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PETITIONER: STATE OF GUJARAT

       Vs.

RESPONDENT: M/S.  ANANTA MILLS LTD.

DATE OF JUDGMENT: 23/11/1965

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR  953            1966 SCR  (2) 669

ACT:      Bombay  Sales Tax (Exemption, set-off and  Composition) Rules,  1954, rr. 6 and  12--Purchase Tax paid  on  unginned cotton--Ginned  Cotton used in manufacture--Sale  of  Cotton seeds--Purchase tax, if refundable.

HEADNOTE:      The  respondent,  a manufacturer  of  cotton  Textiles, purchased  unginned  cotton and paid purchase  tax  thereon. The  cotton  was ginned and pressed by the  respondent,  the ginned cotton was used in the manufacture of cotton  textile while  the  cotton seeds were sold by  it.   The  respondent claimed  refund of purchase tax paid on the unginned  cotton under   the  Bombay  Sales  Tax  (Exemption,   Set-off   and Composition)  Rules, 1954 which was disallowed by the  Sales Tax  authorities  on  the  ground  that  r.  6(ii)  was  not applicable  when subsidiary or incidental product alone  was ,,old  and the main product was used in the  manufacture  of the goods and looking at the working of the aforesaid  Rule, all  the products of the unprocessed goods should  be  sold. In  reference,  the  High Court allowed the  refund  of  the purchase tax under r. 12(i).      HELD  : The respondent was entitled to refund under  r. 12(i).      What  is necessary under rule 12(i) is that  the  goods should  have  been actually used for the  purpose  specified viz., the production of any of the goods aforementioned  for sale.   These  conditions have been satisfied in  this  case because  unginned  cotton  was  used  for  the  purpose   of producing  one of the goods specified in column 2 for  sale, namely, cotton seeds. [672 H]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 807  of 1964.      Appeal  by  special leave from the judgment  and  order dated December 10, 1962 of the Gujarat High Court in  Sales- tax Reference No. 8 of 1961.      R.  Ganapathy  Iyer  and B. R. G.  K.  Achar,  for  the

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appellant.      I. N. Shroff, for the respondent.      The Judgment of the Court was delivered by      Sikri,  J.  This appeal by special  leave  is  directed against  the judgment of the Gujarat High Court in  a  Sales Tax Reference made to it by the Gujarat Sales Tax  Tribunal. Two questions were referred by the said Tribunal to the High Court                     "1.    Whether   in   the   facts    and               circumstances of the case, the purchase of the               raw cotton by the applicant Mill 670               could be said to have been intended for use in               the production of cotton seeds for sale within               the  meaning of clause (ii) of rule 6  of  the               Bombay  Sales  Tax  (Exemption,  Set-off   and               Composition) Rules, 1954;               2.  Whether  the applicant  Mill  is  entitled               under  rule 12(1) to a refund of the  purchase               tax paid by it."     The  facts set out in the statement of the case  by  the Tribunal  are  briefly  as follows :  The  respondent  is  a manufacturer  of cotton textile, particularly of coarse  and medium  variety  cloth.  During the assessment  period  from April  1,  1955  to March 31, 1956,  it  purchased  unginned cotton  worth Rs. 5,93,266/- from unregistered  dealers  and paid  purchase  tax  of Rs. 5,932/- under S.  10(a)  of  the Bombay  Sales  Tax  Act, 1953.  The cotton  was  ginned  and pressed by the respondent, the ginned cotton was used in the manufacture  of cotton textiles while the cotton seeds  were sold by it.  During the course of assessment proceedings the respondent  applied for refund of purchase tax paid  on  the unginned cotton under the Bombay Sales Tax (Exemption,  Set- off  and Composition) Rules, 1954, (hereinafter referred  to as  the Rules).  The Sales Tax Officer refused to allow  any refund on the ground that the conditions of r. 12 ( 1 ) read with  r.  6 (ii) of the Rules had not been  fulfilled.   The Assistant  Collector  of Sales Tax on appeal  confirmed  the order  of  the Sales Tax Officer on the  ground  that  "rule 6(ii)  is  not  applicable  when  subsidiary  or  incidental product  alone is sold and the main product is used  in  the manufacture  of  other goods.  Looking the  working  of  the aforesaid  Rule, all the products of the  unprocessed  goods should be sold."      The  respondent  filed  a revision  before  the  Deputy Commissioner of Sales Tax, who also upheld the order of  the Sales  Tax  Officer.  The respondent then filed  a  revision before  the  Gujarat  Sales  Tax  Tribunal.   The   Tribunal rejected  the  revision  on the  ground  that  "the  purpose underlying  the  applicant’s  purchases  was  primarily  the production  of  ginned cotton for manufacture.   The  cotton seeds  which  form the bye-product of  the  ginning  process would  no doubt have to be sold because the Mill has no  use for them.  But that does not mean that the purpose for which unginned cotton was purchased was the sale of cotton  seeds. It  is  not  reasonable  to  suppose  that  a  textile  mill purchases  unginned  cotton for the purpose of  selling  the cotton seeds." At the instance of the respondent, as already stated,  the Tribunal referred the case to the  High  Court. The High Court answered question 671 No. 2 in the affirmative, but did not answer question No.  1 on  the  ground  that the answer to  the  question  was  not relevant  for  the  purpose of  determining  the  matter  in controversy.

