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PETITIONER: M/S.  J. K. COTTON SPINNING & WEAVING NULLS CO. LTD.

       Vs.

RESPONDENT: SALES TAX OFFICER, KANPUR AND ANOTHER

DATE OF JUDGMENT: 28/10/1964

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

CITATION:  1965 AIR 1310            1965 SCR  (1) 900  CITATOR INFO :  R          1967 SC 234  (11)  RF         1976 SC2469  (2,3,9)  R          1989 SC2066  (4)  RF         1990 SC 196  (3)  E          1990 SC1893  (5)  RF         1991 SC2222  (15)

ACT: Sales  Tax-Company  manufacturing textile goods  and  tiles- Goods  "intended  for use in manufacture  or  processing  of goods  for  sale"  -Drawing  material,  photographic  goods, electricals, certain building materials whether such  goods- Central  Sales Tax Act, 1965, s. 8(3) (b) read with Rule  13 framed under s. 13 of the Act.

HEADNOTE: The assessee, a limited company carrying on the business  of manufacturing textile goods, tiles and other commodities, at Kanpur,  applied for registration under s. 7 of the  Central Sales  Tax  Act, 1956, and requested that certain  goods  be specified in its certificate of registration for the purpose of  getting benefit under s. 8(1) of the Act.  According  to s.  8(3)(b) of the Act read with r. 13 framed under the  Act the  assessee could get the aforesaid benefit in respect  of goods  which  were "intended for use in the  manufacture  or processing  of  goods for sale".  The Sales Tax  Officer  at first  accepted the assessee’s claim in respect of  all  the goods  as  requested by the assessee but later  on  directed that certain goods, namely, "drawing material,  photographic material,  building  materials  including  lime  and  cement (except  cement  used in manufacture of tiles  for  resale), electricals, iron and steel, and coal", be deleted from  the assessee’s certificate of registration.  Against this  order the  assessee  filed  a  petition  under  Art.  226  of  the Constitution.  The High Court, dismissing the petition, held that  drawing  materials,  photographic  materials,  colour, chemicals, electricals machinery and building materials such as  cement and lime were not comprehended in the  expression "in the manufacture or processing of goods for sale"  within the  meaning of s. 8(3) (b) read with r. 13.   The  assessee appealed to this Court.

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HELD : It was not open to the High Court to expand the scope of the petition challenging the correctness of the order  of the  Sales Tax Officer, and to deal with matters which  were never  in issue or to decide that other categories of  goods (colour,  chemicals,  machinery etc.), which the  Sales  Tax Officer  had not ordered to be deleted, did not fall  within the terms of s. 8 (3) (b) read with r. 13. [903 E] Where any particular process is so integrally connected with the ultimate production of goods that but for that  process, manufacture  or processing of goods would be  impossible  or commercially  inexpedient,  goods required in  that  process would  fall  within the expression "in  the  manufacture  of goods".   For  goods to answer that description, it  is  not necessary  that  they must of necessity be goods  which  are used as "ingredient or commodity in the creation of  goods", or  which are "directly and actually needed for turning  out or making of the goods." [905 F-G] Applying the above test, drawing and photographic  materials used for the making of designs for cloth to be  manufactured by  the company, and electrical equipment necessary for  the production  of goods e.g., humidifiers, exhaust  fans  etc., are which qualify for special treatment under s. 8(1).   But electrical  equipment which is not directly  connected  with the process 901  of  manufacture  such as  fans,  coolers,  air-conditioning units,  and building material including lime and cement  not required  in  the manufacture of tiles for sale,  would  not fall under that category. [907 F-G; 908 A-B) Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar and Others relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 857 of 1964. Appeal  by special leave from the judgment and  order  dated April  27, 1964, of the Allahabad High Court in Civil  Misc. Writ Petition No. 2367 of 1962.  Sri Narain Andley and Rameshwar Nath, for the appellant. O. P. Rana, for the respondents. The Judgment of the Court was delivered by  Shah  J.  Messrs J. K. Cotton Spinning  and  Weaving  Mills Company  Ltd.  is  a  public  limited  Company  having   its registered  office at Kanpur.  The Company manufactures  for sale  cotton  textiles, tiles and  other  commodities.   The Company  applied on June 21, 1957, requesting the Sales  Tax Officer, Sector II, Kanpur, to register it as a dealer under S. 7(1) of the Central Sales Tax Act, 1956, and prayed  that the  following  goods which it ordinarily purchased  in  the course  of  inter-State  trade  may  be  specified  in   the certificate :               Cotton   staple  fibre,  yam,  wastes,   coal,               petrol,   machinery,   electricals,    spares,               hardwares,   dyes  and   colours,   chemicals,               auxiliaries,   oils,   lubricants,    tallows,               starches,  woollen  clothings,  gums,   clays,               salt,  beltings,  bobbins,  shuttles,   wooden               accessories   and   other  mill   stores   for               manufacturing  cloth, yarn, tiles  and  paints               etc." The  Sales  Tax Officer granted the certificate  as  prayed. The  certificate of registration was later modified and  the following additional categories of goods were specified :               "Industrial   gases,   drawing    instruments,

