Case: State Of Punjab And Ors Vs. M/S. Shakti Cotton Company

2. The controversy related to the assessment to sales tax under the Act in respect of cotton, which admittedly is an item of "declared goods" within the meaning of Section 2, Clause (c) read with Section 14 of the Central Sales-tax Act, 1956 (Act 74 of 1956) (hereinafter to be referred to as the Central Act)3. As the nature of the dealings and the approach made by the assessing officers in respect of the respondents, who are different assessees, is the same, it is enough to refer to the facts in Civil Appeal No. 2319 of 1968. The respondent M/s. Shakti Cotton Company is partnership firm carrying on business as a registered dealer under the Act. Amongst its other business, the firm purchases kapas or unginned cotton and after ginning sells cotton and cotton seeds. For the assessment year 1961-62, the firm submitted a return under the Act showing its gross turn-over of purchase at Rupees 23,76,452.68 n. p. This amount included the purchase of unginned cotton i.e. kapas and the sales were shown as having been made to registered dealers and for inter-State trade and commerce. The firm claimed deduction from its gross turnover value of the entire quantity of cotton it had purchased. According to the firm, it was entitled to so deduct the purchase price under S. 5 (2) (a) (vi) of the Act. If appears that there was originally an order of assessment passed on June 30, 1962. On appeal by the firm the Appellate Authority by its order dated February 4, 1963 remanded the matter to the assessing authority for re-examination and reconsideration of the original order of assessment. The assessing authority, Patiala District, took up the assessment proceedings afresh and after an examination of the account books and other vouchers produced by the firm accepted as correct the gross turnover returned by the dealer. Regarding the various deductions claimed by the firm particularly in respect of the purchase price of unginned cotton which had been sold to registered dealers, it is not clear from the assessment orders as to how exactly the claims for deductions were either allowed or rejected. Ultimately, the assessing authority fixed the taxable turn-over for the purposes of purchase tax at Rupees 3,18,993.27 n. p. and levied purchase tax on this amount at the rate of 2 per cent. The assessment order was passed on September 26, 1963. The firm filed in the Punjab High Court Civil Writ No. 452 of 1964 challenging the order of assessment passed by the Sales-tax Officer. The grievance of the firm as is seen from the said writ, is, that the assessing authority disallowed the claim, made by it for deduction of purchase price of ginned cotton sold to the registered dealers and for inter-State trade and commerce. The firms claim before the assessing authority, appears to have been that if three maunds of kapas is ginned, it gives roughtly one maund of ginned cotton which if disposed of in toto should be equivalent to the purchase price of three maunds of kapas originally purchased. The assessing authority appears to have proceeded on the basis that out of the total quantity of unginned cotton purchased by the firm, only 1/3rd quantity of the unginned cotton can be considered to have been sold as ginned cotton. Deductions, according to the assessing authority, under Section 5 (2) (a) (vi) of the Act from the purchase turn-over of unginned cotton should be fixed at 1/3d of the total price paid for the unginned cotton. The assessing authority has also proceeded on the basis that the amount realised by the firm by sale of cotton seeds as a result of ginning cannot be taken into account for calculating the turn-over under Section 5 (2) (a) (vi) of the act as the said material is something different from cotton. The firm had also challenged the order of assessment that the levy of sales tax on cotton, which is an item of "declared goods" under the Central Act is illegal and opposed to Section 15 of the Central Act as no stage for levy of tax had been fixed. As the Excise and Taxation Commissioner of Punjab had given instruction to the assessing authorities to assess cotton in the manner shown in the assessment order, the firm averred that no useful purpose will be served by carrying the assessment orders in appeals before the Departmental Authorities. It was pleaded that as the leery was unconstitutional, the relief can be obtained only from the High Court and hence its jurisdiction under Article 226 and 227 of the Constitution was invoked4. The appellants contested the writ petition on various grounds. But the material averment, which has to be noted is to the effect that the assessee was entitled to deduction only on the purchase of cotton sold by it as required under S. 5 (2) (a) (vi) of the act and that too on the purchase value of the commodity sold and not on its sale price. It was further averred that cotton seeds are different from cotton and the price realised by the sale of the former does not qualify for deduction under the said provision of the Act as the cotton seeds are not the