Full Judgment Text
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PETITIONER:
STATE OF PUNJAB & ORS.
Vs.
RESPONDENT:
M/S. CHANDU LAL KISHORI LAL & ORS. ETC.
DATE OF JUDGMENT:
27/02/1969
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
HIDAYATULLAH, M. (CJ)
MITTER, G.K.
CITATION:
1969 AIR 1073 1969 SCR (3) 849
1969 SCC (1) 695
ACT:
Punjab Sales Tax Act (Punj. 46 of 1948), s. 5(2) (a) (vi)-
Deduction of sale price of cotton seeds from purchase
turnover it permissible.
HEADNOTE:
The respondent a dealer purchased unginned cotton and after
ginning the cotton and removing the seeds sold the ginned
cotton to customers outside the State. The respondent
paid parchase tax on the purchase turnover. In respect of
cotton seeds sold by it to registered dealers,the
respondent claimed deduction from the parchase turnover
under s. 5 (2) (a) (vi) of the Punjab Sales Tax Act, 1948.
But the assessing authority did not allow the deduction
holding that the goods sold viz., cottonseeds were not the
goods in respect of which purchase taxhad been levied as
the unginned cotton underwent a manufacturing process and
the goods. produced were different from those purchased.
The respondent filed a writ petition in the High Court,
which was allowed and the State’s Letters. Patent Appeal
was dismissed. Allowing the State’s appeal, this Court;
HELD : The respondent was not entitled to deduction under s.
5(2) (a) (vi) of the Act in respect of cotton seeds sold by
it to registered dealers.
"Declared goods" in s. 14 of the Central Sales Tax Act 1956
are individually specified under separate items. "Cotton
ginned’ or unginned" is, treated as a single commodity under
one item of declared goods. It is. evident that cotton
ginned or unginned being. treated as a single commodity and
as a single species of declared goods cannot be subject
unders. 15(a) of the Central Sales Tax Act to a tax
exceeding two per cent of the sale or purchase price thereof
or at more than one state. But so far as cotton seeds are
concerned it cannot be held that the sale of cotton seeds
must be treated as a sale of ’declared goods for the purpose
of is. 15(a) or (b) of the Central Sales Tax Act, 1956.
Cotton in its unginned state contains cotton seeds, but it
is by a manufacturing process that the cotton and the seed
are separated and it is not correct to say that the seed so
separated is cotton itself or part of the cotton. They are
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two. distinct commercial goods though before the
manufacturing process the seeds might have been a part of
the cotton itself. [853 E]
Patel Cotton Company Private Ltd. v. State of Punjab & Ors.,
15 S.T.C. 865, disapproved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2516 to
2519 of 1966.
Appeals from the orders dated February 10, 1965, March 31,
1965 and March 19, 1965 of the Punjab High Court in Letters.
Patent Appeals Nos. 38, 36, 100 and 74 of 1965, respectively
and. Civil Appeals Nos. 806 and 807 of 1967.
850
Appeals from, the jadgment and orders dated September
28, 1964 of the Punjab High Court in civil writ Nos. 2159
and. 2309 of 1963.
V. D. Mahajan, and R. N.Sachthey, for the appellants
(in all the appeals).
Hardev Singh, for the respondents (in C.As. Nos. 2517 and
2519 of 1966) and for the respondents (in C.As. Nos. 806 and
807 of 1967).
