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 NSachthey for the appellants in all the appeals
Hardev Singh for the respondents in CAs
2517 and 2519 of 1966 and for the respondents in CAs
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 section 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 16452 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 vs State of Punjab  Ors1
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 2ff omitting immaterial portions defines purchase  thus 1 15 STC 865
851 Purchase with all its grammatical cognate expressions means the acquisitions of goods 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 vithe 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 2c of the 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 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
CI169 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  athe 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 than one stage bwhere 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 section 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 Holmeswho 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 processing1
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 section 5 2 a vi of the Act in the context and setting of the language of sections 14 and 15 of the  Declared goods in section 14 of the 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 un ginned being treated as a single commodity and as a single species of declared goods cannot be subject under section 15 a of the 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 section 15 a or b of the 
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 section 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 section 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
YP Appeals allowed


Summary:
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 dealersthe respondent claimed deduction from the parchase turnover under section 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 section 52 a vi of the Act in respect of cotton seeds sold by it to registered dealers
Declared goods in section 14 of the 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
15a of the 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
15a or b of the 
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 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 vs State of Punjab  Ors 15 STC 865 disapproved