Full Judgment Text
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PETITIONER:
STATE OF PUNJAB AND ORS.
Vs.
RESPONDENT:
M/S. SHAKTI COTTON COMPANY
DATE OF JUDGMENT05/11/1971
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
REDDY, P. JAGANMOHAN
MATHEW, KUTTYIL KURIEN
CITATION:
1972 AIR 1458 1972 SCR (2) 289
1972 SCC (1) 88
CITATOR INFO :
F 1976 SC 769 (1,3,4,5)
ACT:
Punjab General Sales Tax Act, 1948 as amended the Punjab
General Sales Tax (Amendment and Validation) Act 7 of
1967--Cotton purchased by dealer and subjected to ginning
process--Resulting products i.e. cotton seeds and ginned
cotton sold--Exemption under s.5(2)(a)(vi) whether available
to dealer--Cotton one of declared goods under s. 2(c) read
with s. 14 of Central Sales Tax Act, 1956--Assessments in
respect of declared goods made under Punjab Act as it stood
on April 1, 1960 held invalid--Validation under Act 7 of
1967--Reassessment under s. 11AA of Act as amended.
HEADNOTE:
The respondents were registered dealers under the Punjab
General Sales Tax Act, 1948. In proceedings relating to the
years 1960-61, 1961-62 and 1962-63 the question that fell
for consideration was whether their claim under s., 5 (2)
(a) (vi) of the Act in respect of cotton purchased by them
and later sold by them after ginning as ginned cotton and
cotton seeds could be allowed. The assessing authorities
disallowed the claim for exemption in respect of cotton
seeds and allowed only partial exemption in respect of
ginned cotton. The respondents filed writ petitions in the
Punjab High Court. The petitions were allowed by tile
Single Judge who relied on a judgment of the same High Court
in Patel Cotton Company Private Ltd. v. State of Punjab
wherein it had been held that when a dealer buys unginned
cotton which is mixed with cotton seeds and separates the
two, by process of ginning and proceeds to sell both the
ginned cotton and the cotton seeds, the dealer in fact sells
the entire goods which he had purchased. Appeals were filed
by the State before the Division Bench but were dismissed in
limine. However a certificate of fitness to appeal to this
Court was granted. In the appeals filed by the State before
this Court reliance was placed on the judgment of this Court
in M/s. Chandulal Kishan Lal’s case wherein it bad been
held that ginning wag a manufacturing process hod the
deduction under s. 5(2) (a) (vi) could not be allowed in
respect of cotton seeds obtained after ginning. The
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respondents relied on the decision of this Court in Bhawan
Cotton Mills Ltd. and the charges made in the Act by the
Punjab General Sales Tax (Amendment and Validation) Act 7 of
1967.
HELD : In Bhawani Cotton Mills Ltd. a case relating to
assessment years 1961-62 and 1962-63, this Court held that
the scheme of levy of purchase tax under s. 2 (ff) read with
s. 5 and specially the terms of s. 5(2) (a) (vi) of the Act
was illegal in that contrary to the Provisions of s. 15 of
the Central Sales Tax Act, 1956. no definite stage at which
the purchase tax in respect of cotton, a declared commodity,
was to be levied, had been indicated. As a result of this
Judgment sales tax under the Act as it stood on April 1.
1960 on declared goods became illegal and void. The
decision in M/s Chandulal Kishorilal was given without
taking into account the decision in Bhawani Cotton Mills or
the provisions of Act 7 of 1967. Nor did it take into
consideration all the points at issue between the parties.
The appeals of the State could not therefore be straightway
allowed on the basis of M/s. Chandulal Kishorilal’s case.
[298 G; 304 H-305 C]
290
Act 7 of 1967 was passed in order to retrospectively remove
the defects in the Act pointed out by this Court in Bhawani
Cotton Mills. The validity of the Amending Act was upheld
by this Court in Rattan Lal & Co. s case. The new s. 11AA
added in the Act by s. 9 of the Amendment-Act .casts a duty
on the assessing authority, even without any application
being made by the assessee in that behalf, to review all
assessments and reassessments made before the commencement
of the Amendment Act in respect of declared goods. There
was no controversy that the assessment orders in the present
cases had been made before the date of the commencement of
the Amendment Act. If so the assessing authority had to
exercise his jurisdiction under s. 11AA. It was also
obligatory on his part to vary and revise the previous
orders of assessment so as to bring them in conformity with
the provisions of the Act as amended by the Amendment Act
after following the procedure indicated therein, The fact
that there was a judgment of this Court was no bar to the
assessing authority to do the duty cast upon him under s.
11AA. This has been made clear by sub-s. (4) to s. 11AA,
which makes the said sub-section subject to the provisions
of sub-ss. (1) to (3) of the section. [306 D-F]
In the result the cases must go back to the assessing
authority for fresh assessments to be made under s. 11AA.
In the fresh assessment proceedings the assessing authority
has to consider the matter in the light of the provisions of
the Amendment Act incorporated in the Act-, and the decision
of this Court in M/s. Chandulal Kishorilal could not
operate to the prejudice of the assessees. [307 B-G]
Bhawani Cotton Mills Ltd. v. State of Punjab & Anr. [1967] 3
S.C.R. 577, applied.
State of Punjab v. M/s. Chandulal Kishorilal & Ors. [1969]
3 S.C.R. 849, held not applicable
Patel Cotton Co. Private Ltd. v. State of Punjab, [1964] 15
S.F.C. 865, State of Punjab v. M/s. Patel Cotton Co. Pvt.
Ltd. Bhainda, C.A.Nos. 1120/66 etc. dt. 18-4-67 Ratan Lai &
Co. v. Assessing Authority, [1969] 2 S.C.R. 544 and M/s.
Aryavarta Industries P. Ltd. v. State of Punjab, 1970
Revenue Law Reporter 341, referred to.
JUDGMENT:
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CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2319 and
2320 of 1968 and 1466 to 1470 of 1969.
Appeals from the judgments and orders dated July 23, May 17,
May 28, May 27, May 26, 1965 of the Punjab High Court in
Letters Patent Appeals Nos. 182, 96, 127, 141, 145, 149 and
172 of 1965 respectively.