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             photographic   materials,  packing   materials               including  wood, paper, straw and  card-boards               etc.  and building materials  including  iron,               steel,  cement, lime, fire bricks and  refrac-               tories.  " 902 Thereafter  by  notice dated July 19, 1961,  the  Sales  Tax Officer  cancelled the specification in respect of coal  and called upon the Company to show cause why the certificate of registration  be  not  amended so as  to  exclude  therefrom "drawing   instruments,  photographic  materials,   building materials including iron, steel, cement and lime and certain goods  covered  under the term  electricals".   The  Company showed  cause against the notice and contended that all  the articles  specified in the certificate were required in  the manufacture  and  processing of goods for  sale.   By  order dated  August  9, 1962 the Sales Tax Officer  directed  that from  the  registration certificate the following  items  be deleted;               "Drawing   material,  photographic   material,               building  material including lime  and  cement               (except  cement used in manufacture  of  tiles               for re-sale), electricals. iron and steel  and               coal", and called upon the Company to surrender the certificate  of registration  within  three  days for  making  the  proposed amendments. The Company then applied to the High Court of Judicature  at Allahabad for a writ of certiorari calling for the record of the  case and quashing the order dated August 9,  1962.   At the  trial,  counsel  for  the Company  did  not  press  the petition  in respect of iron, steel and coal.   Counsel  for the Company submitted that the remaining items were  covered by s. 8(3)(b) of the Central Sales Tax Act read with Rule 13 framed under s. 13 of the Act, and on that account the order passed by the Sales Tax Officer was illegal and that in  any event  the  items in question having been  included  in  the certificate of registration after due enquiry as required by the  statute,  the Sales Tax Officer  acted  without  juris- diction  in seeking to make the amendments.  The High  Court negatived  the contention of the Company that the Sales  Tax Officer  had  no jurisdiction to revise the  certificate  of registration  issued  after due enquiry,  and  rejected  the petition  holding  that  drawing  instruments,  photographic materials,  colours, chemicals, electricals,  machinery  and building materials such as cement, lime are not comprehended in the expression "in the manufacture or processing of goods for sale" within the meaning of S. 8 (3 ) (b) read with Rule 13.  Against the order dismissing the petition, the  Company has appealed to this Court. Counsel  for  the Company has very properly  not  sought  to raise  the  contention  that the Sales Tax  Officer  had  no jurisdiction  to  modify the  certificate  of  registration, merely because the certificate 903  as originally granted was issued after due enquiry.   Under S.  7 (4) of the Act a certificate of  registration  granted under s. 7(1) may be cancelled by the authority granting it, inter  alia,  for any sufficient reason.  If on  account  of some error, the certificate specifies articles which did not fall within the terms of s. 8 (3) (b) read with Rule 13, the error  would  manifestly be "sufficient reason"  within  the meaning  of  S. 7 (4) a uthorising the cancellation  of  the certificate qua the items which were erroneously included. In the first instance, it must be pointed out that the High-