same commodity as cotton that had been originally purchased. Hence, it was pointed out that the assessing authority had acted according to law in allowing the deduction only on the purchase value of cotton sold by the firm5. The State further pleaded that the stage for levying sales-tax in respect of "declared goods" is indicated under the Act and the firm is liable for payment of purchase tax on the purchase of cotton made by it subject to the proper deductions allowable under Section 5 (2) (a) (vi) of the Act6. At the time when the writ petition was heard by the learned Single Judge of the High Court, there was already a decision of a Division Bench of the same High Court reported in Patel Cotton Company Pvt. Ltd. v. The State of Punjab (1964) 15 STC 865 (Punj). We will refer later to the scope of this decision. The learned Single Judge, by his order dated March 5, 1965 held that there is no indication in the order of assessment that full deduction permissible to a dealer under Section 5 (2) (a) (vi) of the Act, as laid down by the Division Bench, in the above decision, has been granted to the firm. In this view, the learned Single Judge allowed the writ petition and directed the Sales-tax Officer to re-decide the matter and modify and make an assessment order in accordance with the law laid down in Patel Cotton Company Private Ltd.s case, (1964) 15 STC 865 (Punj). The State filed Letters Patent Appeal No. 182 of 1965 under Clause (x) of the Letters Patent Act, which was dismissed, in limine, by the Division Bench on July 23, 19657. In Civil Appeal No. 2320 of 1968 the order of assessment is dated February 24, 1964. The assessee filed Civil Writ No. 454 of 1964 and the High Court passed a similar order in his favour on March 5, 1965. The Letters Patent Appeal No. 196 of 1965 filed by the State was rejected in limine on July 23, 19658. In Civil Appeal No. 1466 of 1969, the assessment order is dated March 10, 1964. The assessee filed Civil Writ No. 810 of 1964. The learned Single Judge by his order dated February, 3, 1966 allowed the writ petition following the decision in Patel Cotton Co. Ptv. Ltd., (1964) 15 STC 865 (Punj) and quashed the order of assessment. The Letters Patent Appeal No. 127 of 1965 filed by the State was dismissed in limine on May 17, 19659. In Civil Appeal No. 1467 of 1969, the assessment order is dated March 9, 1964. The assessee filed Civil Writ No. 608 of 1964 in the High Court. The learned Single Judge by his order dated January 29, 1965 allowed the writ petition and directed the assessing authority to reconsider and modify the order of assessment in accordance with the law laid down by the Division Bench of the High Court. The Letters Patent Appeal No. 141 of 1965 filed by the State was dismissed in limine on May 28, 196510. In Civil Appeal No. 1468 of 1969 the order of assessment is dated June 11,1963. Civil Writ No. 1599 of 1962 filed by the assessee was allowed by the learned Single Judge on February 26, 1965 and the assessing authority was directed to modify the order of assessment according to the decision of the High Court. The Letters Patent Appeal No. 145 of 1965 filed by the State was dismissed in limine on May 27, 196511. In Civil Appeal No. 1469 of 1969, the order of assessment is dated March 22, 1963. Civil Writ No. 635 of 1963 filed by the assessee was allowed on February 26, 1965 and the learned Single Judge gave the same direction regarding the assessment order to be reconsidered and modified. The Letters Patent Appeal No. 149 of 1965 filed by the State was dismissed in limine on May 28, 196512. In Civil Appeal No. 1470 of 1969 the order or assessment is dated December 12, 1963. Civil Writ No. 205 of 1964 filed by the assessee was allowed by the High Court on January 29, 1965 and similar directions were given to the assessing authority. The Letters Patent Appeal No. 172 of 1965 filed by the State was dismissed in limine on May 26, 196513. It will be noted that in all the above appeals, except Civil Appeal No. 1466 of 1969, the assessing authority had been directed to reconsider and modify the orders of assessment already passed by it. It is only in Civil Appeal No. 1466 of 1969 that the order of assessment was quashed by the learned Single Judge of the High Court. In all the appeals, certificates have been granted by the High Court. The High Court, while granting the certificates has observed that though Letters Patent Appeals were dismissed in limine, certificates are being granted in view of the fact that the decision in Patel Cotton Co. Pvt. Ltd., (1964) 15 STC 865 (Punj) on the basis of which the present decision had been given was the subject of appeal before this court. In view of this consideration, certificates of fitness have been granted by the Letters Patent Bench. We may also add that though the question regarding the legality of the assessment under the Act as being opposed to the Central Act, on the ground that no stage for collection of tax has been fixed, was raised by all the assessees, that point was not adjudicated upon by the High Court in any of these matters.

