business' which was not hitherto defined in the sales tax statutes as were in force from time to time in Gujarat and which was for the first time attempted by section 2(4) can be properly appreciated.
17. In State of Bombay v. Ahmedabad Education Society  7 STC 497, the Bombay High Court was called upon to decided the question whether the transactions of sales of the excess steel obtained by the Ahmedabad Education Society and the supply of bricks manufactured by the society in the factory put up for purposes of construction of its buildings for this colleges, residential quarters for staff and hostels for students, etc., to other sister educational institutions and individuals at cost price would render the society a dealer within the meaning of the term in section 2(C) of the Bombay Sales Tax Act, 1946, which is strictly not in pari materia with the definition of said term in section 2(10) of the Gujarat Act. Chagla, C.J., as he then was, speaking for the Division Bench held that the question whether a person is a dealer or not cannot be determined from merely his act of selling as defined in the Act but from his activity of selling which must be with a view to carry on business. The Division Bench, therefore, held as under in that case :
'.... The Bombay Sales Tax Act has a much narrow ambit and scope. Its object is not to tax income or to tax profits. Its object, which is a very narrow object, is to tax sales effected by persons carrying on the business of selling or supplying. Let us again emphasise that its object is not to tax sales; its object is to tax only those sales which are effected by persons who carry on the business of selling or supplying goods. In our opinion, if we construe the expression 'carrying on the business of selling or supplying goods, in a commercial sense, then it is clear that the object of the person who carried on that business must be to sell or to supply. A person may either produce goods or purchase goods with the object ultimately of selling them. Unless that object is present and unless that intention is clear, the mere activity of selling or supplying would not constitute the carrying on of business of selling or supplying. If the Advocate-General's contention were to be accepted any continuous activity or any repeated activity seriously under taken which results in the supply or sale of goods would attract the sales tax. But what the Advocate-General overlooks in putting forward that contention is that the activity, although it may be serious, although it may be continuous, unless it assumes the characteristics of a business, it is not an activity which can come within the ambit of section 2(c).'
18. The second decision is of this Court in State of Gujarat v. Shri Surat Panjarapole  23 STC 57 where the Division Bench of this Court was concerned with the question whether an institution to preserve lives of stray cattle and other stray animals could be said to be carrying on business, and therefore, a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959, if it sells cotton grown on its land, carcasses of animals, milk and dung for use as fertilizer, and therefore, liable to sales tax under the Bombay Sales Tax Act, 1959. The Division Bench of this Court held that the assessee was actuated entirely by charitable, religious or philanthropic motive of non-violence by preserving the lives of voiceless animals and it did not carry on any business activity with any profit-motive and merely because incidental sales were done of the animal products, it could not be considered as carrying on the business of selling those goods, and so far as the sale of cotton produced on its lands was concerned, it was covered by exception to the definition of the term 'dealer' in section 2(11) of the Bombay Act. J. B. Mehta, J., as he than was, speaking for the Division Bench after referring to the above decisions of the Supreme Court in Raipur Mfg. Co.'s case  19 STC 1 (SC), H. Abdul Bakshi's case  15 STC 644 (SC) and Director of Supplies & Disposals' case  20 STC 398 (SC) held as under :
'From this settled legal position it is clear that in order to find out what is business, the term will have to be construed in the State sales tax legislation in its ordinary restrictive meaning by considering the essential nature of the activity. In the present case, the institution before us is a Panjarapole institution and admittedly, its object, as stated in the indenture dated 21st October, 1896, which was made after 100 years is that the institution was established for the purpose of keeping and preserving the lives of stray dogs, stray cattles and other stray animals. The institution is actuated entirely by charitable or religious or philanthropic motive of non-violence by preserving the lives of those voiceless animals. It is this essential activity whose stamp is born on all the sales which are in dispute before us, except probably the agricultural activity of growing cotton on the lands ............. The mere sale of these items which would be merely an incidental activity can never amount to a business activity carried on with a profit-motive which would change the essential character of the philanthropic activity or charitable activity of this institution so as to convert it into a business activity .......'
19. Another decision of this Court is in Commissioner of Sales Tax, Gujarat v. Anil Co-operative Credit Society  24 STC 180. This Court was concerned with the question as to whether the society which was a co-operative society registered under the Bombay Co-operative Societies Act, 1925, running a canteen for the benefit of its members without any profit-motive could be held to be a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959, J. B. Mehta, J., as he then was, held that the assessee-society which managed a canteen in question and served all goods to its members or to the guests without any profit-motive was not a dealer. Diwan, J., as he then was, did not agree with J. B. Mehta, J., and therefore, the matter was referred to Bhagwati, C.J., as he then was, who, after quoting three decisions of the Supreme Court in Raipur Mfg. Co.'s case  19 STC 1 (SC). H. Abdul Bakshi's case  15 STC 644 (SC) and Director of Supplies and Disposals' case  20 STC 398 (SC), held as under :
'...... Two elements must be present in order to constitute business : first, there must be a systematic or organised course of activity or conduct and secondly, it must be pursued with the set purpose of making profit. It is only if these two elements co-exist that a person can be said to be carrying on business so as to fall within the main part of the definition in section 2(11).'