V. C. Mahajan and R. N. Sachthey, for the appellants (in
C.As. Nos. 2319 and 2320 of 1968 and C.A. No. 1468 of
1969).
V. C. Mahajan for R. N. Sachthey, for the appellants (in
C.As. Nos. 1466, 1467, 1469 and 1470 of 1970).
S. V. Gupte, Hardev Singh and Ram Gopal Singla, for the
respondent (in C.A. No. 2319 of 1968).
291
Hardev Singh and Ram Gopal Singla, for respondent (in C.A.
No. 2320 of 1968).
Hardev Singh, for respondent (in C.A. No. 1466 of 1969).
Charan Das Garg, O.P. Sharma and K. S. Suri, for the res-
pondent (in C.A. No. 1468 of 1968).
The Judgment of the Court was delivered by
Vaidialingam, J. These seven appeals, on certificate, are by
the State of Punjab, challenging the judgments and orders of
the Letters Patent Bench of the Punjab High Court,
dismissing in limine the appeals filed by the State, against
the decisions of the learned Single Judge, either quashing
the orders of assessment of sales tax made by the concerned
Sales Tax Officer or directing the said officers to
reconsider the orders and pass fresh orders of assessment.
The assessments that were challenged before the High Court
were made under the Punjab General Sales Tax Act, 1948
(Punjab Act No. XLVI of 1948 (hereinafter to be referred as
the Act). Civil Appeals Nos. 2320 of 1968 and 1468 of 1969
relate to the assessment years 1960-61; Civil Appeals Nos.
231,9 of 1968 and 1467, 1469 and 1470 of 1969 relate to the
assessment years 1961-62 and Civil Appeal No. 1466 of 1969
relates to the assessment year 1962-63.
The controversy related to the assessment to sales tax under
the Act, in respect of cotton, which admittedly is an item
of "declared goods" within the meaning of s. 2 cl (c) read
with s. 14 of the Central Sales-tax Act, 1956 (Act 74 of
1956) (hereinafter to be referred as the Central Act).
As the nature of the dealings and the approach made by the
assessing officers in respect of the respondents, who are
different assessees, is the same, it is enough to refer to
the facts in Civil Appeal No. 2319 of 1968. The respondent
M/s Shakti Cotton Company is a partnership firm carrying on
business as a registered dealer under the Act. Amongst its
other business, the firm purchases kapas or unginned cotton
and after ginning, sells cotton and cotton seeds. For the
assessment year 1961-62, the firm submitted a return under
the Act showing its gross turnover of purchase at Rs.
23,76,452.68 n.p. This amount included the purchase of
unginned cotton i.e. Kapas and the sales were shown as
having been made to registered dealers and for inter state
trade and commerce. The firm claimed deduction, from its
gross turn-over, value of the entire quantity of cotton it
had purchased. According to the firm, it was entitled to so
deduct the purchase price under s. 5 (2) (a) (vi) of the
Act. It appears that there was originally an order of
assessment passed on June 30, 1962. On appeal by the firm,
the Appellate Authority by, its
292
order dated February 4, 1963 remanded the matter to the
assessing authority for re-examination and re-consideration
of the original order of assessment. The assessing
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authority, Patiala District, took up the assessment
proceedings afresh and after an examination of the account
books and other vouchers produced by the firm accepted as
correct the gross turnover returned by the dealer.
Regarding the various deductions claimed by the firm,
particularly in respect of the purchase price of unginned
cotton, which had been sold to registered dealers, it is not
clear from the assessment orders as to how exactly the claim
for deductions were either allowed or rejected. Ultimately,
the assessing authority fixed the taxable turn-over for the
purposes of purchase tax at Rs. 3,18,993.27 n.p. and levied
purchase tax on this amount at the rate of 2 per cent. The
assessment order was passed on September 26, 1963. The firm
filed in the Punjab High Court Civil Writ No. 452 of 1964
challenging the order of assessment passed by the Sales-tax
Officer. The grievance of the firm, as is seen from the
said writ, is, that the assessing authority disallowed the
claim, made by it, for deduction of purchase price of ginned
cotton sold to the registered dealers and for inter state
trade and commerce. The firm’s claim before the assessing
authority, appears to have been that if three maunds, of
kapas is ginned, it gives roughly one maund of ginned
cotton, which if disposed of in toto should be equivalent to
the purchase price of three maunds of kapas originally
purchased. The assessing authority appears to have
proceeded on the basis that out of the total quantity of
unginned cotton purchased by the firm, only 1/3rd quantity
of the unginned cotton can be considered to have been sold
as ginned cotton. Deductions, according to the assessing
authority, under s. 5 (2) (a) (vi) of the Act from the
purchase turn-over of unginned cotton should be fixed at
1/3rd of the total price paid for the unginned cotton. The
assessing authority has also proceeded on the basis that the
amount realised by the firm by sale of cotton seeds, as a
result of ginning, cannot be taken into account for
calculating the turn-over under s. 5 (2) (a) (vi) of the
Act, as the said material is something different from cot-
ton. The firm had also challenged the order of assessment
that the levy of sales tax on cotton, which is an item of
"declared goods " under the Central Act, is illegal and
opposed to s. 15 of the Central Act, as no stage for levy of
tax had been fixed. As the Excise and Taxation Commissioner
of Punjab had given instruction to the assessing authorities
to assess cotton in the manner shown in the assessment
order, the firm averred that no useful purpose will be
served by carrying the assessment orders in appeals before
the Departmental Authorities. It was pleaded that as the
levy was unconstitutional, the relief can be obtained only
from the High Court and hence its jurisdiction under Arts.
226 and 227 of the Constitution was invoked.
293
The appellants contested the, writ petition on various
grounds But the material averment, which has to be noted is
to the effect that the assessee was entitled to deduction
only on the purchase of cotton sold by it as required under
s. 5 (2) (a) (vi) of the Act and that too on the purchase
value of the commodity sold and not on its sale price. It
was further averred that cotton seeds are different from
cotton and the price realised by the sale of the former does
not qualify for deduction under the said provision of the
Act as the cotton seeds are not the same commodity as cotton
that had been originally purchased. Hence, it was pointed
out that the assessing authority had acted according to law
in allowing the deduction only on the purchase value of
cotton sold by the firm.