Reasoning:
34. The claim made by the assessees before the High Court as that in calculating the taxable turn-over under S. 5 (2) (a) (vi) of the Act, as it stood on April 1, 1960, deductions must be made on the purchase price of unginned cotton, which has been sold later as ginned cotton and cotton seeds. The High Court had accepted this contention. The State of Punjab had filed the appeals in this Court. This Court in the above decision, accepted the contention of the State that ginning process is a manufacturing process and that it is by such a manufacturing process that the cotton and the cotton seeds are separated. This Court further held that it is not correct to say that the it is not correct to say that the seeds so separated, is cotton itself or part of the cotton. It is the further view of this Court that they are two distinct commercial goods though before the manufacturing process the seeds might have been a part of the cotton itself. It was further held that the contention of the assessees that the sale of cotton seeds must be treated as a sale of declared goods under the Central Act, cannot be accepted. In this view the decision of the High Court was set aside and the appeal of the State was allowed. The orders of the assessing authority declining to grant deduction in respect of cotton seeds sold by the assessees to registered dealers were confirmed35. In this decision there is a reference to the decision of the High Court in Patel Cotton Co. Pvt. Ltd., (1964) 15 STC 865 (Punj.)36. According to Mr. Mahajan, the decision of this Court in 1969-3 SCR 849   = (AIR 1969 SC 1073  ) having overruled the decision of the Punjab High Court in Patel Cotton Co. Pvt. Ltd. (1964) 15 STC 865 (Punj) though not directly, all the appeals before us must be allowed. Prima facie and on a superficial consideration, it may appear that the contention of Mr. Mahajan is well-founded. Going by the actual decision of this Court in 1969-3 SCR 849  =(AIR 1969 SC 1073  ), it must be said that the principle laid down by the Punjab High Court in Patel Cotton Co. Pvt. Ltd., (1964) 15 STC 865 (Punj) which decision has been relied on by the High Court in the appeals before us, must be considered to have been overruled. But there are difficulties in accepting the contention of Mr. Mahajan, that in view of this circumstance, the State appeals before us must be allowed37. We have already referred to the fact that the levy of sales tax under the Act as it stood on April 1 1960, in cotton, which is an item of "declared goods" was struck down by this Court in Bhawani Cotton Mills Ltd. (1967) 3 SCR 577   = (AIR 1967 SC 1616  ).Certain provisions of the Act were also struck down as violative of the provisions of the Central Act. It was in consequence of the decision of this Court in Bhawani Cotton Mills Ltd. that the Amendment Act, which was preceded by the two Ordinances, referred to above, came to be enacted. We have also referred to the fact that the scheme of assessment regarding declared goods has been changed and altered by the Amendment Act. When the Amendment Act was again challenged before this Court, the Constitution bench in Rattan Lal and Co. (1969) 2 SCR 544   = (AIR 1970 SC 1742  ) has approved the decision in Bhawani Cotton Mills Ltd. and accepted the position that under the Act, as it stood on April 1, 1960, sales tax in respect of declared goods could not be levied. Further it was pointed out in Rattan Lal and Co. that the infirmities that existed in the Act, as it stood on April 1, 1960 had been removed and the Amendment act was valid. With great respect to the learned Judges, who decided (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) it must be held that there is absolutely no reference to the decision of this Court in Bhawani Cotton Mills Ltd. and Rattan Lal and Co. Nor is there any reference to the decision in Civil Appeals Nos. 1120, 1123 and 1214 of 1966, D/- 18-4-1967 (SC) which were appeals filed by the State directly challenging the decision of the High Court in Patel Cotton Co. Pvt. Ltd. (1964) 15 STC 865 (Punj). All these three decisions, as mentioned by us earlier, have uniformly held that no sales tax can be levied under the Act, as it stood on April 1, 1960 in respect of declared goods. This Court in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) had to deal with a case of assessment of sales tax under the Act, as it originally stood, in respect of cotton, which is an item of declared goods, for the assessment year 1961-62. Such an assessment for the said year had been struck down as illegal and void in Bhawani Cotton Mills Ltd. (1967) 3 SCR 577   = (AIR 1967 SC 1616  ) and in The State of Punjab v. Patel Cotton Co. Pvt. Ltd. Bhatinda, Civil Appeals Nos. 1120, 1123 and 1214 of 1966, D/- 18-4-1967 (SC). The decision in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) has, however, proceeded on the basis that all the relevant assessments, with which they were concerned, had to be dealt with under the Act, as it stood on April 1, 1960 and that has to be applied to the declared goods38. On such a reasoning, S. 5 (2) (a) (vi) of the Act was applied and the assessment held to be valid and the deductions declined by the officer were approved. In our opinion, the decision in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) cannot enable the appellant State. To have the appeals before us straightway allowed. That will amount to ignoring the decisions of this Court in Bhawani Cotton Mills Ltd., (1967) 3 SCR 577   = (AIR 1967 SC 1616  ) Rattan Lal and Co. (1969) 2 SCR 544   = (AIR 1970 SC 1742  ) and The State of Punjab v. Patel Cotton Co. Pvt. Ltd. Bhatinda, Civil Appeals Nos. 1120, 1123 and 1214 of 1966, D/- 18-4-1967 (SC)39. More important than all these, is the circumstance, that by accepting the contention of Mr. Mahajan,we will be completely ignoring the provisions of the Amendment Act which, we have already said, has evolved a new scheme regarding