Processed cloth as a distinct commercial commodity falls outside stock-goods exemption withdrawal under the sales tax scheme.

Grey cloth held in stock on the appointed day, when subsequently bleached, dyed and printed into finished cloth, became a new commercial commodity. Section 4(2) of the Bombay Sales Tax Laws (Special Exemptions) Act, 1957 withdraws the sales tax exemption only where the sale is of the same scheduled goods already in stock on the appointed day. Because the processed cloth was manufactured out of the stock and was not the same goods in their original form, the sale fell outside section 4(2). The exemption under section 4(1) therefore continued to apply, and the processed cloth was not taxable as stock goods held on the appointed day.

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Issues: Whether finished cloth obtained by bleaching, dyeing and printing grey cloth held in stock on the appointed day was a sale of the same scheduled goods so as to fall within section 4(2) of the Bombay Sales Tax Laws (Special Exemptions) Act, 1957.

Analysis: Section 4(1) of the Bombay Sales Tax Laws (Special Exemptions) Act, 1957 granted exemption from sales tax for sales of scheduled goods effected on and after the appointed day. Section 4(2) withheld that exemption only from sales of scheduled goods that were already in stock with a registered dealer on the appointed day and remained unsold immediately before that day, where the goods had not become liable to additional excise duty under the Central law. The scheme of the Act was to replace sales tax by additional excise duty, so that goods liable to excise should ordinarily not bear sales tax. On the facts, grey cloth in stock was subjected after the appointed day to bleaching, dyeing and printing, and the resulting finished cloth was sold. That process produced a new commercial commodity. The sales were therefore not sales of the very stock held on the appointed day, but sales of goods manufactured out of that stock. Section 4(2) was confined to sales of the same stock goods and could not extend to goods transformed into a different commercial article.

Conclusion: The finished cloth sold after processing did not fall within section 4(2); the sales were exempt under section 4(1) and were not taxable under the Bombay Sales Tax Act, 1953.

Final Conclusion: The reference was answered in favour of the assessee because processed cloth became a distinct commercial commodity and the special exemption was not lost merely because the raw stock had been held on the appointed day.

Ratio Decidendi: Section 4(2) applies only where the scheduled goods sold after the appointed day are the same goods held in stock on that day; once those goods are manufactured into a commercially distinct commodity, the sale falls outside the withdrawal of exemption.

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