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TMI Blog1959 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... of them together. Before the passing 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 Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods are sold outside the Punjab State, there is no liability to pay any tax in respect of those sales and the appropriate refund is made under section 15(b) of the Central act. With regard to the non-declared goods, tax being levied on turnover, the petitioners have to pay tax in respect of both transactions of purchase and sale. The claim of the petitioners dealing in cotton is that they are not liable to pay any tax whatsoever when they sell their goods outside the State; they are liable to pay tax at 2 per cent. only when they sell their goods inside the State. The contention of those petitioners who deal in non-declared goods is that they are liable to pay tax at one stage only. They have, therefore, asked for a declaration from this Court that Punjab Act. No 7 of 1958 is ultra vires the Constitution inasmuch as it offends the provisions of the Central Sales Tax Act promulgated in order to give effect to the provisions of Article 286(3) of the Constitution. It may be stated at the outset that 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, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otton and unginned cotton. The Cotton Ginning and Pressing Factories Act, 1925, section 2(b) says"'Cotton' means ginned or unginned cotton, or cotton waste." In the East Punjab Sales Tax Act of 1948 item 29 of the Schedule is "cotton (ginned or unginned)". Similarly, in the Central Sales Tax Act of 1956, section 14, item (ii), says"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." Therefore, the declared goods under one head are stated to be "cotton in its unmanufactured state"; one type of manufactured cotton, namely, cotton waste, has been specifically excluded, but ginned and unginned cotton have been spoken of as one commodity. The Punjab Act No. 24 of 1959 in Schedule C, clause (1), repeats the phraseology of the Central Sales Tax Act given above. The process of ginning, it was argued before us, is certainly 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. The statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that unginned and ginned cotton are essentially the same thing, and buying unginned cotton and selling ginned cotton are two transactions dealing with the same commodity. Some little support for this view may be derived from one or two American cases. Our attention was drawn to 157 South East Reporter 276. In this case elections in Georgia were fought on the question of taxing manufacturers. One party promised to exempt manufacturers from a certain type of tax. This party came into office and the question arose whether a person who had a ginning factory was liable to pay tax or not; in other words, if he could be treated as a manufacturer. The Court held that ginning was not manufacture and, therefore, the factory owner was liable to pay tax. The Justices in that case held that cotton did not lose its essential identity by undergoing the process of ginning, it remained the same commodity and in the same state as before; therefore, ginning was not manufacture. The Corpus Juris Secundum defines "manufacture" as "the production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties, or combinations, whether by hand labou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son, who buys unginned cotton, gins it and then sells ginned cotton, is dealing only in one commodity. This commodity has been declared to be one of the goods of special importance in inter-State trade and, therefore, the person dealing in it is entitled to the benefits of section 15 of the Central Sales Tax Act; inasmuch as under the East Punjab General Sales Tax Act, 1948, as amended by the Punjab Act No. 7 of 1958, he has to pay additional tax, the law imposing that tax is invalid. The dealers in cotton are only liable to pay tax not exceeding 2 per cent. on sales effected inside the State. They are not liable to pay any tax at all when they export their goods and effect sales outside the State. With regard to the other commodities, the petitioners in Civil Writs Nos. 822 to 827 of 1959 buy oil-seeds, extract oil and sell oil. Here the character of the original commodity is entirely changed. The oil is ready for instant use and it cannot be said that oil-seeds and oil are the same commodity. Similarly, the petitioners in Civil Writ No. 898 of 1959 deal in non-ferrous metals. They buy metals subject to the process of manufacture and sell finished articles. The petitioners in Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, before its amendment, provided levy of tax on sales only. Section 5 of Act No. 46 of 1948, before its amendment, provided that there shall be levied on the taxable turnover every year of a dealer a tax at such rates not exceeding two pice in a rupee as the State Government may be notification direct. The expression "dealer" was defined to mean "any seller including a department of Government who in the normal course of trade sells any goods that are actually delivered for the purpose of consumption in the State of Punjab........." The expression "turnover" included the "aggregate of the amounts of sales and parts of sales actually made by any dealer during the given period........." Section 6 provides that no tax shall be payable under the Act on the sale of goods specified in Schedule B which included at item 29 "cotton (ginned or unginned)" and at item 42 "cotton seed". The petitioners have no grievance against the levy of sales tax on goods under the East Punjab Act No. 46 of 1948 before its amendment by Punjab Act No. 7 of 1958. But important changes in the law were introduced by the Amending Act. As stated in the long title, it was "an Act to provide for the levy of a gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was ordered that sales tax on certain goods, including "(ii) 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" would be levied, at the rate of two per cent. of sale price thereof, with effect from 1st of October, 1958. In other words, from 19th of April, 1958, up to 1st of October, 1958, the dealers were liable to pay tax on the sale at the rate of four naye paise in a rupee besides tax on purchase of goods at two naye paise in a rupee, but from 1st of October, 1958, the sales tax was reduced from four to two per cent. of the sale price. This notification did not bring about any change in the tax on the purchase of goods. Thus the previous notification No. 1864-E T-58/1012, dated 19th of April, 1958, was only partially modified by the subsequent notification No. 1759, dated 26th of June, 1958. The Constitution (Sixth Amendment) Act, 1956, amended Article 286 of the Constitution and clause (3) provided that"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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 tax so levied shall be refunded to such person in such manner and subject to such conditions as may be provided in any law in force in that State." The petitioner in Civil Writ No. 359 of 1959 feels aggrieved and contends that no tax is leviable on the purchase of unginned cotton used for ginning as the process of ginning cotton in seed (kapas) is not "manufacturing" but is only "processing", and as such does not fall within the definition of "purchase" as given in section 2(ff) of the Punjab Act. It was contended that the cotton being one of the goods declared to be of special