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The State further pleaded that the stage for levying sales-
tax in respect of "declared goods" is indicated under the
Act and the firm is liable for payment of purchase tax on
the purchase of cotton made by it subject to the proper
deductions allowable under s. 5 (2) (a) (vi) of the Act.
At the time when the writ petition was heard by the learned
Single Judge of the High Court, there was already a decision
of a Division Bench of the same High Court reported in Patel
Cotton Company Private Ltd. v. The State of Punjab and
others(1). We will refer later to the scope of this
decision.The, learned Single Judge, by his order dated
March 5, 1965held’that there is no indication in the order
of assessment thatfull:deduction permissible to a dealer
under s. 5 (2) (a) (vi) of the Act, as laid down by the
Division Bench, in the above decision,. has been granted to
the firm. In this view, the learned Single Judge allowed
the writ petition, and directed the Sales-tax Officer to re-
decide the matter and modify and make an assessment order,
in accordance with the law laid down in Patel Cotton Company
Private Ltd.(1). The State filed Letters Patent Appeal No.
182 of 1965 under cl. (x) of the Letters Patent Act, which
was dismissed, in limine, by the Division Bench on July 23,
1965.
In Civil Appeal No. 2320 of 1968 the order of assessment is
dated February 24, 1964. The assessee filed Civil Writ No.
454 of 1964 and the High Court passed a similar order in his
favour on March 5, 1965. The Letters Patent Appeal No. 196
of 1965 filed by the State was rejected in limine on July
23, 1965.
In Civil Appeal No. 1466 of 1969, the assessment order is
dated March 10, 1964. The assessee filed Civil Writ No. 810
of 1964. The learned Single Judge by his order dated
February 3, 1965 allowed the writ petition following the
decision in Patel’ Cotton Company Private Ltd.(1) and
quashed the order of assess-
(1) [1964] 15 S.T.C. 865.
294
ment. The Letters Patent Appeal No. 127 of 1965 filed by
the State was dismissed in limine on May 17, 1965.
In Civil Appeal No. 1467 of 1969, the assessment order is
dated March 9, 1964. The assessee filed Civil Writ No. 608
of 1964 in the High Court. The learned Single Judge by his
order dated January 29, 1965 allowed the writ petition and
directed the assessing authority to reconsider and modify
the order of assessment in accordance with the law laid down
by the Division Bench of the High Court. The Letters Patent
Appeal No. 141 of 1965 filed by the State was dismissed in
Iimine on May 28, 1965.
In Civil Appeal No. 1469 of 1969, the order of assessment is
is dated June 11, 1963. Civil Writ No. 1599 of 1963 filed
by the assessee was allowed by the learned Single Judge on
February 26, 1965 and the assessing authority was directed
to modify the order of assessment according to the decision
of the High Court. The Letters Patent Appeal No. 145 of
1965 filed by the State was dismissed in Iimine on May 27,
1965.
In Civil Appeal No. 1469 of 1969, the order of assessment is
dated March 22, 1963. Civil Writ No. 635 of 1963 filed by
the assessee was allowed on February 26, 1965 and the
learned Single Judge gave the same direction regarding the
assessment Order to be reconsidered and modified. The
Letters Patent Appeal No. 149 of 1965 filed by the State was
dismissed in limine on May 28, 1965.
In Civil Appeal No. 1470 of 1969 the order of assessment is
dated December 12, 1963. Civil Writ No. 205 of 1964 filed
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by the asseesee was allowed by the High Court on January 29,
1965 and similar directions were given to the assessing
authority. The Letters Patent Appeal No. 172 of 1965 filed
by the State was dismissed in limine on May 26, 1965.
It will be noted that in all the above appeals, except
Civil .Appeal No. 1466 of 1969, the assessing authority had
been directed to reconsider and modify the orders of
assessment already passed by it. It is only in Civil Appeal
No. 1466 of 1969 that the order of assessment was quashed by
the learned Single Judge of the High Court. In all the
appeals, certificates have been granted by the High Court.
The High Court, while granting the certificates has observed
that though Letters Patent Appeals were dismissed in limine,
certificates are being granted in view of the fact that the
decision in Patel Cotton Company Private Ltd.(1), on the
basis of which the present decision had been given, was the
subject of appeal before this Court. In view of this
consideration, certificates of fitness have been granted by
the Letters Patent -Bench. We may also add that though the
question, regardin-
(1) [1964] 15 S.T.C. 865.
295
the legality of the assessment under the Act as being
opposed to the Central Act, on the ground that no stage for
collection of tax has been fixed, was raised by all the
assessees, that point was not adjudicated upon by the High
Court in any of these matters.
Mr. V. C. Mahajan, learned counsel for the State, pointed
out that the, decision in Patel Cotton Company, Private
Ltd.(1) which was relied on by the High Court, has been
over-ruled by this Court in State of Punjab and others v.
M/s. Chandulal Kishori Lal and others (2) . In consequence,
he urged that all the State appeals will have to be allowed
and the assessment orders should be allowed to stand.
On the other hand, Mr. S. V. Gupte, learned counsel appear
in- for the respondent in Civil Appeal No. 2319 of 1968
whose contentions have been adopted by the other counsel
appearing for the respondents in other appeals, urged that
the decision of this Court, relied on by Mr. Mahajan, had no
occasion to consider the position regarding collection of
sales tax in respect of "declared goods" coming under the
Central Act, after the Act was amended by Punjab Act 7 of
1967. He further pointed cat that neither the principles
laid down by this Court in Bhawani Cotton Mills Ltd v. State
of Punjab and another(3); nor the effect of the amendments
made to the Act by Punjab Act 7 of 1967, regarding levy and
collection of sales tax in respect of "declared goods" have
been considered in State of Punjab and others v. M/s.
Chandulal Kishori Lal and others (2) .