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   Mr.   Ganapathy  Iyer,  the  learned  counsel  for   the appellant, contends before us that the Sales Tax authorities were  right in refusing to allow a refund,to the  respondent and that the High Court erred in   answering   the    second question in favour of the respondent.In order to  appreciate the  contentions of the parties,it is necessary to  set  out ff. 6 and 12 and the Schedule to the Rules.                   "  6.  Classes of sales on  which  general               sales  tax shall not be payable.  The  general               sales  tax leviable under section 9 shall  not               be payable in respect of the following classes               of sales                    (i)  ..     ..   ...    ...    ...                    (ii)  Sales  of any goods  falling  under               any  entry  specified  in  column  1  of   the               Schedule  hereto  to  a  dealer  who  holds  a               licence  under  s.  12 who  furnishes  to  the               selling  dealer  a  certificate  in  Form  (4)               declaring  that  the  goods sold  to  him  are               intended  to be used by him in  producing  any               goods falling under the corresponding entry in               column 2 of the said Schedule for sale                         SCHEDULE Goods from which the goods specified       Goods produced in Goods produced column 2 are produced             1                                    2 -------------------------------------------------------------. 1.Cotton in pod; unginned or unpressed  cotton                   Unginned cotton; ginned                                    or pressed cotton; cotton                                    seeds.       x x                                    x x --------------------------------------------------------------  .lm15    12.    Refund  and remission of purchase tax  in  certain cases.-    (1)    Where  a  dealer  who  has  purchased  any   goods specified  in  clauses (i) or (ii) of rule 6  shows  to  the satisfaction  of the Collector that they have been  used  by him  for  the  purpose specified in  the  said  clause,  the Collector shall on application for refund made by the  672               dealer  in the manner specified in rule 25  of               the Bombay Sales Tax (Procedure) Rules,  1954,               refund  to such dealer the amount of  purchase               tax  paid by him in respect of such  purchase;               or  where the amount of purchase  tax  payable               under  clause (a) of section 10 in respect  of                             such  purchase  has  not  yet  been  p aid,  the               Collector  shall by order remit the amount  so               payable."     Mr.  Ganapathy Iyer contends that when r. 12  speaks  of the  purpose  specified in cl. (ii) of r. 6,  it  means  the purpose   of   "producing  any  goods  falling   under   the corresponding  entry  in column 2 of the said  Schedule  for sale."  In  other words, he says that the  purpose  must  be producing  unginned  cotton,  ginned or  pressed  cotton  or cotton  seeds  for  sale,  and if any  of  these  goods  are produced but not sold then r. 12 does not apply.      Mr. Shroff, on the other hand, contends that the  words "purpose specified in the said clause" only mean the purpose of producing any goods falling under the corresponding entry in  column 2 of the Schedule, and he wants us to  omit  from consideration  the  words  "for sale".  We  agree  with  Mr.

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Ganapathy  Iyer  that  the purpose must be  the  purpose  of producing  goods-unginned cotton, ginned or pressed  cotton, cotton  seeds-for  sale, and the words "for  sale"  must  be given effect to.     But  even  if this contention of Mr. Ganapathy  Iyer  is accepted  the  respondent would still, in  our  opinion,  be entitled  to  refund under r. 12(1).  Rule 6 speaks  of  the intention  at the time of the purchase, but r. 12  does  not incorporate  that  intention  by referring  to  the  purpose specified  in cl. 6(ii).  The intention at the time  of  the purchase  is  irrelevant for the purpose of r.  12.   In  r. 6(ii)  intention was relevant because the purchasing  dealer had  to furnish to the selling dealer a certificate in  Form (4) declaring that the goods sold to him were intended to be used by him for producing any of the goods falling under the corresponding  entry  in Column 2 of the said  schedule  for sale.   But  when the respondent paid the  purchase  tax  on unginned  cotton  under  s. 10(a) of the  Act,  he  paid  it because  he  purchased the same from persons  who  were  not registered dealers, and there was no question of  furnishing any  certificate at that stage.  As the High Court  observed "what  is necessary is that goods should have been  actually used  for the purpose specified viz., the production of  any of the goods aforementioned for sale." These conditions have been satisfied in this case because unginned cotton was used for  the purpose of producing one of the goods specified  in column 2, namely, cotton 673 seeds.  Consequently, the respondent is entitled to a refund under  r. 12 and the High Court was right in  answering  the second question in the, affirmative.  We also agree with the High  Court that in view of its answer to question No. 2  it is not necessary to answer question No. 1. In  the result the appeal fails and is dismissed with  costs here and in the High Court.                               Appeal dismissed. 674