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TMI Blog1971 (12) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ter called the Act), purchase tax is payable on the purchases of cotton which is one of the goods specified in Schedule 'C' to the Act. The purchase tax became leviable with effect from 1st April, 1960, and the tax was imposed at the point of first purchase by a dealer to whom deductions were allowed in accordance with section 5(2) of the Act. The levy of purchase tax on cotton was contested in an appeal in the Supreme Court in Bhawani Cotton Mills Ltd. v. The State of Punjab and Another[1967] 20 S.T.C. 290 (S.C.)., and their Lordships held: "The provisions of the Punjab General Sales Tax Act, 1948 (as they stood on April 1, 1960), levying purchase tax on declared goods specified in Schedule 'C' contravene the provisions of section 15(a) of the Central Sales Tax Act, 1956, as the stage at which purchase tax is levied is neither definite nor ascertainable, and there is a possibility of the tax being levied at more than one stage." According to this judgment, purchase tax can be levied on declared goods only at one stage. The Punjab Government amended the Act, by the Punjab General Sales Tax (Amendment and Validation) Act No. 7 of 1967, and one of the amendments was the inserti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r denies that he is the last purchaser of cotton, the assessing authority will have to find the fact whether he is the last purchaser or not before holding him liable for the purchase tax. In the instant case, the assessing authority, after the amendment of the Act, issued notice in form S.T. XIV to the petitioner-company on 2nd December, 1968, as he did not feel satisfied with the returns already filed by the petitioner-company. The notice was given for 21st December, 1968, on which date the accountant of the company appeared with an application for adjournment which was allowed and the case was adjourned to 23rd January, 1969. On that date, the accountant of the company was examined by the assessing authority and was directed to appear again on 22nd February, 1969, on which date the case was adjourned to 19th March, 1969, and then to 20th March, 1969, after examining the accountant further. On 20th March, 1969, when the accountant appeared for further examination, he was directed to furnish a statement regarding purchase of ginned cotton and cotton seeds sold during the year under assessment. The case was adjourned to 21st March, 1969, on which date no representative on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, it is difficult to accept the contention that the sale of cotton seeds must be treated as a sale of declared goods for the purpose of section 15(a) or (b) of the Central Sales Tax Act, 1956. It is true that cotton in its unginned state contains cotton seeds. But it is by a manufacturing process that the cotton and the seeds are separated and it is not correct to say that the seeds so separated is cotton itself or part of the cotton. They are two distinct commercial goods though before the manufacturing process the seeds might have been a part of the cotton itself. There is, hence, no warrant for the contention that cotton seed is not different from cotton. It follows that the respondent is not entitled to deduct the sale price of the cotton seeds from the purchase turnover under section 5(2)(a)(vi) of the Act. In our opinion, the assessing authority was right in holding that the respondent was not entitled to deduction in respect of cotton seeds sold by it to registered dealers. It is conceded that the assessing authority had already granted deduction under section 5(2)(a)(vi) so far as ginned cotton is concerned." In this judgment, their Lordships held that cotton ginned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be held to be the last purchaser liable to pay purchase tax only with regard to the cotton disposed of in that manner but cannot be considered to be the last dealer liable to purchase tax to the extent of unginned or ginned cotton sold to registered dealers. The fact that the cotton seeds remained with the petitioner is not to be taken into consideration, for that purpose. In the present case, the learned assessing authority has allowed deduction with regard to the purchase price of the ginned cotton sold by the petitioner-company to registered dealers out of the gross purchase turnover and has imposed the purchase tax on the remainder. This remainder is probably represented by cotton seeds and/or ginned or unginned cotton still in possession of the petitioner-company undisposed of. There is thus a clear error of law on the face of the order, in view of the judgments of their Lordships of the Supreme Court in State of Punjab and Others v. Chandu Lal Kishori Lal[1970] 25 S.T.C. 52 (S.C.); A.I.R. 1969 S.C. 1073. and Rattan Lal and Co. and Another v. The Assessing Authority and Another[1970] 25 S.T.C. 136 (S.C.). In the latter case, it was held: "The stage of tax is now stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to him than the latter dealer. I do not find any substance in this argument as the two classes of dealers are distinct and separate from each other and the basis of differentiation has a reasonable nexus to the business of the dealers. In the former case, the goods do not become part of the general goods in the State of Punjab while in the second case those goods become part and parcel of the general goods of the State. The former dealer shall have to take those goods out of the State and thus incur an expense on transportation, octroi and the like and may even be liable to pay