1996 (2) TMI 472 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether surgical cotton is a different commercial commodity from cotton within the meaning of entry No. 1 of Schedule D to the Haryana General Sales Tax Act, 1973, and as such is liable to tax.
2. Whether surgical cotton after manufacture loses its basic character of cotton and can be termed as not cotton.
3. Whether the order of the Tribunal rendered in 1976 forms fresh material which debars the revising authority to exercise power under section 21(1) of the Act after the period of limitation under section 11-A of the Act.

Detailed Analysis:

Issue 1: Nature of Surgical Cotton Under the Haryana Act
The primary question was whether surgical cotton is a commercially different commodity from unmanufactured cotton under the Haryana General Sales Tax Act, 1973. The assessee, engaged in the manufacture of surgical cotton, argued that surgical cotton should be considered the same as raw cotton, thus not liable for additional tax as it is a declared good under section 14 of the Central Sales Tax Act, 1956. The Assessing Authority, however, determined that surgical cotton is a different commodity, having undergone a manufacturing process involving cleaning, boiling, bleaching, and other treatments, making it distinct from raw cotton. This view was upheld by the Deputy Excise and Taxation Commissioner on appeal, who emphasized that surgical cotton is used for medical purposes and is thus different from ordinary cotton.

The Tribunal initially reversed these findings, stating that surgical cotton remains cotton despite the manufacturing processes. However, the High Court concluded that surgical cotton, after undergoing significant manufacturing processes, becomes a new and different article with distinct uses, primarily medical. Therefore, it is not the same as unmanufactured cotton and is liable to tax as a different commodity.

Issue 2: Character of Surgical Cotton Under the Punjab Act
Similar to the first issue, the court examined whether surgical cotton loses its basic character of cotton after undergoing manufacturing processes. The Tribunal had previously held that surgical cotton is a manufactured product and not the same as unmanufactured cotton. The High Court supported this view, noting that surgical cotton, after processing, becomes a new product with different properties and uses, thus losing its original character as cotton. Consequently, surgical cotton cannot be considered unmanufactured cotton under section 14(ii) of the Central Act, and the assessee is liable for tax on it.

Issue 3: Revising Authority's Power Under Section 21(1) of the Punjab Act
The court addressed whether the Tribunal's 1976 decision constituted fresh material, thereby preventing the revising authority from exercising its powers under section 21(1) of the Punjab Act after the limitation period under section 11-A. The assessee argued that the revising authority could only act within the five-year limitation period specified in section 11-A. However, the High Court referred to previous judgments, including Asian Rubber and Plastic Industries v. State of Punjab and Luthra Rubber Industries v. State of Punjab, which established that the Commissioner's revisional powers under section 21(1) are not subject to the limitation period in section 11-A. The court emphasized that sections 11-A and 21 operate in different fields, with section 21(1) allowing the Commissioner to act at any time to ensure the legality and propriety of proceedings. Therefore, the revising authority's actions were justified, and the limitation period under section 11-A did not apply.

Conclusion
The High Court ruled in favor of the department on all issues. It held that surgical cotton is a different commercial commodity from unmanufactured cotton and is thus liable to tax. The court also confirmed that the revising authority's powers under section 21(1) of the Punjab Act are not constrained by the limitation period in section 11-A. The references were answered accordingly, with no costs awarded.