20. It appears that the State Legislature has, in the light of the principles enunciated by the Supreme Court as well as by the Bombay High Court and this Court, made an attempt to redefine the term 'dealer' and inserted the definition for the first time of the term 'business' so as to meet with the situation emerging from these different decisions. Exception II to section 2(10), which defines the term 'dealer' seeks to incorporate the principles enunciated by this Court in Surat Panjarapole's case  12 STC 57. Similarly, the definition of the term 'business' in section 2(4) of the Gujarat Act is an attempt on the part of the legislature to neutralise the effect of the decision of the Supreme Court in Raipur Mfg. Co.'s case  19 STC 1 (SC). It is in this perspective that we have to consider whether the learned counsel for the assessee-society is justified in urging that the activity under taken by the assessee-society is, in effect and substance, a mere service and not a business and a fortiori, therefore, it cannot be treated as a 'dealer'. It should be emphasised that the broad test to determine whether a person carries on business or not is that the essential characteristics of his activity must be commercial and undertaken with a set purpose of earning profit. In the ultimate analysis, it is a question of intention of a person which can be inferred from the course of transaction having regard to its volume, frequency, continuity and the system, though this test of volume, frequency, continuity and system is not conclusive. The State Legislature has in the light of these principles, stepped in to define what is 'business'. The definition is merely an inclusive definition, and therefore, on the recognised principles of interpretation of statutes, the legislature had sought to enlarge the ordinary meaning of the term 'business' so as to take within its sweep any activity partaking the nature of trade, commerce or manufacture, or even any single adventure carried on whether or not with a set purpose of making profit and would amount to business irrespective of he fact whether such activity results in profit. It also seeks to include any transaction of buying, selling or supplying plant, machinery, raw materials, processing materials, packing materials, empties, consumable stores, waste products or such other goods, or waste or scrap which is ancillary or incidental to or resulting from such activity. The definition specifically excludes any activity in the nature of mere service or profession. The effect of this inclusive definition is to set at rest the doubt or the possible contention that if an activity partakes the nature of manufacturing or is merely an adventure in the nature of trade, commerce or business, would not amount to what is accepted and recognised as a business under the taxing statutes. Even a single transaction of buying or selling or supplying of plant, etc., machinery, consumable stores or waste products or even empties as incidental to the main activity of trade, commerce or manufacture or adventure or concern in nature thereof would also amount to business. It is only that activity which is in the nature of mere service or profession which has been excluded from the category of business activity. It is this exclusion clause which has been the subject-matter of construction and debate before us.
21. Before we determine the contention of the learned counsel for the assessee, we should remind ourselves as to what activity can conceivably be in the nature of mere service since we are not concerned in this reference as to what activities could be categorised as profession. In Corpus Juris Secundum, Vol. 79, page 1139, the following principles digested from the decided cases under different statutes are illustrative and instructive :
'SERVICE OR SERVICES : The word 'service' has a multiplicity and a variety of meanings and different significations. It is not a simple word with a simple meaning, leaving no room for construction, but rather it is a broad term of description, which varies in meaning according to the sense in which it is used and the context in which it is found, and the sense in which it is used must be determined from the context. Thus the courts have found it impracticable to attempt a definition by which to test every case that may arise.'
