Declared goods and manufacture: ginning cotton did not create a new commodity, limiting State tax on cotton dealers.

Ginned cotton and unginned cotton were treated as the same commodity because ginning did not create a new commercial article with a distinct name, character or use; the process merely removed seed and improved marketability, so it was not manufacture under the relevant purchase-tax definition. The Punjab sales tax amendment was valid only in part: it could not impose levy on cotton in a manner inconsistent with the Central sales tax law's limits for declared goods, but challenges concerning oil-seeds, non-ferrous metals and iron scrap failed because those materials were treated as having undergone conversion into different finished articles.

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Issues: (i) Whether ginned cotton and unginned cotton are the same commodity and whether ginning amounts to manufacture for the purpose of the purchase-tax provisions. (ii) Whether the amendment to the Punjab sales tax law could validly subject cotton dealers and dealers in oil-seeds, non-ferrous metals and iron scrap to tax in the manner imposed.

Issue (i): Whether ginned cotton and unginned cotton are the same commodity and whether ginning amounts to manufacture for the purpose of the purchase-tax provisions.

Analysis: The statutory and constitutional treatment of cotton repeatedly described ginned and unginned cotton as one commodity in its unmanufactured state. On that footing, ginning did not bring into existence a new commercial article with a distinct name, character or use. The process merely removed the seed and made the cotton more marketable and suitable for use in manufacture. Applying the substantial identity test, the commodity retained its essential identity after ginning, and the process did not amount to manufacture within the relevant purchase-tax definition.

Conclusion: In favour of the assessee. Ginned and unginned cotton were held to be the same commodity, and ginning was held not to be manufacture.

Issue (ii): Whether the amendment to the Punjab sales tax law could validly subject cotton dealers and dealers in oil-seeds, non-ferrous metals and iron scrap to tax in the manner imposed.

Analysis: As to cotton, the State levy was held inconsistent with the restrictions applicable to declared goods under the Central sales tax law because the tax was sought to be imposed beyond the permissible one-stage and rate limits. As to oil-seeds, non-ferrous metals and iron scrap, the processes described converted the original materials into different finished articles, so those transactions did not attract the same protection available to declared goods in their unmanufactured state. The amendment was therefore invalid only to the extent it transgressed the Central law in relation to cotton, but not in relation to the other commodities dealt with by the remaining petitioners.

Conclusion: Partly in favour of the assessee. Relief was granted to the cotton dealers, while the petitions relating to oil-seeds, non-ferrous metals and iron scrap failed.

Final Conclusion: The levy could not stand insofar as it burdened cotton in its unmanufactured form beyond the limits imposed by the Central sales tax law, but the remaining commodity-specific challenges were rejected.

Ratio Decidendi: Where the commodity retains its essential identity and no new commercial article emerges, a processing step does not amount to manufacture, and declared goods in that form cannot be taxed by the State in excess of the limits imposed by the Central law.

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