Civil Appeal No. 2518 of 1966
The Judgment of the Court was delivered by
Ramaswami, J. In this case the respondent is a partnership
firm carrying on the business of buying and selling cotton
and also of ginning and pressing cotton at Bamala. The
respondent purchased unginned cotton and after ginning the
cotton by a mechanical process and removing the seeds sold
the ginned cotton to customers outside, the State. For the
period from 1st April, 1961 to 31st March, 1962 the
respondent paid purchase tax on the purchase turnover. In
respect of cotton seeds sold by it to registered dealers,
the respondent claimed deduction from the purchase turnover
under s. 5 (2) (a) (vi) of the Punjab Sales Tax Act, 1948
(Act No. 46 of 1948). But, the assessing authority did not
allow the deduction holding that the goods sold viz., cotton
seeds were not the goods in respect of which purchase tax
had been levied. In other words, the assessing authority
took the stand that the uncotton underwent a manufacturing
process and the goods produced were different from those
purchased. So the respondent firm was assessed to pay a tax
of Rs. 16,452 by the order of the assessing authority dated
11th September, 1963. The respondent firm thereafter filed
a writ petition No. 1917 of 1963 in the Punjab High Court
for quashing the assessment. The writ petition was allowed
by the High Court which quashed the assessment and directed
the assessing authority to redetermine the tax in the light
of its judgment. In allowing the writ petition of the
respondent the High Court followed its previous decision in
Patel Cotton Company Private Ltd. v. State of Punjab &
Ors.(1). The appellants preferred a Letters Patent Appeal
which was dismissed. The present appeal is brought by,
certificate from the judgment of the Punjab High Court dated
31st March, 1965.
It is necessary at this stage to set out the relevant
provisions ,of the Punjab Sales Tax Act, 1948 (Act No. 46 of
1948) (hereinafter called the Act). Section 2(ff) omitting
immaterial portions defines ’purchase’ thus:-
(1) 15 S.T.C. 865.
851
"Purchase, with all its grammatical cognate
expressions means the acquisitions of goods
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specified in Schedule C............"
Schedule C Entry (1) and Entry (3) read thus
"(1) Cotton, that is to say, all kinds of
cotton (indigenous or imported) in its
unmanufactured state whether gined or
unginned, baled, pressed or otherwise, but not
including cotton waste".
" (3) Oil seeds that is to say, seeds
yielding nonvolatile oils used for human
consumption or in or in the manufacture of
varnishes, soaps and the like or in
lubrication and volatile oils used chiefly in
medicines, perfumes, cosmatics and the like".
Section 5 (2) (a) (vi) of the Act is to the following effect
"5 (2). In this, Act the expression
"taxable, turnover" means that part of
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 country".
Section 2(c) of the Central Sales Tax Act, 1956 (Act No. 74
of 1956) defines ’declared goods’ to mean goods declared
under section 14 to be of special importance in inter-State
trade or commerce. Under section 14 of this Act certain
goods were declared to be of special importance in inter-
State trade or commerce and they included cotton, that is to
say all kinds of cotton (indigenous or imported) in its
unmanufactured state, whether ginned or unginned, baled,
processed or otherwise, but not including cotton waste.
Section 15 of the Central Sales Tax Act, 1956 has been
amended from time to time. Originally section 15 read as
follows :-
"15, Restrictions and conditions in regard to
tax on sales or Purchases of declared goods :
Notwithstanding anything contained in the
sales tax law of any State the tax payable by
any dealer, under that law in respect of any
sales or purchases of declared goods made by
him inside the State shall not exceed two per
cent of the sale price thereof, and such tax
shall not be levied at more than one stage in
a State".
(1) Sup. C.I.169-5
852
This section was amended by the Central Sales Tax
(Amendment) Act (No. 16 of 1957) and again by Central
Act No. 31 of 1958 and the amended section reads as
follows :-
"15. Restrictions and conditions in regard to
tax on sale or purchase of declared goods
within a State : 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 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 two per
cent of the sale or purchase price there of,
andsuch tax shall not be levied at more
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than one stage;
(b)where a tax has been levied under that law
in respect of the sale or purchase inside the,
State of any declared goods and such goods are
sold in the course of inter-State trade or
commerce, the tax so levied shall be refunded
to such person in such manner and subject to
such conditions as may be provided in any law
in force in that State".
On behalf of the appellants the argument was stressed that
ginning process was a manufacturing process, and ginned
cotton and cotton seeds were different commercial
commodities and the respondent was not entitled to the
exemption under s. 5 (2) (a) (vi) of the Act. It was said
that unginned cotton was transformed into two distinct
commercial commodities and there was no substantial identity
between unginned cotton and ginned cotton or cotton seeds.
