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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