Mr. Gupte in this connection, relied on the various aspects
discussed in Bhawani Cotton Mills Ltd.(3) and the relevant
provisions of the Punjab General Sales Tax (Amendment and
Validation) Act, 1967 (Act 7 of 1967) (hereinafter referred
to as Amendment Act). He further stressed that the Amendment
Act has changed the whole scheme of taxation regarding
"declared goods" and a duty has been cast on the assessing
authority to reopen the assessment and pass fresh orders in
accordance with the Amendment Act. The counsel further
pointed out that State of Punjab and others v. M/s.
Chandulal Kishori Lal and others(2) except deciding that
cotton seeds do not come under "declared goods", had no
occasion to consider the language of s. 5 (2 (a) (vi) of the
Act regarding how the deduction is to be allowed.
It is now necessary to consider the provisions of the Act,
as it stood on April 1, 1960. Even here we may say that the
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entire scheme of the Act and the Rules as well as of the
Central Act has been elaborately considered by this Court in
Bhawani Cotton Mills Ltd. (3). Hence it is unnecessary to
cover the same ground in these appeals. It is enough to note
that the expressions "dealer" " goods" "prescribed"
"purchase" "sale" "turnover" and
(1) [1964] 15 S.T.C. 865.
(2) [1969] 3 S.C.R. 849. (3) [1967] 3 S.C.R. 577:
296
"year" are defined in cls. (d), (e), (f), (ff), (h), (i) and
(j) of S. 2 respectively. Item I of Schedule C of the Act
dealing with "Cotton" is as follows :
"(1) Cotton, that is to say, all kinds of
cotton (indigenous or imported) in its
unmanufactured state, whether ginned or
unginned, baled, pressed or otherwise, but not
including cotton waste."
Section 2(c) of the Central Act defines "declared goods" as
" goods declared under S. 14 to be of special importance in
interState trade or commerce." Section 14 declares the
various goods referred to therein as of special importance
in inter-State trade or commerce. Therefore, it follows
that those goods are "declared goods" under S. 2(c) of the
Central Act. Item 11 of S. 14 of the Central Act dealing
with cotton is identical with Item I of Schedule C of the
Act. It is also necessary to note that the definition of
"sale" in S. 2(h) of the Act, excluded goods specified in
Schedule C and that the expression "purchase" under s. 2(ff)
took in the goods specified in Schedule C of the Act.
Section 5 of the Act dealt with the levy of tax on the turn-
over of a dealer at the rates mentioned therein and other
consequential matters. Sub-section (2) dealt with the
taxable turnover, as well as the various deductions which a
dealer is eligible to claim in the computation of the said
taxable turnover. The claim for deduction was made by the
assessees before us under S. 5 (2) (a) (vi) of the .Act
which is as follows :
"5 (2) In this Act the expression "taxable
turn-over means that part of a dealer’s gross
turnover during any period which remains after
deducting therefrom--
(a) his turnover during that period on-
(vi) the purchase of goods which are sold not
later than six months after the close of the
year, to a registered dealer, or in the course
of inter-state trade or commerce, or in the
course of export out of the territory of India
:
Provided that in the case of such a sale to a
registered dealer, a declaration, in the
prescribed form and duly filled and signed by
the registered dealer to whom the goods are
sold, is furnished by the dealer claiming
deduction."
Section 15 of the Central Act imposes restrictions and
conditions in regard to tax on sale or purchase of declared
goods within a State. Section 15(a) placing a restriction
on the rate of
297
tax as well as a prohibition regarding such collection at
more than one stage is as follows :
" 15. Every sales tax law of a State shall,
in so far as it imposes or authorises the
imposition of a tax on the sale or purchase of
declared goods, be subject to the following
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restrictions and conditions, namely :-
(a) the tax payable under that law in respect
of any sale or purchase of such goods inside
the State shall not exceed three per cent of
the sale or purchase price thereof, and such
tax shall not be levied at more than one
stage.
We have broadly outlined the scheme of the Act, as well as
the Central Act. There is no controversy that cotton is
liable to purchase tax under the Act. It is now necessary
to advert to the decision of the Punjab High Court in Patel
Cotton Company Private Ltd.(1). The assessee therein claimed
that out of the unginned cotton, which they had purchased
and in respect of which they had become liable to pay
purchase tax, certain quantities of ginned cotton as well as
cotton seeds obtained after ginning had been sold to
registered dealers within the prescribed period or sold in
the course of inter-State trade and commerce. They further
claimed that the purchase price of those quantities of
ginned cotton and cotton seeds-so sold should be deducted in
calculating the taxable turn-over under s. 5 (2) (a) (vi) of
the Act. The assessing authority allowed the deduction of
the sale price (as against the purchase price) of the ginned
cotton sold to registered dealers as also the sale price of
the ginned cotton exported out of India or sold in the
course of inter-State trade- or commerce. The Sales-tax
Officer, however, declined to allow any deduction for
similar sales on cotton seeds. The assessee contended
before the High Court that the sale of cotton seeds, was a
sale of the goods purchased by them, in respect of which,
purchase tax was payable and since the sales were made to
registered dealers or in the course of inter-State trade,
the taxable turnover should be determined after deducting
the purchase price of the goods sold from the gross-
turnover.
On behalf of the State, it was contended that unginned
cotton and ginned cotton are two different things and if
unginned cotton is purchased and purchase tax paid on it and
later on the cotton is ginned and sold, no part of the goods
purchased can be considered to have been sold. It was urged
that cotton seed is a different thing from cotton and
therefore the sale price of cotton seeds cannot be deducted
under s. 5 (2) (a) (vi).
(1) [1964] 15 S.T.C. 865.
298
The High Court held that no manufacturing process is involv-
ed in ginning cotton and in the process of ginning no new
commodity is created. The High Court further held that when
a dealer buys unginned cotton, which is mixed with cotton
seeds and separates the two, by process of ginning and
proceeds to sell both the ginned cotton and the cotton
seeds, the dealer in tact sells the entire goods which he
had purchased. As deduction under S. 5 (2) (a) (vi) is to
be the turn-over on the purchase of goods which are sold and
as the goods (ginned cotton and cotton seeds) sold are the
same as purchased, the dealer is entitled to a full
deduction. As the assessing authority has not made the
assessment in accordance with the principles laid down by
the High Court, the order of assessment was quashed and the
assessing authority was directed to make a fresh assessment,
in accordance with the decision of the High Court. This
decision was rendered on May 14, 1964.
