Absorbent cotton wool is cotton in its unmanufactured state and is covered by entry 2 of Schedule B to the Bombay Sales Tax Act, 1959, by virtue of rule 3(xviii) of the Bombay Sales Tax Rules, 1959.

The judgment of the Court was delivered by

DR. B. P. SARAF, J. - By this reference under section 61(1) of the Bombay Sales Tax Act, 1959, made at the instance of the Revenue, the Maharashtra Sales Tax Tribunal has referred the following question of law to this Court for opinion :

"Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that absorbent cotton wool I.P. was in its unmanufactured state and was thus covered by entry 2 of Schedule B to the Act by virtue of rule 3(xviii) of the Bombay Sales Tax Rules, 1959."

The material facts are as under :

The assessee, who is a registered dealer under the Bombay Sales Tax Act, 1959 ("the Act") sells and supplies absorbent cotton wool. He made an application to the Commissioner of Sales Tax, Maharashtra State, Bombay, under section 52 of the Act for determination of the rate of tax payable under the Act on the sale of absorbent cotton wool made by him. Before the Commissioner, the assessee described the process applied to cotton for converting it into absorbent cotton wool as follows :

"The broken seed leaf and dirt in raw cotton are removed and the opened cotton is boiled with caustic soda and soda ash. As a result, fats and waxes are removed from cotton. The cotton is then bleached to white colour. The water in the cotton is removed by pressing it through the hydro/extractor machine. The cotton that comes out is in the form of lumps and hence lumps are opened in the wet cotton opener machine. The opened cotton is then dried and the dried cotton is taken in blow room where cotton laps are prepared. The cotton laps are carded and the carded laps are rolled, cut, weighed, labelled and sealed in plastic bags for marketing."

The case of the assessee was that absorbent cotton wool was nothing but cotton in its unmanufactured state and hence it should fall under entry 2 of Schedule B to the Act. Entry 2 of Schedule B, at the material time, was as follows :

"SCHEDULE B

(See sections 7, 13 and 14)

Declared goods, the sales or purchase of which is subject to

sales tax or purchase tax and the rate of tax.

------------------------------------------------------------------------

Sl. Description of goods Rate of Rate of

No. sales tax purchase tax

------------------------------------------------------------------------

2 Cotton, that is to say, all kinds 4% 4%"

of cotton (indigenous or imported)

in its unmanufactured state, whether

ginned or unginned, baled, pressed

or otherwise, but not including

cotton waste.

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2. The Commissioner did not agree with the contention of the assessee and held that absorbent cotton wool did not fall under the above entry and hence, sales thereof were exigible to tax at the rate of 10 per cent as a residuary item under entry 102 of Part II of Schedule "C" to the Act at the rate of 10 per cent. While arriving at the above conclusion, the Commissioner relied upon the decision of this Court in Commissioner of Sales Tax v. Fairdeal Corporation Ltd. [1962] 13 STC 750 and the decision of the Madras High Court in Sri Ram Products v. State of Tamil Nadu [1983] 52 STC 187. Aggrieved by the above decision of the Commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal ("Tribunal"). The Tribunal held that absorbent cotton wool was "cotton" within the meaning of entry 2 of Schedule B to the Act and hence it was taxable at the rate of 4 per cent. The Tribunal distinguished the decisions of this Court and the Madras High Court referred to above and allowed the appeal of the assessee. The Revenue sought for reference of the question as to whether "absorbent cotton wool" was "cotton" within the meaning of entry 2 of Schedule B to the Act to this Court. Hence this reference at the