Central sales tax. The cases of the two kinds of dealers are not pari materia and, therefore, it cannot be said that section 2(d) of the Act suffers from any constitutional infirmity. This argument is repelled. For the reasons given above, these petitions are accepted and the orders of the assessing authorities are quashed. The assessing authorities will, however, be at liberty to make fresh assessments in accordance with the provisions of the Act and in the light of the observations made above. As the point of law involved in these cases was not free from difficulty, I leave the parties to bear their o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot be subject, under section 15(a) of the Central Sales Tax Act, to a tax exceeding two per cent. of the sale or purchase price thereof or at more than one stage. Their Lordships further held that cotton seeds are not 'cotton' and no deduction can be allowed on account of the sale proceeds of the cotton seeds extracted from unginned cotton and sold to the registered dealers under section 5(2)(a)(vi) of the Act, but deduction was admissible in respect of the ginned cotton obtained from the unginned cotton by the process of manufacture if the same was sold to a registered dealer under the said provision. It is quite apparent that in view of the addition of section 5(3) to the Act, this method of assessment in respect of cotton is not permissible. Cotton being declared goods and only liable to purchase tax, the last dealer liable to pay this tax has to be found. This finding has not been given by the assessing authority although it was necessary to be given in view of the fact that the petitioner-company had denied that it was the last purchaser to pay the tax. The question, however, arises whether the petitioner-company can be said to be the last purchaser of cotton in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re their Lordships of the Supreme Court in State of Punjab v. Shakti Cotton Co.Since reported in [1972] 29 S.T.C. 706 (S.C.)., Civil Appeal No. 2319 of 1968, decided on 5th November, 1971 (along with some other decisions bearing on the point). Dealing with this case, Vaidialingam, J., speaking for the court observed as follows: "The decision in the State of Punjab and Others v. Chandu Lal Kishori Lal and Others[1970] 25 S.T.C. 52 (S.C.); A.I.R. 1969 S.C. 1073., can at the most be considered to have decided that cotton seeds are not declared goods and that it is by the manufacturing process that cotton and cotton seeds are separated. As the Act, as amended by the Amendment Act, has to be applied in respect of assessment of sales tax on declared goods, the decision in the State of Punjab and Others v. Chandu Lal Kishori Lal and Others[1970] 25 S.T.C. 52 (S.C.); A.I.R. 1969 S.C. 1073. is, in our opinion, no bar to the assessees urging their objections regarding the validity of the orders of assessment. Further, this court had no occasion to consider in the State of Punjab and Others v. Chandu Lal Kishori Lal and Others[1970] 25 S.T.C. 52 (S.C.); A.I.R. 1969 S.C. 1073., whether, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l's case(1) cannot form the basis of decision in this case and the matter will have to be decided on the rule laid down by their Lordships of the Supreme Court recently in the State of Punjab v. Shakti Cotton CompanySince reported in [1972] 29 S.T.C. 706 (S.C.). , Civil Appeal No. 2319 of 1968, decided on 5th November, 1971. In this latest decision, by which seven appeals against the judgment and orders of the Punjab High Court were disposed of, the controversy related to the assessment of sales tax in respect of cotton, which is admittedly an item of declared goods under Schedule 'C' to the Act. Adverting to the facts of the case of M/s. Shakti Cotton Company(3), one of the seven cases which their Lordships were considering, we find that the company claimed deduction under section 5(2)(a)(vi) from its gross turnover, value of the entire quantity of cotton it had purchased. This deduction was, however, disallowed and the order of the assessing authority was challenged in the Supreme Court (sic) by means of Civil Writ No. 452 of 1964. The firm's claim before the assessing authority was that if 3 maunds of kapas is ginned it gives roughly one maund of ginned cotton which if disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could at the most be considered to have decided that the cotton seeds were not declared goods. What emerges from the recent decision of the Supreme Court in State of Punjab v. Shakti Cotton Company(2), Civil Appeal No. 2319 of 1968, is that cotton seed is not cotton but a different commodity. In fact, it is admitted that now it is one of the items of declared goods under Schedule 'C'. Learned counsel for the State has urged that in this situation, no deduction in respect of these goods can be claimed. Even if that be so, the fact remains that as a result of ginning cotton seeds and ginned cotton are obtained. Ginned cotton admittedly is cotton and an item of declared goods. There is no controversy about it and there cannot be. Deduction on account of ginned cotton is permissible. The question that remains to be considered is, whether a dealer is liable to purchase tax in a case where he sells the entire ginned cotton that he had obtained after ginning, out of the unginned cotton purchased by him. It is obvious that if he had sold the entire cotton, though after the process of ginning, he has not consumed or retained any cotton as such and thus, the entire purchase price of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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