Certain other decisions of the Punjab High Court, similar to
the one in Patel Cotton Company Private Ltd.(1) were the
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subject of appeals and they were disposed of by this Court
on February 27, 1969 in State of Punjab and others v. M/s.
Chandulal Kishori Lal and others (2) to which we will refer
later.
In the mean while, certain other dealers dealing in cotton,
had challenged before the Punjab High Court the levy of pur-
chase tax under the Act on the ground that the levy opposed
to the Central Act. One of the contentions was that no
stage for collection of the tax, as is mandatory under the
Central Act, has been provided for in the Act. The Punjab
High Court, by its judgment and order dated November 23,
1965 dismissed the writ petitions filed by the assessees.
The assessee, Bhawani Cotton Mills Ltd.(3) came to this
Court in appeal on certificate. This Court after a very
elaborate and exhaustive consideration of the Act. as well
as the Central Act, by majority, upheld the contention of
the assessee and held in Bhawani Cotton Mills Ltd. v. State
of Punjab and another(3) that the scheme of levy of purchase
tax under S. 2 (ff) read with s. 5 and specially the terms
of s. 5 (2) (a) (vi) of the Act is illegal in that, contrary
to the provisions of s. 15 of the Central Act, no definite
stage at which the purchase tax in respect of cotton, a
declared commodity, is to be levied, has been indicated.
The judgment and order of the High Court were reversed and
the assessment orders quashed. This decision was rendered
on April 10, 1967. The years with which this Court was
concerned, in the said decision, were the years of
assessment 1960-61 and 1961-62.
The decision in Patel Cotton Company Private Ltd.(1) was the
subject of appeals in this Court in The State of Punjab and
others V. M/s. Patel Cotton Co. Pvt. Ltd., Bhatinda and
(1) [1964] 15 S.T.C 865 (2) [1969] 3 S.C.R. 849. (3) [1967]
3 S.C.R. 577.
299
other(1). This Court, by its judgment dated April 18, 1967
did not think it necessary to consider the correctness or
otherwise of the decision of the High Court that the
assessees, when they sold ginned cotton and cotton seeds,
had sold the same commodity that had been purchased by them.
The State appeal was dismissed on the short ground that the
levy of purchase tax was opposed to the Central Act, as held
by this Court in Bhawani Cottoni Mills Ltd. (2) . Though the
High Court had directed fresh assessments to be made in
accordance with its decision, this Court, however, quashed
the orders of assessment also.
We have already indicated that the certificates were issued
in the appeals before us by the High Court in view of the
fact that the decision in Patel Cotton Company Private
Ltd.(:’) was the subject of appeal in this Court. That
appeal was disposed of in the manner, referred to above.
In view of the decision of this Court in Bhawani Cotton
Mills L.t.d (2) two Ordinances were issued by the Governor
of Punjab, Ordinances Nos. 1 and 12 of 1967, dealing, among
other matters, with the levy of sales-tax regarding declared
goods. These Ordinances were replaced by the Amendment Act.
which received the assent of the Governor on December 29,
1967 and published in the State Gazette on December 30,
1967. Certain provisions of the Amendment Act, in so far as
they relate to declared goods, have to be referred to.
Section 2(1) incorporated in the Act after cl. (d) of s. 2 a
new clause defining "declared goods". The new clause (dd)
was as follows :
"(dd) "Declared goods" means goods declared
under section 14 of the Central Sales Tax Act,
1956, to be of special importance in inter
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State trade or commerce."
We have already referred to the fact that cl. (e) of s. 2 of
the Act defined the expression "goods". Section 5 of the
Amendment Act, incorporated various amendments in s. 5 of
the Act as follows :
"Section 5. Amendment of section 5 of Punjab
Act 46 of 1948. In section 5 of the principal
Act-
(a) in sub-section (1)-
(i) in the Second proviso, the words,
brackets, and figures "as defined in clause
(c) of section 2 of the Central Sales Tax Act,
1956, and such tax shall not be levied on the
purchase or sale of such goods at more than
one stage" shall be omitted
(1) C.A.S Nos. 1120, 1123 & 1214 of 1966 decided on 18-4-
1967.
(2) [1967] 3 S.C.R. 577. (3) [1964] 15 S.T.C. 865.
0Sup CI/72
300
(ii) after the second proviso, the following
proviso shall be inserted, namely :
"Provided further that with effect from the
date of commencement of the Punjab General
Sales Tax (Amendment and Validation)
Ordinance, 1967, the rate of tax shall not
exceed three paise in a rupee "in respect of
any declared goods";
(b) in sub-section (1-A) for the words "in
respect of such goods the words "in respect of
such goods other than declared goods" shall be
substituted and be deemed to have been
substituted with effect from the 16th day of
December, 1965."
(c) after sub-section (2) the following
subsection shall be inserted with effect from
the 1st day of October, 1958, namely :-
" (3) Notwithstanding anything contained in
this Act-
(a) in respect of declared goods, tax shall be
levied at one stage and that stage shall be-
(i) in the case of goods liable to sales tax,
the stage of sale of such goods by the last
dealer liable to pay tax under this Act
(ii) in the case of goods liable to purchase
tax, the stage of purchase of such goods by
the last dealer liable to pay tax under this
Act;
(b) the taxable turnover of any dealer for any
period shall not include his turnover during
that period on any sale or purchase of
declared goods at any stage other than the
stage referred to in sub-clause (i) or as the
case may be, sub-clause (ii) of clause (a)."
Section 9 of the Amendment Act incorporated a new section 11
AA in the Act, which is as follows :
"11AA. Review of certain assessments etc. of
tax on declared goods-
(1) Notwithstanding anything contained in this
Act, the Assessing Authority shall (whether or
not an application is made to him in this
behalf), review all assessments and re-
assessments made before the commencement of
the Punjab General Sales Tax (Amendment and
Validation) Act, 1967 in respect of declared
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goods and make such order varying or revising
the
301
order previously made as may be necessary for
bringing. the order previously made into
conformity with the provisions of this Act as
amended by the Punjab General Sales Tax
(Amendment and Validation) Act, 1967 :
Provided that no proceeding for review shall
be initiated without giving the dealer
concerned a notice in writing of not less than
thirty days.
