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1964 (11) TMI 97
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.... period 1st April, 1957, to 31st March, 1958, claimed that the sales of finished cloth effected by it as aforesaid were exempt from sales tax by reason of sub-section (1) of section 4 of the Sales Tax Exemption Act inasmuch as finished cloth sold by it constituted scheduled goods within the meaning of that expression as defined in section 2(7) of the Sales Tax Exemption Act and no sales tax was, therefore, payable under the Bombay Sales Tax Act, 1953, on the sale of such finished cloth effected on and after 13th December, 1957, being the appointed day. The claim for exemption was, however, negatived by the Sales Tax Officer on the ground that the finished cloth sold by the assessee was covered by sub-section (2) of section 4 and the sales of finished cloth were, therefore, taxable under the provisions of the Bombay Sales Tax Act, 1953. An appeal to the Assistant Commissioner of Sales Tax followed, but the appeal was unsuccessful and so was the revision application preferred before the Deputy Commissioner of Sales Tax. The assessee thereupon approached the Tribunal, but the Tribunal also took the same view and hence the present reference. Though the questions referred to us are t....
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....ed in Schedule I, we must turn to Schedule I in order to find out what were scheduled goods. When we turn to that schedule, we find that Entry 1 specified the following goods: "All varieties of cloth manufactured in mills or on power-looms, excluding pure silk cloth." All varieties of cloth, whether grey or finished, were thus included in scheduled goods. Section 4 granted exemption from payment of sales tax in respect of sales or purchases of scheduled goods and that exemption was in the following terms: "4. (1) Notwithstanding anything contained in the relevant sales tax law or any rules, notifications or orders made or issued thereunder, no tax shall be payable under the relevant sales tax law on the sale or purchase of any scheduled goods effected on and after the appointed day. (2) (a) Save as provided in clause (b), nothing in sub-section (1) shall apply to the stock of scheduled goods held by a registered dealer on the appointed day and remaining unsold on the day immediately preceding the appointed day, and which has not become liable to the payment of additional duty of excise under any Central law made after the 1st day of November 1957 (hereinafter referred to as n....
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....excise on various goods including cotton fabrics in the following terms: "3. Levy and collection of additional duties.-(1) There shall be levied and collected in respect of the following goods, namely, sugar, tobacco, cotton fabrics, rayon or artificial silk fabrics and woollen fabrics produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rate or rates specified in the First Schedule to this Act." The expression "manufacture" was not defined in the Additional Duties of Excise Act but in the Central Excises and Salt Act, 1944, which is the principal Act dealing with imposition of duties of excise, that expression was defined to include "any process incidental or ancillary to the completion of a manufactured product". The process of bleaching, dyeing and printing cloth was, therefore, included within the connotation of the expression "manufacture" both for the purpose of the Central Excises and Salt Act, 1944, and the Additional Duties of Excise Act and duties of excis....
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....additional duty of excise under any Central law made after 1st November, 1957. Of course the exemption was withdrawn only to the extent to which any sales or purchases of such goods might be effected by a registered dealer upto 30th June, 1958, but that time limit is not material to the determination of the question before us. It is clear from these provisions and that is also amply supported by the discussion in the foregoing paragraph that the object of the Legislature broadly was to grant exemption from sales tax in those cases where additional duties of excise were payable, the latter being in replacement of the former and with that object in view the Legislature enacted a general provision that sales or purchases of scheduled goods effected on and after the appointed day should be exempt from sales tax because ordinarily those goods being manufactured after the coming into force of the Additional Duties of Excise Act would bear additional duties of excise but where those goods were in stock with a registered dealer on the appointed day having remained unsold with him and were sold subsequent to the appointed day, the Legislature provided that they should not be exempt from sal....
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....unsold with him on the day immediately preceding the appointed day. If such scheduled goods in stock with a registered dealer on the appointed day are not sold on or after the appointed day but are converted into different commercial articles by a process of manufacture and such different commercial articles are sold, subsection (2) of section 4 cannot apply. In such a case it cannot be said that the scheduled goods which were in stock with a registered dealer on the appointed day are sold; what are sold would be different goods constituting a different commercial commodity and such sales would be outside the scope and ambit of sub-section (2) of section 4. This would appear to be the position on a plain grammatical construction of sub-section (2) of section 4 but we may point out that this construction has the added merit of being in conformity with the object and purpose of the enactment which we have discussed above. It is evident that if some process of manufacture is performed on scheduled goods in stock with a registered dealer on the appointed day and as a result they are converted into different goods, additional duties of excise would be chargeable on that process of manuf....
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.... may consist of grey cloth, finished cloth, sarees, handkerchiefs, etc. All these being different varieties of cloth would be scheduled goods and would be governed by section 4 and when this stock of scheduled goods is sold by the registered dealer on or after the appointed day, the sales would attract sales tax under sub-section (2) of section 4. But when this stock of scheduled goods is converted into a stock of different scheduled goods and a sale is thereafter effected of the stock of those different scheduled goods, sub-section (2) of section 4 cannot have any application. So much on principle. Turning now the authorities, the first decision to which we must refer is the decision of the Supreme Court in Kailash Nath v. State of U.P.[1957] 8 S.T.C. 358., on which strong reliance was placed by the learned Advocate-General on behalf of the revenue. The question arose in that case in regard to a notification issued by the Uttar Pradesh Government under the provisions of the U.P. Sales Tax Act, 1948. The notification provided that with effect from 1st December, 1949, the provisions of section 3 of the Act shall not apply to sales of cotton cloth or yarn manufactured in Uttar Pra....
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....ssessee, cited before us a decision of the Nagpur High Court in State of Madhya Pradesh v. Wasudev[1955] 6 S.T.C. 30., where the question was whether a person who cuts trees into logs or rafters and sells them as such can be said to be a dealer who manufacturers or produces goods within the meaning of section 2(1)(a) of the C.P. and Berar Sales Tax Act, 1947. Bhutt, J., held that logs or rafters into which the trees were shaped by the accused had a definite commercial value and they were goods manufactured or produced by the accused within the meaning of the section. This decision has no direct relevance on the point before us, but it does go to show that in order that the process performed on an article may be a process of manufacture resulting in the production of a new commercial commodity, it is not necessary that the basic or essential properties of the original commodity should be changed or should undergo a transformation. To the same effect we find the decision in G.R. Kulkarni v. The State[1957] 8 S.T.C. 294. There the question was whether the breaking of boulders into metal was "manufacture" within the meaning of section 2(i)(a) of the Madhya Pradesh Sales Tax Act, 1947. ....
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....uestion, we must refer to another decision of the Supreme Court, namely, that in Anwarkhan Mehboob Co. v. State of Bombay[1960] 11 S.T.C. 698. This decision was strongly relied on by Mr. C. C. Gandhi on behalf of the assessee but we do not think it has any direct relevance to the question before us. That was a case where a question arose whether there is consumption of raw tobacco when bidi pattis are prepared out of it. It was conceded by counsel appearing on behalf of the assessee that raw tobacco and bidi pattis are distinct and different commercial articles and the only argument which was advanced was that when raw tobacco is converted into bidi pattis there is no consumption of raw tobacco within the meaning of the Explanation to Article 286 of the Constitution. That argument was negatived by the Supreme Court which held that whenever a commodity is so dealt with as to change it into another commercial commodity, there is consumption of the first commodity within the meaning of the Explanation to Article 286. The Supreme Court, therefore, took the view that when raw tobacco is converted into bidi pattis there is consumption of raw tobacco. We are here not concerned with the qu....