AI Drafter 
TaxTMI 
TaxTMI 
1964 (5) TMI 42
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....f unginned cotton, gin it and then dispose of the proceeds consisting of ginned cotton and cotton-seeds. The Punjab General Sales Tax Act imposes a purchase tax on goods specified in Schedule 'C' of the Act and that Schedule mentions cotton, both ginned and unginned, and also oil-seeds which naturally include cotton-seeds. The Act provides-and quite properly if I may say so-that in respect of goods subjected to the purchase tax no sales tax will be levied. Further, the Act provides that if goods subjected to the purchase tax are sold to a registered dealer within a certain time or exported out of India or sold in the course of inter-State trade then the purchase price of the goods sold will be excluded from the taxable turnover or, to quote....
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....ducted the purchase price of unginned cotton equal to the weight of the ginned cotton sold to registered dealers but refused to take notice of the sale of cotton-seeds to registered dealers. The petitioners' main submission is that the sale of cotton-seeds was the sale of the goods purchased by them in respect of which purchase tax was payable and since the sales were made to registered dealers or in the course of inter-State trade the taxable turnover should have been determined after deducting the purchase price of the goods sold from the gross turnover. It is common ground, apart from being common knowledge, that unginned cotton, as it is sold in the market, contains in it not only pure cotton but also cotton-seeds, and by weight the ....
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....y have happened to the cotton-seeds. This argument, it will be noticed, completely identifies unginned cotton with ginned cotton and takes no notice of the reality that unginned cotton contains a large quantity of cotton-seeds. The argument, therefore, is unreal, as it chooses to ignore the facts. Mr. Doabia, on the other hand, urges that unginned cotton and ginned cotton are two entirely different things and if, therefore, unginned cotton is purchased and purchase tax paid on it and later on the cotton is ginned and the resulting ginned cotton is sold, no part of the goods purchased has been sold, for in such a case not a shred of unginned cotton is sold and consequently he says that no deduction at all is permissible. He, therefore, maint....
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....selling ginned cotton are two transactions dealing with the same commodity." Tek Chand, J., agreeing with the learned Chief Justice, explained it thus"It is well-understood, that manufacture implies a change, but every change is not manufacture, in spite of the fact that every change in an article may be the result of treatment, labour and manipulation. For purposes of manufacture something more is necessary and there must be a transformation; a new and different article must emerge having a distinctive name, character or use." It is true, of course, that unginned and ginned cotton are in a sense different, if only for the fact that there are no cotton seeds left in ginned cotton, but it is hard to see how ginning unginned cotton crea....
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....purchased when unginned cotton was bought. It seems to me, therefore, that when a dealer buys a certain quantity of unginned cotton and after ginning it he sells the entire quantity of ginned cotton and cotton-seeds, he must be held to have sold the entire unginned cotton which he had purchased and if the sale is to a registered dealer, full deduction of the purchase price of unginned cotton must be allowed. It follows that where only a part of the proceeds of ginning has been so disposed of, that is, either sold to a registered dealer within the specified time or exported out of India or sold in the course of inter-State trade, a corresponding deduction must be permitted. That, in my opinion, is the intention of the Punjab General Sales Ta....