Case: Modi Spinning &amp; Weaving Mills Co. Ltd Vs. The Commissioner of Sales Tax, Punjab &amp; Another

1. This appeal by certificate against the judgment of the High Court of Punjab at Chandigarh, dated February 18, 1963 questions the inclusion of certain items in the turnover of Messrs Modi Spinning and Weaving Mills Co. Ltd., Modinagar in the assessment offor the yearIn that year the Company filed a return of its sales showing a gross turnover of Rs. 40,89,954.24 nP and a taxable turnover of Rs. 1,30,296.81 np. In computing the taxable turnover the Company deducted Rs. 10,85,842. 74 nP on account of unginned cotton purchased by it on a certificate of registration granted to it on January 3, 1956. This deduction was not permitted by the assessing Authority, Patiala District, also described as the District Taxation Officer, Patiala District. Exemption from tax was also claimed in respect of purchases of oil seeds amounting to Rs. 4,47,437.33 nP which the Company claimed to exclude from the taxable turnover under S. 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948. This claim was also disallowed by the Taxing Authority. The Company then filed a petition under Arts. 226 and 227 of the Constitution in the High Court but by the order under appeal the petition was dismissed. During the course of the hearing Mr. G. S. Pathak abandoned the claim about oil seeds and no reference need, therefore, be made to that part of the case.

Court's reasoning:
5. All the arguments (except the last) that are raised in this case are based on the unfortunate omission to prescribe a new certificate of registration in line with the amended section and the amended rule and to issue it. The Company admitted that though it purchased the goods (raw cotton) in the Punjab, ginned the cotton in its ginning mills in the Punjab, it sent the bales to its spinning and weaving mills situated at Modinagar in the State of Uttar Pradesh for purposes of manufacture of cloth. It was admitted before us in the arguments (as indeed it was narrated in the facts in two writ petitions which were filed under Art. 32 but were withdrawn at the hearing of this appeal) that the ginned cotton bales were not sold but were used for manufacture of cloth outside the State ofThe Company is wrong in reading the certificate of registration by itself. Ss. 5 and 7 have to be read with R. 26 and Form S.T. XXII, the declaration. So read the old registration certificate even though it did not contain the words "in the State of Punjab" would stand impliedly modified by the sections, the rule and Form S.T. XXII operating together. The Company had to comply with the Act and the Rules and could not shelter behind the unamended certificate. We have to consider whether the Company complied with the Act and the Rules in the present case. Many rulings were cited to us as to the meaning of the word manufacture to establish that ginning of raw cotton may in a sense be called a manufacturing process. We are not required in this case to decide this because S. 5(2) (a) (ii) provides that the goods specified in the certificate of registration must be for the use of the dealer "in the manufacture in the State of Punjab of any goods for sale. There are three conditions involved: the first is that they must be for the use of the dealer: the second is they must be for manufacture in the State of Punjab; and the third is that the manufacture must result in goods for sale. It is not necessary to decide whether the sale should also be in the Punjab for the reason that no sale as required took place. The exemption could only be claimed if the Company satisfied all the three conditions. The last condition does not appear to be fulfilled in this case. The words "for sale" show the quality of goods and it is clear the goods that are manufactured in the Punjab must be for sale. According to the section the goods which are the result of manufacture must be for sale and not for use by the manufacturer in some manufacture outside the State resulting in different goods. The goods which the Company manufactured in the State of Punjab were bales of ginned cotton and they were admittedly not for sale because they were sent to its spinning and weaving mills in Uttar Pradesh. The exemption, therefore, could not be claimed in view of the fact that all the required of the section were not complied with.7. The contention that the charging section is incomplete without the prescription of the proper Form for the certificate of registration need not detain us. We have already shown that the old Form must be deemed to be modified and even otherwise the section and the Rules did not depend on the new Form. They were complete and effective. The registration certificate was only the evidence that the Company was a registered dealer for purposes of certain commodities to be used in manufacture, one of them being cotton. The omission to prescribe the new Form or to issue it did not render S. 5 and the Rulesmeaning or the intention of cl. (3) of Art. 286 is not to destroy all charging section in the Sales Tax Acts of the States which are discrepant with S. 15(a) of the Central Sales Tax Act, but to modify them in accordance therewith. The law of the State is declared to be subject to the restrictions and conditions contained in the law made by Parliament and the rate in the State Act would pro tanto stand modified. The effect of Art. 286(3) is now brought out by the second proviso to S. 5(1). But this proviso is enacted out of abundant caution and even without it the result was the same