the levy of sales tax in respect of declared goods. The decision in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) can at the most be considered to have decided that cotton seeds are not declared goods and that it is by the manufacturing process that cotton and cotton seeds are separated. As the Act, as amended by the Amendment Act, has to be applied in respect of assessment of sales tax on declared goods, the decision in (1969) 3 SCR 84 = (AIR 1969 SC 1073  ) is, in our opinion, no bar to the assessees urging their objections regarding the validity of the orders of assessment. Further, this Court had no occasion to consider in (1969) 3 SCR 849   = (AIR 1969 SC 1073  )whether when unginned cotton has been purchased and the entire quantity of ginned cotton obtained therefrom has been sold, the price obtained from the latter is "a turn-over on the purchase of goods which are sold" within the meaning of S. 5 (2) (a) (vi), even on the basis that the said provision applies, Further, in the said decision, this Court had no occasion to consider the question whether purchase price or sale price has to be taken into account under cl. (vi), nor had it occasion to consider the question whether the mere sale of cotton seeds, even though the entire ginned cotton obtained from unginned cotton originally purchased, has been sold, will make any difference in such circumstancesAll these matters have neither been adverted to nor considered by this Court in the said decision. In fact, if we may say so with respect, when an assessment under the Act, as it stood on April 1, 1960 in respect of declared goods is illegal, the question what deduction, if any, should or should not be allowed in calculating the turnover, in respect of such goods, should not at all arise40. From the discussions contained above, it follows that the assessments before us, cannot be confirmed on the basis of the Act, as it stood on April, 1, 1960, as urged by Mr. Mahajan. That contention is opposed to the decision of this Court in Bhawani Cotton Mills Ltd. (1967) 3 SCR 577   = (AIR 1967 SC 1616  )41. It may also be pointed out that even in the writ petition, the assessees have challenged that the levy of sales tax is illegal, as no stage has been fixed as is mandatory under the Central Act. No doubt, the High Court has not considered this question, as it was satisfied that the writ petitions can be disposed of on the basis of the decision in Patel Cotton Co. Ptv. Ltd. (1964) 15 STC 865 (Punj)42. We have already referred to the elaborate provisions made in the new section 11AA added in the Act by S. 9 of the Amendment Act. The new section casts a duty on the assessing authority, even without any application being made by the assessee in that behalf, to review all assessments and re-assessments made before the commencement of the Amendment Act in respect of declared goods. There is no controversy that the assessment orders, in the cases before us, have all been made before the date of commencement of the Amendment Act. If so, the assessing authority has to exercise his jurisdiction under S. 11A. It is also obligatory on his part to vary or revise the previous orders of assessment, so as to bring them in conformity with the provisions of the Act as amended by the Amendment Act, after following the procedure indicated therein. The fact that there is a judgment of a Court is also no bar to the assessing authority to do his duty cast upon him under S. 11AA. This has been made clear by sub-section (4) to S. 11AA, which makes the said sub-section subject to the provisions of sub-sections (1) to (3) of the section43. In view of the specific provisions contained in S. 1AA, we do not think it necessary to considered and express any opinion regarding the contention of Mr. Gupte. The assessees are entitled to raise all objections available to them in law or on facts in respect of declared goods, when the assessing authority takes action under S. 11AA of the Act, as he is bound to do. But we make it clear that in the fresh assessment proceedings, the assessing authority has to consider the matter, in the light of the provisions of the amendment Act incorporated in the Act; and the decision of this Court in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) cannot operate to the prejudice of the assessees. We have already made it clear that the said decision has decided the question of assessment of declared goods under the provisions of the Act, as they stood on April 1, 1960 which provisions have no application for levy of sales tax in respect of declared goods as held by this Court in Bhawami Cotton Mills Ltd. (1967) 3 SCR 577   = (AIR 1967 SC 1616  ) and two other cases referred to above. Therefore, the fresh revised assessments will have to be made, without reference to the decision in (1969) 3 SCR 849   = (AIR 1969 SC 1073  ) which decision has no application, when the question has to be now decided, on the basis of the Act, as amended by the Amendment Act44. We have already pointed out that in all the appeals, except in Civil Appeal No. 1963 of 1969, the learned Single Judge has directed the assessing authority to reconsider and vary the order of assessment. That direction has been confirmed by the Letters Patent Bench in the said appeals. Those directions in our opinion, do not require any interference by this Court, except to make it clear that the fresh assessments will have to be made under S. 11AA of the Amendment Act, and subject to the directions contained in this judgment45. Regarding Civil Appeal No. 1466 of 1969, the learned Single Judge has quashed the order of assessment and that has confirmed by the Letters Patent Bench in Letters Patent Appeal No. 27 of 1965. In our opinion, the High Court was not justified in quashing the assessment order in toto. The proper direction should have been, as given in other writ petitions, namely, to direct the assessing authority to reconsider the assessment order.