Mechanical separation of cotton from seeds does not create a new commodity; deduction follows the purchase price of goods actually sold.

Unginned cotton and ginned cotton are treated as the same commercial commodity because ginning is only a mechanical separation of cotton from seeds and does not create a new article. For deduction from taxable turnover under the Punjab General Sales Tax Act, a dealer who purchases unginned cotton and then sells the resulting ginned cotton and cotton-seeds to registered dealers or in inter-State trade or export is entitled to deduction of the purchase price of the goods actually disposed of, or the corresponding part of that price. The assessing authority must ascertain the purchase price attributable to the ginned cotton or cotton-seeds sold and allow deduction on that basis.

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Issues: Whether, for the purposes of deduction from taxable turnover under the Punjab General Sales Tax Act, 1948, a dealer who purchases unginned cotton, gins it, and sells the resulting ginned cotton and cotton-seeds to registered dealers or in inter-State trade or export, is entitled to deduct the purchase price of the unginned cotton or the relevant portion thereof.

Analysis: Unginned cotton and ginned cotton were treated as the same commercial commodity, the process of ginning being only a mechanical separation of cotton from seeds and not a manufacturing process creating a new and distinct article. A dealer buying unginned cotton in fact pays for both the cotton and the seeds contained in it. When the resulting ginned cotton and cotton-seeds are sold in whole or in part in the manner contemplated by the Act, the dealer has sold the goods purchased by him, and the statutory deduction must be worked out on the purchase price of the goods so sold. The Assessing Authority was therefore required to ascertain the purchase price of the ginned cotton or cotton-seeds actually disposed of and allow the corresponding deduction.

Conclusion: The dealer was entitled to deduction of the purchase price of unginned cotton, or a corresponding part thereof, to the extent the resulting ginned cotton and cotton-seeds were sold in the manner recognised by the Act. The contrary assessment made by the authorities could not stand.

Final Conclusion: The petitions succeeded, the assessments were quashed, and fresh assessments were directed to be made in accordance with the above principle.

Ratio Decidendi: Where a purchased commodity is merely mechanically separated into its constituent parts without any manufacturing transformation, sale of the resulting parts constitutes sale of the purchased goods, and the statutory deduction from taxable turnover must be allowed on the purchase price of the goods actually sold.

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