It was argued that the ginning process required complicated
machinery of manufacture. Reference was made in this
connection to the mechanical aspect of the ginning process
described in Encyclopaedia Britannica, Vol. 6:--
"Hand separation of lint and seed was
replaced rapidly use of saw-type gins in the
United States after the inventions of Eli
Whitney in 1794 and of Hokden Holmesin 1796.
Whitney’s gin was improved upon by Holmes.who
substituted toothed saws for the hooked
cylinder and flat metal ribs for the slotted
bar used by Whitney. The saws, metal ribs and
doffing brush in these early models persist in
modem gins, with no basic change in ginning
principle having be-en made, although some
modem gins substitute an air blast for the
doffing brushes.
853
Additional gin machinery has been developed to
keep pace with changes in harvesting practices
which have resulted in a trend from careful
hand picking to, rougher hand and machine
harvesting. These developments include seed-
cotton driers, seed-cotton cleaners, burr
extractors, greenboll traps and magnetic
devices for removing metal. Line cleaners,
designed to remove trash from lint after it
had been removed from the seed, were added to
modem gins in the late 1940s and 1950s.
Improvement in grade, which resulted in a
higher price for the lint, was, in some cases,
offset by the loss in weight. Gin
installations include presses for baling the
lint and equipment for moving the seed away
from the gin stands. While some of the seed
is saved for planting purposes, most of it
moves directly to an oil mill for
processing"(1).
In our opinion, the appellants are right in their contention
that the ginning process is a manufacturing process. But
the question presented for determination in the present case
is somewhat different viz., whether the respondent is
entitled to the exemption under s. 5 (2) (a) (vi) of the Act
in the context and setting of the language of sections 14
and 15 of the Central Sales Tax Act, 1956. "Declared goods"
in section 14 of the Central Sales Tax Act, 1956 are
individually specified under separate items. "Cotton ginned
or unginned" is treated as a single commodity under one item
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of declared goods. It is evident that cotton ginned or un-
ginned being treated as a single commodity and as a single
species of declared goods cannot be subject under s.- 15 (a)
of the Central Sales Tax Act to a tax exceeding two per cent
of the sale or purchase price thereof or at more than one
stage. But so far as cotton seeds are concerned, it is
difficult to accept the contention that the sale of cotton
seeds must be treated as a sale of declared goods for the
purpose of s. 15 (a) or (b) of the Central Sales Tax Act,
1956. It is true that cotton in its unginned state contains
cotton seeds. But it is by a manufacturing process that the
cotton and the seed are separated and it is not correct to
say that the seeds so separated is cotton itself or part of
the cotton. They are two distinct commercial goods though
before the manufacturing process the seeds might have been a
part of the cotton itself. There is hence no wan-ant for
the contention that cotton seed is not different from
cotton. It follows that the respondent is not entitled to
deduct the sale price of the cotton seeds from the purchase
turnover under s. 5 (2) (a) (vi) of the Act. In our
opinion, the assessing authority was right in holding that
the respondent was not entitled to deduction in respect of
cotton seeds sold by it to registered dealers. It is
conceded that the assessing authority had
(1) Encyclopaedia Britannica, Vol. 6, page 614.
854
already granted deduction under s. 5 (2) (a) (vi) so far as
ginned cotton is concerned.
For these reasons we hold that the judgment of the
Punjab High Court dated 31st March, 1965 in Letters Patent
Appeal No. 100 of 1965 should be set aside and the writ
petition No. 1917 of 1963 filed by the respondent should be
dismissed. The appeal is accordingly allowed with costs.
Civil Appeals Nos. 2516-2517 & 2519 of 1966 and Civil
Appeals Nos. 806 and 807 of 1967
The question of law arising in these appeals has
been the subject matter of consideration in Civil Appeal No.
2518 of 1966. For the reasons given in that judgment we
hold that these appeals also should be allowed and the
judgments of the Punjab High Court should be set aside and
the writ petitions filed by the respondents in each case
should be dismissed. These appeals are accordingly allowed
with costs. There will be one hearing fee for these appeals
and for Civil Appeal No. 2518 of 1966.
Y.P. Appeals allowed.
855