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TMI Blog1975 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal as follows. A number of yarn threads varying from three thousand to seven thousand ends are rolled together forming a beam. This is called a warpers beam. Such beams, are then put on one stand. The overlapping ends of the beams are passed through sizing material. This involves a chemical process. After sizing the sized beams are obtained. During the process of warping, part of he yarn subject to that process is wasted and becomes waste yarn. The causes of such waste during the warping process are stated in a note submitted by the appellant as follows. (1) Climatic conditions : some bring softness to the yarn and it is therefore no useful to warping machine. (2) During the mechanical processes of warping, the yarn threads get broken and to join them again some quantity of yarn is wasted. (3) The damaged cones in transit and in handing is also a waste. (4) The yarn contained in a cone is not completely exhausted on the warping reels and about 1 per cent of the yarn remains on the cone which cannot be put to use. Some of the yarn left on the comes is however re-wound to make the cone again sizeable so that it is put to use of warping reels. In this process again some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following rulings: 1. Second Appeal No. 350 of 1974 decided on 5th Feb., 1975, Indian Express Newspaper (Bombay) Pvt. Ltd. vs. The State of Maharashtra. 2. 23 STC 173, The State of Madras vs. K.C.P. Ltd. 3. 34 STC 231, Indian Hume Pipe Company Ltd. vs. The state of Uttar Pradesh Ors. 4. 31 STC 426. State of Tamil Nadu vs. Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Anr. and 5. 22 STC 485, City Motor Service Private Ltd. vs. The State of Madras. 7. An alternative contention developed is that even if the article is held to be a subsidiary product or a bye-product and therefore the sale is held as in the regular course of business, yet a deduction in respect of the transaction should be allowed on the ground that it is a resale. 8. Shri Karkhanis, Sales Tax Officer (Lega) for the Department contended as follows. In the light of the dictum of the Supreme Court in Raipur Manufacutre Co., waste yarn is a subsidiary product or a bye-product. The tests laid down by the Supreme Court apply to waste yarn. The product is regularly turned out. The process of manufacture starts when the yarn is put on the warping machine. The product is a subsidiary product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burnt. On that account it was a subsidiary product. When such subsidiary product is turned out regularly and continuously and is being sold from time to time an intention to carry on business in kolsi could be attributed to the Company. 10. In case of the other article waste caustic liquor, cloth was dipped in a tank containing water with sodium hydroxide. After dipping, the cloth passed through other tanks where water was sprinkled over the cloth. In this process some of the sodium hydroxide fell into the tanks. Such light solution of sodium hydroxide could not be used in the company, but head a market amongst other manufactures or launderers. For reasons similar to those in the case of kolsi, waste caustic liquor was regarded as bye-product or a subsidiary product in the course of manufacture. 11. On comparing the cotton yarn waste in the present case with kolsi or waste caustic liquor, the position would appear to be as follows. In case of kolsi and waste caustic liquor, the decisive factors are that the articles were articles obtained after the process of manufacture started. The same were obtained regularly and continuously day after day. Hence, they were subsidiary produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chine, the process of manufacture starts. Whatever is obtained subsequent to this stage, would be something obtained in the course of manufacture. 13. In this context the dictum of the Bombay High Court in The Aryodaya Spinning and Weaving Company Ltd. vs. The State of Bombay, 11 STC 141, needs to be considered. The article there was cotton waste. This was cotton discarded in the process of carding on account of its short staple and unsuitable for manufacturing yarn of the type required by the factory. The process of carding referred to in the judgment has not been described in the report. Shri Narayan in his elaborate and well prepared argument, furnished a definition of carding. It is "Cleaned cotton is introduced through carding cones and twisted into a kind of rope from out of the available cotton. In the process the staple required is taken into consideration, and the case are so set that ropes are formed of similar or same length of staple". 14. Thus, in Aryodaya s case, cotton discarded in the process of carding which has been detailed above, was held as a subsidiary product. In the present case also, the process of warping is that putting together a number of yarn threa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the process of manufacture. In the present case, the waste yarn cannot be said to be obtained regularly and continuously. The obtaining of the same would depend on the strength and quality of the yarn purchased. It may be that if the quality thereof is good, there would be no waste yarn obtained. The position as regards this contention is as follows. It would not be correct to act on the hypothesis that it may theoretically be possible to purchase yarn out of which no waste yarn is obtained. What has to be considered is the facts as they appear on the record. In point of fact, waste yarn has been obtained in the present case. It may be that the quantity of the waste yarn obtained in warping of different qualities of yarn may differ. It does not, however, appear that there has to be a uniformity in this respect. 18. Shri Narayan has contended that the receipts from the sale of waste yarn are only Rs. 32,358. This is a negligible percentage as compared to the value of the yarn purchased. The argument is that this circumstances militates against the contention that there was an intention on the part of the assessee of carrying on the business of selling yarn waste. The position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as sales in the course of business. 20. The difficulty in applying these observation to the present case is obvious. In the above case, the concerned Bench has made an effort to arrive at a decision with reference to the intention of the assessee, at the time when he purchased the paper, about telling the same. In a case like the present, this approach would not be correct. The Supreme Court in Raipur Manufacturing Co. s case in deciding whether there was an intention to carry on business in kolsi or waste caustic liquor, did not consider relevant the entertainment of such an intention at the time of the purchase of such material. On the other hand, the Supreme Court specifically laid down that an intention to carry on the business could be reasonably attributed to the assessee when the product was turned out in the factory of he assessee regularly and continuously and was being sold from time to time. The Supreme Court did not base their decision on the question whether at the time when these articles are purchased, the assessee entertained an intention to sell the same. In other words, the consideration on which the Bench decided the question in Indian Express Newspaper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Reference was also made to 31 STC 426, State of Tamil Nadu vs. Burmah Shell Oil Storage and Distributing Co. What was considered in this case was scrap and discarded material. In the present case, the article in question is a product which constituted a subsidiary product or a bye-product as per principles in Raipur Manufacturing Co s case. 23. Shri Karkhanis on his part relied on the following judgments. Dani Wooltex Corpn. vs. The State of Maharashtra, Second Appeal No. 912 of 1970 decided on 11th Feb., 1972. In that case, sales of wool top waste were held to be sales in the course of business, Shri Karkhanis is right in contending that the facts and circumstances in the said case are similar to those in the present case. The waste was turned out regularly during the process of manufacture. The sales were being made in one big lot. The Tribunal observed that though there was no frequency of sales and no profit motive yet the sales were in the regular course of business as per ditcum in Raipur Manufacturing Co. Shri Karkhanis also reliefs on the judgment is Second Appeal No. 466-467 482 of 1973 decided on 18th Jan., 1974 in Navkal Press Navakal Office vs. The Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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