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Court  has,  in rejecting the petition, dealt  with  certain matters  which were never in issue between the  Company  and the  Sales  Tax  Officer.  By the order  of  the  Sales  Tax Officer  "machinery", and" colours and chemicals"  were  not deleted from the certificate, and the exclusion of "building materials, cement and lime" was expressly restricted so that it  was  not  to  operate  in  respect  of  cement  used  in manufacture  of tiles for sale.  The Sales Tax  Officer  had rejected the claim of the Company only in respect of drawing instruments,  photographic  materials,  building   materials including lime and cement (except cement used in manufacture of  tiles for re-sale), electricals, iron, steel  and  coal, and it was not open to the High Court to expand the scope of the petition challenging the correctness of the order of the Sales Tax Officer, and to deal with matters which were never in  issue or to decide that other categories of goods  which the Sales Tax Officer had not ordered to be deleted did  not fall within the terms of s. 8 (3) (b) read with Rule 13. Section  6 of the Act which is the charging section  imposes liability upon every dealer with effect from the date as may be specified by the Central Government to pay tax under  the Act  on  all sales effected by him in the course  of  inter- State trade or commerce during any year on and from the date so   notified.   Section  7  sets  up  the   machinery   for registration of dealers and s. 8 prescribed the rates of tax on-  sales in the course of inter-State trade  or  commerce. Sub-section  (1) of s. 8, as it stood at the material  time, provided for the rates of tax to be paid on the turnover  by a  dealer  selling  in the course of  inter-State  trade  or commerce  to  registered  dealer goods  of  the  description mentioned  in  sub-s. (3).  Sub-section (2)  prescribed  the rate  of tax payable by any dealer in any case  not  falling within sub-s. (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce.  Sub-section (3) enacted 904               "The  goods referred to in clause (b) of  sub-               section (1)-               (a)   in the case of declared goods are  goods               of  the  class  or classes  specified  in  the               certificate of registration of the  registered               dealer purchasing the goods as being  intended               for re-sale by him;               (b)   in the case of goods other than declared               goods  are  goods  of  the  class  or  classes               specified  in the certificate of  registration               of  registered dealer purchasing the goods  as               being  intended for re-sale by him or  subject               to any rules made by the Central Government in               this behalf for use by him in the  manufacture               or  processing of goods for sale or in  mining               or  in  the  generation  or  distribution   of               electricity or any other form of power;" Section  13 conferred power upon the Central Government,  to make rules on several matters including enumeration of goods or  class of goods used in the manufacture or processing  of goods  for  sale  or  in mining  or  in  the  generation  or distribution of electricity or any other form of power.   In exercise  of this power, Rule 13 was framed by  the  Central Government,  which as amended read at the material time,  as follows :               "The  goods referred to in clause (b) of  sub-               section  (3) of section 8 which  a  registered               dealer  may purchase, shall be goods  intended               for  use by him as raw  materials,  processing