22. The word 'service' is used as a noun as well as a verb. As noun it would mean 'the act of serving; the act or instance of helping or benefiting'. It is defined as meaning 'aid or assistance rendered'; 'a benefit, advantage, or obligation conferred'; 'that which promotes interest or happiness'; 'the occupation, condition, or status of a servant'; 'the work of a servant, or hired man, or employee' : vide corpus Juris Secundum, Vol. 79, pages 1139-1140. The term 'service' is sometimes employed to denote the concept of duty rendered by one person to another or a duty performed in, or appropriate to any office or charges such as military or naval service, the diplomatic service, etc. In a somewhat different sense it also means the act of supplying some general demand, or the supply of needs, or provision, organisation or apparatus for conducting some public utility, as gas, railway, telephone or water service : vide Corpus Juris Secundum, Vol. 79 page 1141. As a verb it is defined as meaning to perform services of maintenance, supply, repair, installation, distribution, etc., for or upon, as to service a car, a radio set, a ship, a territory : vide Corpus Juris Secundum, as to service a car, a radio set, a ship, a territory : vide Corpus Juris Secundum, Vol. 79, page 1143. At page 1143 of Vol. 79 of Corpus Juris Secundum, the following passage is instructive :
'SERVICES : In ordinary usage, the term 'services' has a rather broad and general meaning, and it includes generally any act performed for the benefit of another under some arrangement or agreement whereby such act was to have been performed, and in its broadest sense it may mean a service performed in furnishing materials as much as a service performed in furnishing labor. In the plural, the term involves more then mere labor, and signifies much more than merely the act of performing labor, and may include, as well, expenditure materials, and things furnished.'
23. The discussion as to the application of sales tax statutes to transactions which involve the sale or furnishing of services is to be found in Corpus Juris Secundum. Vol. 53, page 570. At pages 575-576 under paragraph 30(2)(d) and (e), we find discussion, as to what are the commodities within the purview of tax on the transactions involving sales of property and services. In sub-paragraph (d) at page 575, the following observation is instructive :
'.......... Under some statutes, in order that a tax on sales or the privilege of making sales may be applicable, the sale must be of tangible personal property; under others the tax applies on the sale of any tangible property whatever, whether real or personal; and under still others there are included sales of specified property other than tangible personality, such as sales of electricity, sales of gas, or sales of steam. The sale or furnishing of services or of enumerated services has also been taxed under various statutes, except it has been held, where such services constitute component parts of a non-taxable service ......'
24. In paragraph (e), pertaining to transactions involving sales of property and services, the following observation is instructive :
'A tax on sales of tangible personal property or the business of making such sales does not apply to sales of services, unless the statute specifically so provides, or to sales of property incidental to, or a part of, the services rendered; but it does not apply to sales of property by persons rendering services as an incidental or inseparable part of the transaction.
A tax on retail sales of tangible personal property or on the business or occupation of making such sales ordinarily does not apply to the sale of personal, professional, or other services, although under some statutes the taxable sale includes tangible property and services which are a part thereof. Also, a tax on a service furnished has been held not to include the value of the materials used .......'
25. The marginal line between the transactions which are purely in the nature of sale and those involving service simpliciter is very thin but fine one. On principle and authority, it is well-settled that 'the classification of such transactions should ordinarily be determined by the dominant factors involved therein. If the value of the property or materials furnished is the dominant and paramount factor in the gross charge and the service rendered in connection therewith is only incidental thereto, the transaction should generally be regarded as sale; but, if the service involved is the dominant and most important factor and the value of the materials used is only incidental thereto and constitutes only a minor part of the gross charge, the transaction should be classified as service.' : vide Corpus Juris Secundum, Vol. 53, pages 576-577. It is equally well-settled that 'the classification of a business as one of making sales or of selling service cannot be determined solely by the ratio of the sales made to the services rendered ......' : vide Corpus Juris Secundum, Vol. 53, page 577.
26. Since the word 'service' has multiple and variety of meanings and different significations it is necessary to refer to the Report of the Select Committee on the Gujarat Sales Tax Bill which was ultimately placed on the statute book as the Gujarat Act. It is axiomatic that the construction of a given statute must be based on the meaning of the words used which has to be gathered according to ordinary rules of interpretation and therefore it is generally not permissible to refer to the Report of the Law Commission or the Select Committee Report as they cannot furnish a legitimate guide for construction of a statute. Nonetheless, such reports may be considered in determining the meaning of the provisions of a statute where the meaning is doubtful or obscure : vide R. P. Kapur v. Pratap Singh Kairon AIR 1964 SC 295 and Union of India v. Dhillon (1971) 2 SCC 779. In Letang v. Cooper  2 All ER 929 Lord Denning. M.R., said as under : 'You can get the facts and surrounding circumstances from the report, so as to see the background against which the legislation was enacted. This is always a great help in interpreting it. But you cannot look at what the committee recommended, or at least, if you do look at it, you should not be unduly influenced by it. It does not help you