Back
PUNJAB & HARYANA HIGH COURT
G.D.Khosla and Tek Chand JJ.
Raghbir Chand Som Chand
Versus
Excise And Taxation Officer
Civil Writ No. 359 of 1959,
Decided On : DECEMBER 15, 1959
SALES TAX - PUNJAB ACT NO. 7 OF 1958 - VALIDITY - WHETHER ULTRA VIRES THE CONSTITUTION - ARTICLE 286(3) OF THE CONSTITUTION - CENTRAL SALES TAX ACT, 1956 - SECTIONS 14 AND 15 - WHETHER THE ACT OFFENDS THE PROVISIONS OF THE CENTRAL SALES TAX ACT - WHETHER GINNED COTTON IS THE SAME THING AS UNGINNED COTTON - WHETHER THE PROCESS OF GINNING ALTERS THE CHARACTER OF THE GOODS - WHETHER GINNED COTTON IS TO BE TREATED AS SOMETHING WHOLLY DIFFERENT TO UNGINNED COTTON - WHETHER THE PROCESS OF GINNING IS A MANUFACTURING PROCESS.
Fact of the Case:
The petitioners challenged the vires of Punjab Act No. 7 of 1958, which amended the East Punjab General Sales Tax Act, 1948. The amendment had the effect of imposing either new or additional liability in the form of sales or purchase tax upon the petitioners in respect of the goods in which they deal. Most of the petitioners were firms dealing in raw cotton. They purchased raw cotton, ginned it in their factories and then sold ginned cotton and the cotton seed obtained in the process of ginning.
Finding of the Court:
1. The deletion of item 29 from the original East Punjab Sales Tax Act, 1948, is, in no way, unconstitutional or ultra vires and it was never urged before us that dealers in cotton, even if they sell their goods inside the State, are not liable to pay any sales tax. 2. Ginned cotton is not the same thing as unginned cotton; they are really two separate commodities, though both of them are declared goods. If a person buys unginned cotton and sells it in the form in which he buys it, then the tax which he is liable to pay must be subject to the restrictions and conditions of Section 15. In the same way, if a man buys ginned cotton and sells it in the same state, he would be entitled to the benefits of Section 15. But, if a person buys unginned cotton, subjects it to the process of ginning and obtains thereby ginned cotton and cotton seed, the sale of these commodities is an entirely new transaction in respect of entirely new goods. This separate sale may also enjoy the "benefits of Section 15, but it has no relation to the transaction of buying unginned cotton. Such a person, therefore, is liable to pay tax at two stages, because the definition of "turnover" includes the transactions of purchase as well as of sale. 3. The process of ginning is not manufacture. Parliament looked upon both ginned and unginned cotton as cotton in its unmanufactured state. Ginning merely separates the cotton seed from the raw cotton in order to make it fit for use by the manufacturers.
Issues: 1. Whether Punjab Act No. 7 of 1958 is ultra vires the Constitution? 2. Whether the Act offends the provisions of the Central Sales Tax Act? 3. Whether ginned cotton is the same thing as unginned cotton? 4. Whether the process of ginning alters the character of the goods? 5. Whether ginned cotton is to be treated as something wholly different to unginned cotton? 6. Whether the process of ginning is a manufacturing process?
Ratio Decidendi: 1. The process of ginning does not alter the character of raw cotton. When cotton is turned into yarn or cloth, it no longer remains raw cotton and the change of identity is easily discernible and there can be no dispute that a person, who buys raw cotton and turns it into yarn or cloth, is liable to pay tax first in respect of the transactions relating to cotton and then in respect of the transactions relating to yarn or cloth. 2. Ginned and unginned cotton are essentially the same thing and buying unginned cotton and selling ginned cotton are two transactions dealing with the same commodity.
Final Decision: 1. The writs of the cotton dealers were allowed and it was declared that the Punjab State cannot, in law, impose a tax on sales and purchases in contravention of the restrictions and conditions set out in Section 15 of the Central Sales Tax Act of 1956. 2. The respondents were enjoined not to impose or authorise the imposition of tax on sales and purchases on all kinds of cotton (indigenous or imported) whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste being in its unmanufactured state. 3. The remaining petitioners were not granted any relief.
G.D.Khosla, J.
1. In these 49 petitions the vires of Punjab Act No. 7 of 1958 has been challenged before us. This Act amended the East Punjab General Sales Tax Act, 1948 and the amendment had the effect of imposing either new or additional liability in the form of sales or purchase tax upon the petitioners in respect of the goods in which they deal. Most of the petitioners are firms dealing in raw cotton. They purchase raw cotton, gin it in their factories and then sell ginned cotton and the cotton seed obtained in the process of ginning. Of the remaining petitions, the petitioners in Civil Writ No. 898 of I959 deal in non-ferrous metals, the petitioners in Civil Writs Nos. 822 to 827 of 1959 deal in oil-seeds and the petitioners in Civil Writ No. 1271 of 1959 deal in iron scrap. The petitioners in Civil Writ No. 861 of 1959 deal in hosiery goods. The point arising with a small variation is, however, identical in all the 49 petitions and it will be convenient to deal with all of them together.
2. Before the passsing of the amending Act the position was that certain types of goods were exempt from sales tax imposed by the East Punjab General Sales Tax Act, 1948. The Schedule appearing at the end of the Act sets out the various goods which were so exempt. Item 29 was "cotton (ginned or unginned)". The tax was payable in respect of what was called taxable turnover. "Turnover" included "the aggregate of the sales and parts of sales actually made" by the person concerned. The amending Act deleted item 29 from the list of exempted goods and also increased the rate of tax from two pice per rupee to four naye paise per rupee. It also altered the definition of "turnover" by adding to the transaction of sale the transaction of purchase. The result, therefore, was that the person who dealt in exempted goods and had been paying no sales tax at all under the old Act was now made liable to pay tax at two stages-(1) when he bought the commodity in which he dealt and (2) when he sold it. The dealers in other goods also became liable to pay tax at two stages instead of at one stage. A modification was, however, found necessary in view of the general provisions of the Central Sales Tax Act of 1956 which implemented the provisions of Article 286 (3) of the Constitution.
Article 286 (3) is in the following terms :-
Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade Or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
3 Parliament specified certain articles in the Central Sales Tax Act of 1956 to be goods of special importance in inter-State trade or commerce. Such goods have been specified in Section 14 of the Act and item (ii) of this section is-
cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste;
4. "Iron scrap" is another specified commodity and so is "oil-seeds". Section 15 of the Central Act sets out the restrictions with regard to tax contemplated by Clause (3) of Article 286. This section is in the following terms:-
15. 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 thereof and such 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 t
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
