Tax classification and rectification limits: finished garments differ from mill textiles, and reassessment cannot rest on fresh material.

Finished garments made from mill cloth were treated as a different commercial commodity from textiles manufactured by mills, so the restricted single-point levy and labour-deduction claim did not apply. By contrast, turnover attributable to sales outside the State remained beyond the State's taxing power under Article 286(1), and the President's continuance order could not validate a levy barred by that provision. A rectification power under rule 35 was confined to mistakes apparent from the record and could not be used to reopen a best judgment assessment on fresh material or debatable issues. The article therefore explains a mixed tax position: classification and labour deduction failed, while outside-State taxation and revision were impermissible.

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Issues: (i) Whether readymade garments manufactured from mill cloth remained "textiles manufactured by mills" so as to attract only a single-point levy under the Act, and whether labour charges were deductible under the works-contract explanation to the turnover definition; (ii) Whether turnover attributable to sales outside the State during the relevant period was taxable in view of Article 286 of the Constitution and the President's continuance order; (iii) Whether the assessing authority could reopen and revise a best judgment assessment under rule 35 on the ground of a mistake apparent from the record.

Issue (i): Whether readymade garments manufactured from mill cloth remained "textiles manufactured by mills" so as to attract only a single-point levy under the Act, and whether labour charges were deductible under the works-contract explanation to the turnover definition.

Analysis: Cloth purchased from mills, after being cut, stitched, and otherwise processed into readymade garments, became a different commercial commodity. The exemption or restricted levy applicable to textiles manufactured by mills applied to textiles as such and not to finished garments made from them. The explanation relating to works contracts also did not apply, because the sales were not shown to be connected with any agreement for carrying out a works contract, nor with fitting out, improvement, or repair within the statutory definition.

Conclusion: The issue was decided against the assessee. Readymade garments did not fall within "textiles manufactured by mills", and the labour-deduction provision was inapplicable.

Issue (ii): Whether turnover attributable to sales outside the State during the relevant period was taxable in view of Article 286 of the Constitution and the President's continuance order.

Analysis: Article 286(1) prohibited a State from taxing sales taking place outside the State. The President's continuance order operated only in relation to the field preserved by Article 286(2) and could not validate a tax otherwise forbidden by Article 286(1). The outside-State turnover therefore remained outside the taxing power of the State.

Conclusion: The issue was decided in favour of the assessee. The outside-State turnover was not taxable, and the continuance order did not authorise levy contrary to Article 286(1).

Issue (iii): Whether the assessing authority could reopen and revise a best judgment assessment under rule 35 on the ground of a mistake apparent from the record.

Analysis: Rule 35 permitted rectification only of a mistake apparent from the record. The revisional exercise here depended on examination of fresh material not forming part of the original record and on reconsideration of disputed and debatable questions, including the character of the goods and the taxability of turnover. A rectification power cannot be used to reopen the assessment and make a fresh assessment on a new basis.

Conclusion: The issue was decided in favour of the assessee. The revised assessment under rule 35 was without authority.

Final Conclusion: The reference was answered partly for the assessee and partly for the revenue, with the assessee succeeding on the outside-State tax issue and the challenge to revision, but failing on the classification and labour-deduction issues.

Ratio Decidendi: A rectification provision confined to mistakes apparent from the record cannot be used to reopen an assessment on fresh material or to decide debatable questions, and finished garments made from mill cloth are not the same commodity as textiles manufactured by mills for the purpose of a restricted levy.

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