importance under section 14 of the Central Act No. 74 of 1956 is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Act, 1956, and by sections 6 and 9 of the Amending Act, sections 5 and 12 of the principal Act No. 46 of 1948 were amended. It was contended before us that the new amendment affected inter-State but not intra-State transactions. The second Act enacted after the filing of the petition is the Punjab General Sales Tax (Second Amendment) Act (No. 24 of 1959), its object being to remove certain administrative difficulties, besides inconvenience to the business community. It is argued before us by the learned counsel appearing for the petitioner that even the two Acts passed by the Punjab State subsequent to the filing of the petition have not improved matters and the provisions of the Punjab Act nevertheless are liable to be struck down, being in contravention of the Central Sales Tax Act. Our attention was drawn by the learned counsel to a letter from Shri M.K. Venkatachalam, Deputy Secretary to the Government of India, addressed to a dealer on the subject of levy of Central sales tax on declared goods, stating"In continuation of this Department letter of even number dated 4th August, 1959, on the above subject, I am directed to say that the matter has been reviewed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... baled, pressed or otherwise, but not including cotton waste." Article 369 of the Constitution of India conferred upon the Parliament temporary power during a period of five years from the commencement of the Constitution to make laws with respect to certain matters which included "raw cotton (including ginned cotton and unginned cotton or kapas), cotton seed.........." In Concurrent List III of Schedule VII, item 33(d), which was added by the Constitution (Third Amendment) Act, 1955, referred to "raw cotton, whether ginned or unginned, and cotton seed." It will thus be seen that the law in this country has treated ginned and unginned cotton not only as a single commodity but also as "unmanufactured". I do not find any substance in the argument of the learned Advocate-General when he submits that "such goods" in section 15(a) of the Central Act refers to the very goods which have borne the tax. According to him tax levied on kapas does not exceed two per cent. and it is at one stage. When tax is levied on cotton fibre after it has been ginned and cotton seeds have been separated, the cotton fibre becomes a different article and it is liable to taxation not exceeding two per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, would apply and ginned cotton would only be an unmanufactured article. The learned Advocate-General has drawn our attention to the meaning given to the word "manufacture" and other cognate expressions by the lexicographers. Etymologically "manufacture" is a compound word from latin "manu" meaning "hand" and "facere" which means "made". In its primary sense, "manufacture" is the action or process of making by hand. In the modern sense, "manufacture " is fashioning of a raw or wrought material by manual or mechanical manipulation, resulting in its transformation. The primary meaning of the word "manufacture" in the sense of "made by hand" as distinguished from "nature growth" under-went a change with the supplanting of primitive methods of making, by machinery. Ordinarily a manufactured article takes a different form and subserves a different purpose from the original materials and is usually given a different name. The meaning of the term "manufacture" has acquired a broader meaning so as to include products of human industry, not only as a result of the direct action of human hand but also by employment of machinery. According to the Century Dictionary, "manufacture" is define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or processing of cotton". Russell, C.J., at page 277 said"Considering the meaning of the word 'manufacturing' in connection with out consideration of the meaning of processing, it must be plain that the word 'processing' has reference only to some stage or process of manufacturing. The generic meaning of the word 'cotton', as related to manufacturing, has relation only to cotton as a marketable product in the marts of commerce. The term 'cotton' is universally recognised as referring to something which can be manufactured so as to be of use to a civilised man. So we are of the opinion that the word 'processing' means a process in manufacturing cotton after it has been put in a marketable form by ginning which is merely the separation of the cotton from its seed, and seed cotton is not referred to in the constitutional amendment". This matter also came up before the Supreme Court of the United States in East Texas Motor Freight Lines v. Frozen Food Express351 U.S. 49. where the question was whether fresh or frozen dressed poultry, after the feathers had been plucked and entrails removed, was an agricultural commodity or was deemed to be "manufacturing". The following extracts fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or use different from that originally possessed by kapas. The identity of the original material has not been lost in this case. The provisions of section 6 of the East Punjab General Sales Tax (Amendment) Act (13 of 1959) whereby section 5, sub-section (2), of the principal Act was amended by giving limited relief, do not remove the defect, and fall short of bringing the Punjab Act into line with the provisions of the Central Act, which despite the amendment are contravened. The amending Act is prospective and no relief is granted to persons during the period of one year from 18th April, 1958, to 19th April, 1959. It does not remove the earlier defects and does not cover all cases. For instance, sale to an unregistered dealer is not accepted. Similarly if sale is to a registered dealer but for a purpose other than that mentioned in section 6, duty is leviable nevertheless. Similarly section 9 of the amending Act which substitutes section 12 of the principal Act provides partial relief by giving effect to section 15(b) of the Central Act but leaves untouched the provisions of section 15(a). If no tax at all is payable as provided by section 15(a) of the Central Act in excess of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process" as the form of the finished consumable articles was different and the manufacturing process was involved in the production of these articles. Reference was made to Shaik Jafarji Hiptullah Boy Gin and Press Foctory v. Shaik Ismail A.I.R. 1937 Nag. 311., which was a case under the Workmen's Compensation Act and the question which arose in that case was whether an employer was exempt from making compensation even if accident was due to workman's negligence in view of the provisions of section 3. In the course of the judgment it was observed that"ginning and pressing cotton is a manufacturing process within the meaning of the Factories Act. Section 2(4) of that Act defines a manufacturing process as 'any process for or incidental to the making or otherwise adapting for use, transport or sale, any article, or part of an article'. When cotton is ginned, it is adopted for use in cotton mills. It is also adapted for sale as ginned cotton. When it is pressed into bales, it is adapted for transport, and also for sale in the shape of cotton bales. The matter clearly falls within the scope of the definition." In view of the very wide definition of manufacturing process in section 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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