Judgment Case ID: 2587

Judgment:
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. 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 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. 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. vs 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 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 (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. 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 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 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 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 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. Y.P. 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 dealers	the 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 5(2) (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. 15(a) 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. 15(a) 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 S.T.C. 865	 disapproved.