1964 (11) TMI 97 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sales of finished cloth effected by the assessee are covered by sub-section (2) of section 4 of the Sales Tax Exemption Act.
2. Interpretation of sub-section (2) of section 4 of the Sales Tax Exemption Act.

Detailed Analysis:

Issue 1: Coverage of Sales of Finished Cloth under Sub-section (2) of Section 4
The primary issue was whether the sales of finished cloth by the assessee were covered by sub-section (2) of section 4 of the Sales Tax Exemption Act. The assessee, a manufacturer of cloth, held stock of grey or unfinished cloth on the appointed day, 13th December 1957. This cloth was later processed into finished cloth and sold. The assessee claimed exemption from sales tax under sub-section (1) of section 4, arguing that the finished cloth constituted scheduled goods. However, the Sales Tax Officer, and subsequently the appellate authorities, contended that the sales were taxable under sub-section (2) of section 4.

Issue 2: Interpretation of Sub-section (2) of Section 4
The interpretation of sub-section (2) of section 4 was crucial. Sub-section (1) of section 4 exempts sales of scheduled goods from sales tax on or after the appointed day. However, sub-section (2) stipulates that this exemption does not apply to the stock of scheduled goods held by a registered dealer on the appointed day and remaining unsold on the day immediately preceding the appointed day, provided such goods have not become liable to additional duty of excise under any Central law made after 1st November 1957.

The court examined the legislative intent behind the Sales Tax Exemption Act, which was to replace sales tax with additional duties of excise on certain goods. The Act aimed to ensure uniform taxation and avoid double taxation. The court noted that if goods held on the appointed day were sold without any additional duties of excise, they would still be subject to sales tax. However, if these goods were processed into different commercial commodities, such as finished cloth, and subjected to additional duties of excise, they should be exempt from sales tax.

The court emphasized that sub-section (2) of section 4 applies only to the sale of the same scheduled goods held on the appointed day. If these goods are converted into different commercial commodities through a manufacturing process, sub-section (2) does not apply. The finished cloth, being a different commercial commodity from the grey cloth, falls outside the scope of sub-section (2).

Conclusion:
The court concluded that the sales of finished cloth by the assessee were not covered by sub-section (2) of section 4. The finished cloth, produced by processing the grey cloth, constituted a different commercial commodity. Therefore, the sales were exempt from sales tax under sub-section (1) of section 4. The answers to the questions referred were in the affirmative for question No. 1 and in the negative for question No. 2. The Commissioner was ordered to pay the costs of the reference to the assessee.

Reference Answered Accordingly.