The central legal point established in the judgment is the interpretation of the term 'cotton yarn' and its application to sewing thread for taxation purposes.

SUBRAMONIAN POTI, AG. C.J.

The main question arising for decision in this revision is whether sewing thread is cotton yarn. During the relevant period cotton yarn was taxable only at the point of first sale in the State by a dealer who is liable to tax under section 5. We are concerned in this tax revision case with an assessment order of the year 1973-74 during which year the revision petitioner-firm was carrying on the business of sale of sewing machines, cotton thread, etc. The firm was assessed to sales tax on the turnover of sewing thread, silk yarn, lace cloth and woven lace. It is the taxation of these items that is under dispute in this revision. The assessing authority, the Appellate Commissioner and the Tribunal have all held that the sales of these items are liable to tax. That is challenged in this revision.

2. As indicated earlier sewing thread was contended to be cotton yarn so much so that according to the assessee he is not liable to tax on the sales of sewing thread as the sale was at the second point in the State and not the first and the sale at the first point had been taxed. If the item which was sold is not shown to be cotton yarn naturally it will be liable to tax at every point of sale and, therefore, the sales tax authorities would be right in assessing tax on the turnover of sewing thread. Item 4(ii) in the Second Schedule of the General Sales Tax Act is "cotton yarn, other than handspun yarn, but not including cotton yarn waste". The rate of tax at the point of first sale in the year 1972-73 was 1 per cent and the general rate of tax during that year was 3(1/2) per cent. Cotton yarn, according to the revision petitioner, includes not only spun yarn as such but also yarn converted into thread or into other forms, for, according to the petitioner, the goods even then essentially retain their character as cotton yarn and therefore would fall within item 4(ii) of the Second Schedule.

3. Cotton yarn is no doubt used for the purpose of manufacturing sewing thread. Sewing thread is sold for purposes different from that for which cotton yarn is sold. Cotton yarn is consumed for the manufacture of textiles but sewing thread is not one of the components in the manufacture of textiles.

4. In understanding the provisions of the Sales Tax Act and particularly the entries which relate to specific items of goods, so long as there is no definition in the statute itself, courts are guided by the meaning of the terms as understood in common parlance. People associated with the trade or business concerning the commodity would understand the term in a particular sense and it is that sense which should apply. It may be that by some process goods of one category are changed into another but still they may retain their identity. Normally two tests are applied to ascertain whether goods known by two different names really belong to one and the same category. Two tests normally formulated are : (1) Do the goods retain their identity notwithstanding the change ? (2) Are the goods accepted commercially as the same despite the change ?

5. For the manufacture of sewing thread no doubt cotton yarn is used. By a process of spinning a number of yarns together the sewing thread is manufactured. But in this process the cotton yarn loses its identity. It would no longer be cotton yarn. It is not possible, commercially, to reconstitute the sewing thread into cotton yarn.

6. Sewing thread is commercially a product different from cotton yarn. No person intending to purchase cotton yarn would be satisfied with sewing thread instead. Cotton yarn cannot be used in place of sewing thread or sewing thread in place of cotton yarn. These facts would be sufficient to treat cotton yarn and sewing thread as two distinct entities commercially. Therefore it will not be difficult to agree with the stand of the sales tax department that sewing thread does not fall within the scope of the entry "cotton yarn" in item 4(ii) in the Second Schedule