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             materials, machinery, plant, equipment, tools,               stores,  spare  parts,  accessories,  fuel  or               lubricants,  in the manufacture or  processing               of  goods  for sale or in mining,  or  in  the               generation  or distribution of  electricity  or               any other form of power." The  High  Court  confirmed the  exclusion  of  drawing  and photographic  materials on the ground that  those  materials are  required  merely in the preparation  of  designs  which though  necessary  for turning out textile goods  cannot  be said  to  be goods intended for use in  the  manufacture  of goods.   In  the  view of the High  Court,  designing  is  a process  distinct  from the process of manufacture  i.e.  of making  or  fabricating  raw  materials  by  hand,  art   or machinery,  and  work into forms convenient  for  use.   But without a design of the goods sought to be manufactured in a factory  which is geared to production of goods  of  uniform pattern,  it would be impossible to attempt  manufacture  of goods  on a commercial scale.  The production itself has  to be of a set pattern, 905  and   deviation   from  the  design   prepared   would   be impermeable.    That   without  the  use  of   drawing   and photographic materials, designing of patterns would, if  not impossible,  be very difficult, is conceded.  But  the  High Court was apparently of the view, and that view is supported by  counsel for the Sales Tax’ Officer, that goods  intended for  use in the manufacture of goods or processing of  goods for  sale  must  of necessity be goods  which  are  used  as "ingredient or commodity in the creation of goods", or which are "directly and actually needed for turning out or  making of the goods". Section  8  (3)  (b) authorises the  Sales  Tax  Officer  to specify,   subject  to  any  rules  made  by   the   Central Government,  goods  intended for use by the  dealer  in  the manufacture or processing of goods for sale or in mining, or in  the  generation or distribution of  electricity  or  any other form of power.  By Rule 13 the Central Government  has prescribed the goods referred to in s. 8 (3) (b): such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generation or distribution of power,  and  the  intended  use of  the  goods  must  be  as specified  in Rule 13.  It is true that under Rule 13,  read with  s.  8 (3) (b) mere intention to use the goods  in  the manufacture  or processing of goods for sale, will not be  a sufficient  ground for specification: the intention must  be to  use the goods as raw materials as processing  materials, as  machinery, as plant, as equipment, as tools, as  stores, as spare parts, as accessories, as fuel or as lubricants.  A bare  survey of the diverse uses to which the goods  may  be intended  to  be  put in the manufacture  or  processing  of goods,  clearly  shows that  the  restricted  interpretation placed  by the High Court is not warranted.  The  expression "in  the manufacture of goods" would normally encompass  the entire  process carried on by the dealer of  converting  raw materials into finished goods.  Where any particular process is  so integrally connected with the ultimate production  of goods  that but for that process, manufacture or  processing of  goods would be commercially inexpedient, goods  required in  that  process would, in our judgment,  fall  within  the expression "in the manufacture of goods".  For instance,  in the  case  of a cotton textile  manufacturing  concern,  raw cotton  undergoes various processes before cloth is  finally turned out.  Cotton is cleaned, carded, spun into yam,  then cloth is woven, put on rolls, dyed, calendered and  pressed.

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All   these  processes  would  be  regarded  as   integrated processes  and included "in the manufacture" of  cloth.   It would be difficult to regard goods used only in the  process of weaving cloth and not goods used in the anterior 906 processes  as  goods used in the manufacture of  cloth.   To read  the expression "in the manufacture" of cloth  in  that restricted  sense, would raise many anomalies.   Raw  cotton and  machinery  for  weaving cotton and  even  vehicles  for transporting raw and finished goods would qualify under Rule 13,  but not spinning machinery, without which the  business cannot  be  carried on.  In our judgment, Rule 13  does  not justify  the  importation  of  restrictions  which  are  not clearly expressed nor imperatively intended.  Goods used  as equipment, as tools, as stores, as spare parts, or as acces- sories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under S. 8(1), be  ingredients or  commodities  used  in the processes, nor  must  they  be directly  and  actually  needed  for  "turning  out  or  the creation of goods." In  our judgment if a process or activity is  so  integrally related to the ultimate manufacture of goods so that without that   process   or  activity  manufacture  may,   even   if theoretically  possible, be commercially inexpedient,  goods intended for use in the process or activity as specified  in Rule 13 will qualify for special treatment.  This is not  to say  that  every  category of goods  "in’  connection  with" manufacture  of  or "in relation to" manufacture,  or  which facilitates the conduct of the business of manufacture  will be  included within Rule 13.  Attention in  this  connection may  be invited to a judgment of this Court in which it  was held  that vehicles used by a Company (which mined  ore  and turned  out copper in carrying on activities as a miner  and as a manufacturer) fell within Rule 13, even if the vehicles were  used  merely  for removing ore from the  mine  to  the factory, and finished goods from the factory to the place of storage.   Spare  parts  and accessories  required  for  the effective operation of those vehicles were also held to fall within.   Rule  13.  See Indian Copper  Corporation  Ltd  v. Commissioner of Commercial Taxes, Bihar and Ors(1). The  High Court has rightly pointed out that unless  designs are  prepared  it would be "impossible for the  workmen"  to turn out goods for sale.  If the process of designing. is so intimately  connected  with the process  of  manufacture  of cloth,  we see no reason to regard the process of  designing as not being a part of the process of manufacture within the meaning  of Rule 13 read with s. 8 (3) (b).  The process  of designing may be distinct from the actual process of turning out  finished goods.  But there is no warrant  for  limiting the meaning of the expression "in the manu- (1)  C.A.No. 1021 of 1963 decided on Oct. 19,1964. 907 facture  of  goods" to the process of  production  of  goods only.   The expression "in the manufacture" takes in  within its compass, all processes which are directly related to the actual  production.  Goods intended as equipment for use  in the  manufacture  of  goods  for  sale  are  expressly  made admissible  for  specification.   Drawing  and  photographic materials  falling within the description of goods  intended for use as "equipment" in the process of designing which  is directly  related  to  the actual production  of  goods  and without  which  commercial production would  be  inexpedient must  be  regarded  as  goods  intended  for  use  "in   the manufacture of goods".