much, for the simple reason that Parliament may, and often does, decide to do something different to cure the mischief. You must interpret the words of Parliament as the stand, without too much regard to the recommendations of the committee.' Clause 2(4) of the Report of the Select Committee on the Gujarat Sales Tax Bill (L.A. Bill No. 30 of 1969) defines the term 'Business'. The Select Committee has made the following comments on the said sub-clause (4) of clause 2 : 'The sub-clause defines the term 'business'. It inter alia includes any transaction in connection with or ancillary or incidental to or resulting from such trade, commerce, manufacture, adventure or concern. The committee feels that the definition of 'business' is rather too wide and requires to be restricted so that isolated transactions which are not closely connected with the business of a dealer are not made subject to payment of tax. The committee also feels that the institutions and organisations which carry on activities in the nature of mere service or profession, such as, banking company, non-professional service associations should not also be brought within the scope of the definition. Sub-clause (4) has, therefore, been redrafted so as to make the intention quite clear'. The above comment of the Select Committee gives us the perspective of the legislative intent though it should not tend to unduly influence us as cautioned by Lord Denning, M.R., in Letang's case  2 All ER 929. The term 'service' is a compendious term of description which because variety of meanings and significations tends to be obscure unless and in order to determine the precise meaning thereof we bear in mind the context in which it is found and the sense in which it is used. The sense of the term must be determined from the context. The context is of section 2(4) of the Gujarat Act which give an inclusive definition of the term 'business' as any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not carried on with a motive to earn profit. In other words, the activity in order to be business must be a commercial activity of buying and selling with or without motive to earn profit. If the commercial element is lacking in a given activity and if such activity is in the nature of mere service or profession it would be beyond the sweep of the term 'business'. The word 'mere' qualifies the word 'service'. The legislature has therefore taken precaution that even if the activity is governed by the main provision but is in the nature of any services it will be out of the purview of the term 'business'. In a sense, the element of service is implicit in any business or trading activity but that element does not detract from the commercial nature of such activity. It is the commercial overtone of an activity which in ultimate analysis determines its essential nature. As defined in the said sub-section, the nature of the activity therefore must be solely or exclusively that of service and if in accordance with that activity there are transactions of buying or selling those transactions will not render the overall activity as that of business activity. A banking company renders a number of services to its clients. In the modern banking practice, a commercial bank not only advances monies to its clients but also attends to the various needs of its clients such as holding shares and security in safe custody, or as collateral security for advance or advances monies on pledge of goods or agrees to act as executors and trustees under will of its clients and if banks purchase or sell shares or movable properties held by them as trustees or as pledgees as an integral part and parcel of their commercial activity of banking, it cannot be justifiable stated that such bankers are dealers in such articles or goods since the predominant purpose underlying such activities is rendering service to its clients. It is well-known that non-professional service associations like the Rotary Club of India or the Lions Club of India, purchase a number of articles such as medicines, milk powder, quilts, rugs, etc., for supply free of charges or at nominal rates by way of relief and succour to the needy and distressed persons in times of emergency or otherwise. Such associations have to dispose of the packing materials, empties or the waste products which are of no more use to the associations after the activity of help and assistance is completed. But for this exclusion from the definition of the term 'business' in the Gujarat Act, such activities would have been within the mischief of the definition of the said term. It is in order to remove this mischief that the legislature has excluded the activity which is in the nature of mere service from the purview of the term 'business'. The two cases which the Select Committee has borne in mind such as banking company or the non-professional service associations are merely illustrative and not exhaustive. It would depend upon the facts and circumstances of each case as to whether an activity is in the nature of business or trading activity or is an activity which is solely or exclusively in the nature of service. When a person produces or buys goods for sale or exports, imports or manufactures goods for sale, he indulges in commercial activity avowedly for profit-motive, and therefore, can be said to carry on business or trade as a dealer. If, however, on the other hand, he incidentally buys or sells goods in the course of activity which is undertaken solely or exclusively by way of service, such as banking service, religious or charitable service, Government extension service, etc., he cannot be decreed to to be a dealer carrying on business. It is not possible, nor is it desirable to provide a strait-jacket formula so as to conclude what activities are in the nature of mere service and what activities are in the nature of business. In the ultimate analysis as the Supreme Court said in Director of Supplies and Disposals' case  20 STC 398 (SC), it is a matter of intention and no single test or group of tests is decisive of the intention to carry on the business, and it must be decided in the circumstances of each particular case whether an inference could be raised that the assessee is carrying on the business of purchasing or selling of goods within the meaning of the statute.