(2) Any dealer on whom a notice is served
under sub-section (1) may within- thirty days
from the date of receipt of such notice
intimate in writing the assessing authority of
his intention to abide by the assessment or
re-assessment sought to be reviewed and if he
does so, the assessing authority shall not
review such assessment or re-assessment under
this section.
(3) No order shall be made under this section
against any dealer without giving such dealer
a reasonable opportunity of being heard.
(4) Notwithstanding anything contained in any
judgment, decree or order of any court or
other authority to the contrary but subject to
the provisions of the foregoing sub-sections
any assessment, re-assessment, levy or
collection of any tax in respect of declared
goods made or purporting to have been made,
and any action or thing taken or done or
purporting to have been taken or done in
relation to such assessment, re-assessment,
levy or collection, under the provisions of
this Act before the commencement of the Punjab
General Sales Tax (Amendment and Validation)
Act, 1967 shall be as valid and effective as
if such assessment, re-assessment levy or
collection or action or thing had been made,
taken or done under this Act as amended by the
Punjab General Sales Tax (Amendment and
Validation) Act, 1967."
From the various amendments made by the Amendment Act, in
the Act, the following aspects broadly emerge : There is a
definition of "declared goods" under s. 2(dd). Certain
omissions were made in the second proviso of the Act in view
of the specific definition of "declared goods" under s.
2(dd) and also in view of the fact that the stage, at which
tax is to be levied in respect of "declared goods" is
specifically dealt with under the new sub-section (3)
incorporated in section 5. The third proviso incorporated in
sub-section (1) of s. 5 of the Act provided that with effect
from the date of the Ordinance No. 12 of 1967, the rate of
tax in respect of declared goods was not to exceed 3
302
pies in a rupee. In sub-section ( 1-A) of s. 5 of the Act
"declared goods" have been excluded from the reference made
therein to "such goods". This amendment is also deemed to
have come into effect from December 16, 1965. The new sub-
section (3) added to S. 5 of the Act was to have effect from
October 1, 1958. Under the new sub-section (3), in respect
of declared goods, the stage of levy either in respect of
purchase or sale has also been definitely fixed. Under cl.
(b) of S. 3, certain turnovers in respect of sale or
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purchase of declared goods, as referred to therein, cannot
be included in the taxable turn-over. The new section 11 AA
makes it obligatory on the assessing authority, under the
circumstances mentioned therein, to review all assessments
and re-assessment made before the commencement of the Amend-
ment Act in respect of declared goods. There is also an
obligation cast on the officer to make orders varying or
revising the previous orders, so as to bring them into
conformity with the provisions of the Act, as amended by the
Amendment Act. Even the provisions contained under sub-
section (4) of S. 11 AA have been made subject to the
provisions of sub-sections (1) to (3) of the said section.
It will be seen from the amendments, referred to above, that
an entirely new scheme, so as to say, has been evolved in
the matter of assessment to sales tax of declared goods. In
the case before us, we are concerned with "cotton" which is
an item of "’declared goods" under the Central Act. There
is no controversy that purchase tax is to be levied in
respect of the said commodity. Under the new sub-section
(3) cl. (a) sub-clause (2) of S. 5 of the Act, in the case
of purchase tax, the levy is to be at the stage of purchase
of such goods by the last dealer. Therefore. the question
whether the assessee comes under this clause, for levy Of
purchase ’Lax, which is a question of fact, will have to be
investigated.
The Amendment Act itself was again challenged before this
Court in Writ Petition filed under Art. 32 of the
Constitution. We will now refer to the decision in the said
writ petition of this Court in Rattan Lal and Company and
another v. The Assessing Authority and another(1) rendered
on October 29, 1968. This Court, in the said decision had
to consider the attack made by certain assessees regarding
the validity of the Amendment Act. The contention of the
assessees was that the same infirmities, pointed out by this
Court in Bhawani Cotton Mills Ltd.(2) Still exist even in
the Amendment Act and hence the levy of sales tax on cotton
was illegal. After a reference to the infirmities pointed
out in the Act as it stood on April 1. 1960, in Bhawani
Cotton Mills Ltd.(2) and after a reference to the Amendment
Act, the contention of the assessees was rejected and it was
held that the
(1) [1969] 2 S.C.R. 544. (2) [1967] 3 S. C. R. 577.
303
Amendment Act cannot be struck down on the grounds raised
,by the assessees. This Court finally held that the
Amendment Act was valid and the retrospective effect given
to it was also equally valid and that the new s. 11AA was
not discriminatory. In this view, the attack on the
Amendment Act was rejected and the writ petition dismissed.
From the decisions of this Court in Bhawani Cotton Mills
Ltd.(1), The State of Punjab and others v. M/s Patel Cotton
Co. Pvt. Ltd. Bhatinda and others etc. (2), and Rattan Lal
and Company and another(3), it is clear that levy of sales
tax, under the Act as it stood on April 1, 1960 on declared
goods is illegal and void.
We have already referred to the fact that certain decisions
of the Punjab High Court, which had taken a view similar to
the one in Patel Cotton Company Private Ltd. (4 )were also
subject Of appeals in this Court. They were disposed of on
February 27, 1969 by the judgment of this Court in State of
Punjab and others v. M/s Chandulal Kishori Lal and
others(5).
The claim made by the assessees before the High Court was
that in calculating the taxable turn-over under s. 5 (2) (a)
(vi) of the Act, as it stood on April 1, 1960, deductions
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must be made on the purchase price of unginned cotton, which
has been sold later as ginned cotton and cotton seeds. The
High Court had accepted this contention. The State of
Punjab had filed the appeals in this Court. This Court in
the above, decision, accepted the contention of the State
that ginning process is a manufacturing process and that it
is by such a manufacturing process that the cotton and the
cotton seeds are separated. This Court further held that it
is not correct to say that the seeds so separated, is cotton
itself or part of the cotton. It is the further view of
this Court that they are two distinct commercial goods
though before the manufacturing process the seeds might have
been a part of the cotton itself. It was further held that
the contention of the assessees that the sale of cotton
seeds must be treated as a sale of declared goods under the
Central Act, cannot be accepted.In this view the decision of
the High Court was set aside and the appeal of the State was
allowed. The orders of the assessing authority declining to
grant deduction in respect of cotton seeds sold by the
assessees to registered dealers were confirmed.
