The branch office and head office of a partnership firm are not separate legal entities, and purchases of cotton made by the branch office for export outside India are eligible for exemption from sales tax under Section 5(2)(a)(vi) of the Punjab General Sales Tax Act, 1948.

1. The facts giving rise to the present civil writ petition under Article 226 of the Constitution of India are as follows:-

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Messrs International Cotton (Waste) Corporation is a partnership-firm (hereinafter referred to as the firm) with its head office at Bombay and branch office at Bhatinda. Their main business is to buy cotton and cotton waste and to export the same outside India. The main area of their operation is in the Punjab and Rajasthan. The firm got registered under the provisions of the Punjab General Sales Tax Act, 1948 (hereinafter referred to as the Act) at Bhatinda. The registration number is BAT. III. 6000. The assessment for the year commencing from 7th December, 1961, and ending on 31st March, 1962, came up for consideration before the Assessing Authority, Bhatinda. The petitioner-firm claimed before the Assessing Authority that during the above period cotton had been purchased for about four lacs for the purpose of export from India to other countries and also furnished evidence in support of this contention, They prayed that the amount spent on the purchase of cotton might be deducted from their gross turnover under Section 5(2)(a)(vi) of the Act but the same was declined by the Assessing Authority and they were directed to pay Rs. 7,937.00 as the sales tax for this period: vide assessment order dated 1st February, 1963 (copy annexure A). The petitioners in this petition have prayed for quashing of the said assessment on the ground that the branch office at Bhatinda was not a separate legal entity from the head office at Bombay and that the registration of the firm at Bhatinda was merely a procedural matter and did not change the legal entity of the main buying firm. It was further pleaded that since the cotton was purchased for export outside India and was in fact exported outside India, the mere fact that the branch office at Bhatinda made the purchases and the head office at Bombay exported it outside India did not matter at all. In the circumstances the exemption claimed should have been allowed in terms of Section 5(2)(a)(vi) of the Act.

2. The Assessing Authority while assessing the firm separated the item of baled cotton into two parts, one cotton pure and second part packing material comprised of hessian cloth. The tax on the hessian cloth has been levied at the rate of 5 per cent., and on cotton at the rate of 2 per cent. The petitioners alleged that the hessian cloth should also have been taxed at the same rate as the cotton because according to Section 14 of the Central Sales Tax Act, 1956 , tax could not be more than 2 per cent. on the baled cotton as a whole. The order of the Assessing Authority is, therefore, alleged to have contravened the provisions of the Central Sales Tax Act and, that being so, was void in law.

3. The Assessing Authority is said to have proceeded to levy the tax in the manner it did on the basis of the instructions received from the Excise and Taxation Commissioner, Punjab. The firm, therefore, thought that no useful purpose could have been served by filing an appeal or revision against the order of the Assessing Authority and so instituted the present petition straightaway.

4. The Assessing Authority, Bhatinda, the Excise and Taxation Commissioner, Punjab, and the State of Punjab--respondents--in their written statement admitted that Messrs International Cotton (Waste) Corporation, Bhatinda, stood registered under the Punjab General Sales Tax Act, 1948, and added that the branch office at Bhatinda was a separate entity and local agent of the firm was the dealer for all purposes under the Act and not the head office at Bombay. Further, the purchases and sales of cotton on the strength of the registration certificate were to be made by the branch office at Bhatinda and not by the Bombay office. They further pleaded that the Bhatinda office of the firm transferred the cotton purchased in the territory of Punjab to their head office at Bombay which subsequently sol