27. What is the precise nature of an activity carried on the an assessee would, therefore, be the crux of the problem whenever a question arises as to whether the assessee is doing business or rendering mere service. The real question is : Is the given activity commercial in the sense that it is not carried on with an objective of rendering service exclusively Such objects or purposes which may render an activity to be service can be, amongst others, helping, aiding or assisting the member, client, customer or a beneficiary, as the case may be. Such activity must be with a view only to serve the client, customer or the beneficiary. Even if the object or the purpose includes, inter alia, the authority to sell or buy articles, it would not detract from its real nature which must be of service only. The fact that some profit is generated out of such activity would not render it a business. In the light of the settled legal position and examining the precise nature of the activity in the present case before us, we must hold that the assessee-society cannot be said to carry on business and consequently cannot be held to be a dealer for the obvious reasons which are as under :
In the first place, the object of the assessee-society was to act as extension service of the Government, pure and simple. The assessee-society was registered under the Bombay Co-operative Societies Act, 1925, inter alia, for achieving the objects specified in clauses 2, 5 and 9 of its bye-laws in order to implement the scheme drawn by the planning Commission of the Government of India for betterment of the quality of cotton by distribution and multiplication of hybrid quality of cotton-seeds, popularly known as 'Shanker-4' cotton. The objects of the society do not bear out the contention of the learned Government Pleader for the State that the essential and dominant characteristic of the activity of the society was commercial. It is, no doubt true, as contended by the learned Government Pleader, that the promoters of the society set up this association, inter alia, for purchase and sale of raw goods, ready-made goods, tools and machinery, tend to make necessary arrangement for godowns and sale centres and to produce, multiply and sell 'Shanker-4' cotton-seeds and to obtain loans for production, multiplication and sale of the seeds. Such activities were merely rendering of service in the course of the main activity of implementation of the Government's scheme of betterment of the quality of cotton. In the Second place, the scheme of distribution and multiplication of seeds implemented by the assessee-society is wholly Government controlled one as found by the Tribunal on the facts and in the circumstances as set out above in the opening part of this order. Thirdly, the whole arrangement of the formation of this co-operative society is for providing pure and simple service by encouraging self-help amongst members inter se and not to indulge in any commercial activity, or any activity in the nature of business, or trade, or in any adventure in the nature of business or trade. The facts found by the Tribunal which have been extracted and set out above constitute the modus operandi of the Government's scheme of distribution and multiplication of hybrid quality of cotton-seeds, popularly known as 'Shanker-4' cotton with a view to achieve the betterment of the quality of cotton and bring more land under cultivation of 'Shanker-4' cotton though the instrumentation of such service society of the cotton-producers. The essential purpose of the activity of the society is not commercial in nature but is designed to render exclusively service to its member. If, therefore, in the course of implementation of the Government's scheme the assessee-society had undertaken certain activity of sales and recovered charges to meet with administrative and other incidental expenses, it cannot be successfully said that it was carrying on business and therefore liable as a dealer to pay tax. Fourthly no finding has been made by the Tribunal that at any stage of sale and supply, the cotton-seeds received from the Government or from the members belonged to or became property of the assessee-society, though, no doubt, all the transactions right from supply of seeds to distribution of seeds among its agriculturist-members and the multiplication and redistribution of cotton-seeds were routed through the society. The Tribunal in our opinion therefore clearly erred in law in drawing an inference which is not warranted on the facts and in the circumstances of the case that the assessee-society was carrying on business and therefore deserves to be treated as a dealer and consequently liable to pay tax. Fifthly, the assessee-society was carrying on activities by which it rendered assistance to the cotton growers by providing an association through which they can obtain hybrid quality cotton-seeds popularly known as 'Shanker-4' and thereby achieving the betterment in the quality of cotton produced by them and consequently obtaining multiplication of hybrid quality of cotton-seeds. If, therefore, the assessee was made an instrument by the Government which effectively rendered assistance to its cotton growing members and thereby conferred some benefit on them by which they can achieve the better quality of cotton and if the entire scheme of distribution and multiplication of the cotton-seeds in Government controlled one, and implemented through such service societies like that of the assessee, it is difficult to agree with the learned Government Pleader for the State that the essential nature of the activity of the assessee society was commercial, and therefore, it was carrying on business or trade as a dealer of cotton-seeds. It is no doubt true that the assessee-society also conducts the sale of cotton produced by its agriculturist-members but to determine the nature of the impugned activity of the distribution and sale of cotton-seeds as business by finding out the ration of sales of cotton to the services rendered is not permissible particularly because the assessee-society has been found by the Tribunal to have been formed with a view to implement the scheme drawn by the Planning Commission of the Government of India for betterment of the quality of cotton by distribution and multiplication of hybrid quality of cotton-seeds, popularly known as 'Shanker-4' cotton. In these circumstances, therefore, we do not agree, with respect, with the Tribunal that the intention of the assessee-society in distribution and sale of cotton-seeds was to carry on business as a dealer.
28. The result is that we have to answer the question referred to us in the negative, that is, in favour of the assessee-society and against the State Government. The State shall pay costs of this reference to the assessee-society.
29. Reference answered in the negative.