Case: Sales Tax Commissioner, U. P Vs. M/S. Ladha Singh Mal Singh

1. The only point for decision in this appeal by special leave is whether the cloth manufactured by means of looms worked by power can be regarded as "cloth manufactured by mills" for which sales tax was payable at the rate of 6 pies in a rupee in terms of the notification dated June 8, 1948 issued under Section 3A of the U. P. Sales Tax Act 1948. The general rate of tax on sale of cloth otherwise was 3 pies per rupee. The High Court on a reference made under the relevant provisions of the Act held that cloth manufactured by means of powerloom could not fall under the term "cloth manufactured by the mills."

Court's reasoning:
3. According to Words and Phrases, Vol. 27, the term "mill" in modern usage, includes various machines or combinations of machinery as cotton mills fueling mills, powder mills, etc, to some of which the term "manufactory" or "factory" is also applied. In our judgment although the dictionary meaning may be of considerable assistance in deciding the point before us but what has to be seen is the context in which the ward mills" is used in the notification. It is common ground that if cloth was manufactured by looms worked by manual labour the notification was not applicable and the rate of tax per rupee was 3 pies but if the cloth was manufactured by mills then the rate was to be 6 pies. Thus cloth has been divided broadly into two categories, mill-made and loom-made. It is quite obvious that loom-made cloth would include all cloth manufactured on looms. It is difficult to understand how the energy by which the looms are worked would make any difference. In other words whether the energy is supplied manually or by power cannot convert the essential character of the cloth, namely, its manufacture on looms. As regards mill-made cloth the actual process of weaving is more or less automatic, preconceived and definite and it involves the functioning of machinery. Ramachandra Iyer J., in Sri Dhandapani Power-Loom Factory Erode v. Commercial Tax Officer, Coimbatore, (1961) 12 STC 304 (Mad)   was right in observing that mill cloth is a familiar variety of cloth and every body knows what a mill is.In popular language, a power-loom cloth is never associated with a millmust be remembered that the meaning of the word "mill" or "mills" would vary according to the contex in which that word is used. In the above case 1939-1 All. E. R. 23 a company carried on a large cold storage business. In some of the cold stores part of the building was used for the manufacture of ice for sale; others were only used for the purpose of storage. It was held that all the premises fell within the meaning of those words in Schedule D, cases I and II R. 5 (2) of the Income tax Act, which were mills, factories or other similar premises.5. Counsel for the appellant has sought to argue that once the looms worked by power are used in a building the essential characteristics of "mills" would be satisfied and if any cloth is manufactured on those looms it would be cloth manufactured by "mills" within the meaning of the notification. The fallacy in this argument is that by the same reasoning a building in which looms worked by manual labour are to be found would also have to be regarded as "mills" This would be contrary to the accepted and popular meaning of handloom or power loom cloth and mill made cloth. We are satisfied that the distinction which was kept in view when the notification was promulgated was between the aforesaid two categories or types of cloth involving essentially a difference in the process by which it washas been pointed out that looms worked by hand or by power have not been shown by any evidence to be different. It does not appear to have been disputed before the High Court that a building having looms worked by manual labour would be a mill. The court found no difference between building containing looms worked by manual labour or by power.