In this decision there is a reference to the decision of the
High Court in Patel Cotton Company Private Ltd.(4).
According to Mr. Mahajan, the decision of this Court in the
State of Punjab and others v. M/s. Chandulal Kishori Lal
and others(5) having over-ruled the decision of the Punjab
High Court in Patel Cotton Company Private Ltd. (4 though
not directly, all the appeals before us must be allowed.
Prima facie and on a superficial consideration, it may
appear that the con-
(1) [1967] 3 S.C.R 577
(2) C. A. S. NOS. 1120.1123 & 1214 of 1966 decided on 18-4-
1967.
(3) [1969] 2 S. C. R. 544.
(4) [1964] 15 S.T.C. 865.
(5) [1969] 3 S.C R. 849.
304
tention of Mr. Mahajan is well-founded. Going by the actual
decision of this Court in the State of Punjab and others v.
M/s Chandulal Kishori Lal and others(1), it must be said
that the principle laid down by the Punjab High Court in
Patel Cotton Company Private Itd.(2), which decision has
been relied on by the High Court in the appeals before us,
must be considered to have been over-ruled. But there are
difficulties in accepting the contention of Mr. Mahajan,
that in view of this circumstance, the. State appeals
before us must be allowed.
We have already referred to the fact that the levy of sales
tax under the Act as it stood on April 1, 1960, on cotton,
which is an item of "declared goods" was struck down by this
Court in Bhawani Cotton Mills Ltd.(3). Certain provisions of
the Act were also struck down as violative of the provisions
of the Central Act. It was in- consequence of the decision
of this Court in Bhawani Cotton Mills Ltd.(3) that the
Amendment Act, which was preceded by the two Ordinances,
referred to above, came to be enacted. We have also
referred to the fact that the scheme of assessment regarding
declared goodshas been changed and altered by the Amendment
Act. Whenthe Amendment Act was again challenged before this
Court, the Constitution Bench in Rattan Lal and Company and
another(4) has approved the decision in Bhawani Cotton
Mills Ltd.(3) and accepted the position that under the Act,
as it stood on April 1, 1960, sales tax in respect of
declared goods could not be levied. Further it was pointed
out in Rattan Lal and Company and another (4) that the
infirmities that existed in the Act. as it stood on April 1,
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1960 had been removed and the Amendment Act was valid. With
great respect to the learned Judges, who decided the State
of Punjab and others v. M/s Chandulal Kishori Lal and
others(1), it must be held that there is absolutely no
reference to the decisions of this Court in Bhawani Cotton
Mills Ltd.(3) and Rattan Lai and another (4) . Nor is there
any reference to the decision in The State of Punjab and
others v. M/s Patel Cotton Co. Pvt. Ltd. Bhatinda and
others etc. (5) which were appeals filed by the State
directly challenging the decision of the High Court in Patel
Cotton Company Pvt. Ltd. (2) . All these three decisions,
as mentioned by us earlier, have uniformly held That no
sales tax can be levied under the Act, as it stood on April
1, 1960 in respect of declared goods. This Court in The
State of Punjab and others v. M/s Chandulal Kishori Lal and
others(1) had to deal with a case of assessment of sales tax
under the Act, as it originally stood, in respect of cotton,
which is an item of declared goods, for the assessment year
1961-62. Such an assessment for the said year had been
struck down as illegal and void in Bhawani Cotton Mills
Ltd.(3) and in The State of Punjab and others v.
(1) [169] 3 S.C R 849. (2) [1964] 15 S. T. C. 865.
(3) [1967] 3 S.C.R. 577. (4) [1969] 2 S.C.R. 544.
(5) C.A.s. Nos.1120,1123 & 1214 of 1966 decided on 18-4-67.
305
M/s Patel Cotton Co. Pvt. Ltd. Bhatinda and others etc.(1)
The, decision in State of Punjab and others v. M/s Chandulal
Kishori Lal and others(2) has, however, proceeded on the
basis that all the relevant assessments, with which they
were concerned, had to be dealt with under the Act, as it
stood on April 1, 1960 and that has to be applied to the
declared goods.
On such a reasoning, s. 5 (2) (a) (vi) of the Act was
applied and the assessment held to be valid and the
deductions declined by the officer were approved. In our
opinion, the decision in the State of Punjab and others v.
M/s Chandulal Kishori Lal and others(2) cannot enable the
appellant, State, to have the appeals before us straightaway
allowed. That will amount to ignoring the decisions of this
Court in Bhawani Cotton Mills Ltd.(3). Rattan Lal and
Company and another(4) and The State of Punjab and others v.
M/s Patel Cotton Co. Pvt. Ltd. Bhatinda and others
etc.(1).
More important than all these, is the circumstance, that by
accepting the contention of Mr. Mahajan, we will be
completely ignoring the provisions of the Amendment Act
which, we have already said, has evolved a new scheme
regarding the levy of sales tax in respect of declared
goods. The decision in the State of Punjab and others v.
M/s Chandulal Kishori Lal and others(") can at the most be
considered to have decided that cotton seeds are not
declared goods and that it is by the manufacturing process
that cotton and cotton seeds are separated. As the Act, as
amended by the Amendment Act, has to be applied in respect
of assessment of sales tax on declared goods, the decision
in the State of Punjab and others v. M/s Chandulal Kishori
Lal and others(2), is, in our opinion, no bar to the
assessees urging their objections regarding the validity of
the orders of assessment. Further, this Court had no
occasion to consider in the State of Punjab and others v.