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Building materials including lime and cement not required in the  manufacture  of  tiles for  sale  cannot,  however,  be regarded within the meaning of Rule 13, as raw materials  in the  manufacture or processing of goods or even as  "plant". It  is true that buildings must be constructed  for  housing the  factory  in which machinery is  installed.   Whether  a building  is a "plant" within the meaning of Rule 13,  is  a difficult  question on which no opinion need  be  expressed. But  to qualify for specification under s. 8 (3)  (b)  goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods.  Building materials used as raw materials  for construction of "plant" cannot be said to  be used as plant in the manufacture of goods.  The  Legislature has  contemplated that the goods to qualify under s.  8  (3) (b)  must be intended for use as raw materials or as  plant, or  as equipment in the manufacture or processing of  goods, and  it cannot be said that building materials  fall  within this  description.  The High Court was, therefore, right  in rejecting the claim of the Company in that behalf. The  expression "electricals" is somewhat vague.  But  in  a factory  manufacturing  cotton and other  textiles,  certain electrical  equipment  in the present stage  of  development would  be  commercially necessary.   For  instance,  without electric lighting it would be very difficult to carry on the business.   Again electrical humidifiers, exhaust  fans  and similar electrical equipment would in the modern  conditions of   technological  development  normally  be  regarded   as equipment  necessary  to  effectually  carry  on  the  manu- facturing  process.  We are not prepared to agree  with  the High Court that in order that "electrical equipment"  should fall  within the terms of Rule 13, it must be an  ingredient of  the  finished  goods to be prepared, or "it  must  be  a commodity  which  is used in the creation  of  goods".   If, having   regard  to  normal  conditions  prevalent  in   the industry,   production  of  the  finished  goods  would   be difficult  without  the  use of  electrical  equipment,  the equipment 908 would be regarded as intended for use in the manufacture  of goods  for  sale  and  such a  test,  in  our  judgment,  is satisfied  by the expression "electricals".  ’Ibis would  of course   not  include  electrical  equipment  not   directly connected with the process of manufacture.  Office equipment such as fans, coolers, air-conditioning units, would not  be admissible to special rates under s. 8(1). We  therefore set aside the order passed by the  High  Court and direct that the order passed by the Sales Tax Officer be modified by deleting from paragraph-4 of the order the words "drawing materials, photographic materials and electricals". The rest of the order of the Sales Tax Officer will stand. The  Company has substantially succeeded.  The  appeal  must therefore be allowed with costs. Appeal allowed. 910