M/s Chandulal Kishori Lal and others (2), whether when
unginned cotton has been purchased and the entire quantity
of ginned cotton obtained therefrom has been sold, the price
obtained from the latter is "a turn-over on the purchase of
goods which are sold" within the meaning of s. 5(2)(a)(vi),
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even on the basis that the said provision applies. Further,
in the said decision, this Court had no occasion to consider
the question whether purchase price or sale price has to be
taken into account under cl. (vi), nor had it occasion to
consider the question whether the mere sale of cotton seeds,
even though the entire ginned cotton obtained from unginned
cotton originally purchased, had been sold, will make any
difference in such circumstances. Ail these matters have
neither been adverted to nor considered by this Court in the
said decision. In fact, if we may say so with respect, when
an assessment tinder the Act, as it stood on April
(1) C.A.s. NOs. 1120,1123 & 1214 of 1966 decided on 18-4-67.
(2) [1969] 3 S.C.R.849. (3)[1967] 3 S.C.R.577.
(4) [1969] 2 S.C.R.544.
306
1, 1960 in respect of declard goods is illegal, the question
what deduction, if any, should or should not be allowed in
calculating the turnover in respect of such goods, should
not at all arise.
From the discussions contained above, it follows that the
assessments before us, cannot be confirmed on the basis of
the Act, as it stood on April 1, 1960, as urged by Mr.
Mahajan. That contention is opposed to the decision of this
Court in Bhawan. Cotton Mills Ltd.(1).
It may also be pointed out that even in the writ petition,
the assessees have challenged that the levy of sales tax is
illegal, as no stage has been fixed as is mandatory under
the Central Act. No doubt, the High Court has not
considered this question, as it was satisfied that the writ
petitions can be disposed of on the basis of the decision in
Patel Cotton Company Private Ltd.(2).
We have already referred to the elaborate provisions made in
the new section 11AA added in the Act by s. 9 of the Amend-
ment Act. The new section casts a duty on the assessing
authority, even without any application being made by the
assessee in that behalf, to review all assessments and re-
assessments made before the commencement of the Amendment
Act in respect of declared goods. There is no controversy
that the assessment orders, in the cases before us, have all
been made before the date of commencement of the Amendment
Act. If so, the assessing authority has to exercise his
jurisdiction under s. 11AA. It is also obligatory on his
part to vary or revise the previous orders of assessment so
as ’Lo bring them in conformity with the provisions of the
Act as amended by the Amendment Act, after following the
procedure indicated therein. The fact that there is a
judgment of a Court is also no bar to the assessing
authority to do his duty cast upon him under s. II AA. This
has been made clear by sub-section (4) to s. 11AA, which
makes the said subsection Subject to the provisions of sub-
sections (1) to (3) of the section.
In view of the specific provisions contained in s.11 AA, we
do not think it necessary to consider and express any
opinion regarding the contention of Mr. Gupte. The
assessees are entitled to raise all objections available to
them in law or on facts in respect of declared goods, when
the assessing authority takes action tinder S. II AA of the
Act, as he is bound to do. But we .make it clear that in
the fresh assessment proceedings, the assessing authority
has to consider the matter, in the light of the provisions
of the Amendment Act incorporated in the Act; and the
(1) [1967] 3 S.C.R. 577.
(2) [1964] 15 S.T.C. 865.
307
decision of this Court is the State of Punjab and others v.
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M/s Chandlal Kishori Lal and others(1) cannot operate to the
prejudice of the assessees. We have already made it clear
that the said decision has decided the question of
assessment ofdeclared goods under the provisions of the
Act, as they stood onApril 1,1960, which provisions have
no application for levy ofsales tax in respect of
declared goods as held by this Court in Bhawani Cotton Mills
Ltd. ( 2 ) and two other cases, referred to above.
Therefore, the fresh revised assessments will have to be
made, without reference to the decision in the State of
Punjab and others v. M/s Chandulal Kishori Lal and
others(1), which decision has no application, when the
question has to be now decided, on the basis of the Act, as
amended by the Amendment Act.’
We have already pointed out that in all the appeals, except
in Civil Appeal No. 1466 of 1969, the learned Single Judge
has directed the assessing authority to reconsider and vary
the order of assessment. That direction has been confirmed
by the Letters Patent Bench in the said appeals. Those
directions, in our opinion, do not require any interference
by this Court, except to make it clear that the fresh
assessments will have to be made under s. 11 AA of the
Amendment Act, and subject to the directions contained in
this judgment.
Regarding Civil Appeal No. 1466 of 1969, the learned Single
justified in quashing the assessments order in toto. The
proper confirmed by the Letters Patent Bench in Letters
Patent Appeal No. 127 of 1965. In our opinion, the High
Court was not justified in quashing the assessment order in
toto. The proper direction should have been, as given in
other writ petitions, namely, to direct the assessing
authority to reconsider the assessment order. Therefore,
the order of the learned Single Judge in Civil Writ No. 810
of 1964, as confirmed in Letters Patent Appeal No. 127 of
1965, quashing the order of assessment dated March 10, 1964,
will have to be set aside. The assessing authority will
reconsider and revise the assessment order dated March 10,
1964 in accordance with the provisions of s.. 11AA of the
Act and pass a revised order of assessment in conformity
with the Act, as amended by the Amendment Act.
Before closing, we must mention that Mr. Gupte, brought to
our notice a decision of the Punjab High Court reported in
M/s Aryavarta Industries Pvt. Ltd. v. The State of Punjab
and another (3) regarding as to how the assessment is to be
made in respect of declared goods, after the Amendment Act.
As we
(1) [1969] 3 S.C.R 849.
(3) [1970] Revenue Law Reporter 341.
(2) [1967] 3 S.C.R. 577.
308
have directed the assessing authority to exercise his
jurisdiction under s. II AA, we do not think it necessary to
deal with this decision any further.
Subject to the directions and observations contained above,
Civil Appeals Nos. 2319 and 2320 of 1968 and 1467, 1468,
1469 and 1470 of 1969 are dismissed. Civil Appeal No. 1466
of 1969 is allowed to the limited extent of modifying the
order of the High Court, as indicated earlier. Parties will
bear their own costs in all these appeals.
G.C.
C.A. No. 1466 of 1969 allowed
in part. Other appeals dismissed
309
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