TaxTMI 
TaxTMI 
1981 (9) TMI 248
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....see is a dealer reselling cotton canvas cloth, hosiery, rain coats, eyelets, tarpaulins, etc. In the course of the assessment for the said period, the Sales Tax Officer had subjected these sales to tax under entry 13 of Schedule III to the Gujarat Act. This conclusion of the Sales Tax Officer was upheld by the Assistant Commissioner who partially allowed the appeal against the order of the Sales Tax Officer imposing penalty with which we are not concerned in this reference. The assessee, therefore, carried the matter in appeal before the Gujarat Sales Tax Tribunal in course of which the assessee contended in the first place that the tarpaulin should be classified as cotton fabrics not liable to be taxed under entry 37 of Schedule I to the Gujarat Act, and in the alternative, they should be treated as articles prepared from textile fabrics, and therefore, liable to be taxed under entry 18(a) of Part A of Schedule II to the Gujarat Act. The Tribunal was not impressed with any of these contentions since according to the Tribunal the assessee was not able to establish that the tarpaulins were cotton fabrics impregnated or coated with preparation of cellulose derivatives or other artifi....
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....A of Schedule II to the Gujarat Act and consequential consideration of entry 13 of Schedule III to the said Act in view of the non-applicability of entry 18(a), it is open to the applicants to enlarge the scope of the reference by urging that the goods under consideration, namely, tarpaulins, can be classified as cotton fabrics, and therefore, exempt from sales tax under entry 37 of Schedule I to the Gujarat Act. This controversy should not detain us any longer for obvious reasons. In the first place, the question which has been referred to us in Sales Tax Reference No. 12 of 1978, as set out hereinabove, requires us to answer whether the Tribunal was justified in holding, inter alia, that tarpaulins are covered by entry 13 of Schedule III to the Gujarat Act as held by the sales tax authorities. Now, entry 13 of Schedule III to the Gujarat Act is a residuary entry which takes in its sweep for purposes of subjecting the goods to tax all those goods other than those specified from time to time in section 18 and in Schedules I and II and the preceding entries of Schedule III. In order, therefore, to answer the question we must address ourselves to the basic question as to whether tarp....
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....ccinctly indicated by the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), where the majority court expressed its views as under: "...The jurisdiction of a court in a reference under section 66 is a special one, different from its ordinary jurisdiction as a civil court. The High Court, hearing a reference under that section, does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal. It acts purely in an advisory capacity, on a reference which properly comes before it under section 66(1) and (2). It gives the Tribunals advice, but ultimately it is for them to give effect to that advice. It is of the essence of such a jurisdiction that the court can decide only questions which are referred to it and not any other question............. ...... Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law wh....
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.... contention that tarpaulins are cotton fabrics. In the first place, it is urged that having regard to the enlarged definition of "cotton fabrics" in item 19 of the First Schedule to the Excise Act, as amended retrospectively with effect from 1st March, 1955, the legislative mandate must be carried out by substituting the amended definition in the statute book and should be read as if it was all along there at all the relevant times including that of the present assessment. Secondly, it was urged that since entry 37 is referential legislation, on matter of principle and authority, the amended definition must be incorporated in entry 37 since that part of the Gujarat Act is supplemental to the incorporated part of the Excises Act and reading the subsequent Act de hors the earlier Act would render that part of subsequent Act wholly ineffective and unworkable. We shall deal with the counter contentions urged on behalf of the State Government by the learned Government Pleader to repel the above contentions at appropriate stages while dealing with the contention of the assessees. What is the effect of retrospectivity of an amending Act has been pithily stated by the Supreme Court in M....
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....ndment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record ........" In Commissioner of Sales Tax, U.P. v. Bijli Cotton Mills, Hathras, U.P. [1964] 15 STC 656 (SC) a similar situation as the one which confronts us had arisen. There, the respondent-assessee-company for the assessment year 1948-49 contended that the assessment should be made at the uniform rate of 3 pies per rupee throughout the year on the basis of the turnover of the previous year under section 7 of the U.P. Sales Tax Act, 1948. The Sales Tax Officer held that the rate of 3 pies per rupee was only to apply to the assessable turnover for the first 69 days and the rate of 6 pies per rupee was to apply for the rest of the year as per the notification issued by the Government under section 3-A of the said Ac....
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.... to be necessarily implicit in the question referred by the Tribunal, provided the question is couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amended law, and the enquiry does not necessitate investigation of fresh facts. In view of this settled legal position, therefore, if the legislative mandate is to read the amended definition as if it was on the statute book from 1st March, 1955, any other reading of law on the the statute book would not only defeat the legislative intent but would be wholly unjustified on principle or authority. It would, therefore, be necessary to set out what was the definition of "cotton fabrics" in item 19 of the First Schedule to the Excise Act at the relevant time of the assessment, and then to refer to the enlarged definition as inserted in the said item by the amending Ordinance, namely, the Central Excises and Salt and Additional Duties of Excise (Amendment) Ordinance, 1979 (No. 12 of 1979), promulgated on 24th November, 1979, and for that matter the amending Act, namely, the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980 (being Act No. 6 of 1980), which came i....
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....sing, dyeing, printing, water-proofing, rubberising, shrink-proofing, organdie processing or any other process or any one or more of these processes;' ". The amendment made in item 19 of the First Schedule to the Excise Act by section 3 of the amending Act so far as material for our purposes reads as under: "3. Amendment of First Schedule.-In the Central Excises Act, in the First Schedule,- (i) in item No. 19, for sub-item I, the following sub-item shall be substituted, namely: 'I. Cotton fabrics, other than (i) embroidery in the piece, in strips or in motifs, and (ii) fabrics impregnated, coated or laminated with preparations of cellulose derivatives, or of other artificial plastic materials- (a) cotton fabrics, not subjected to any process Twenty per cent ad valorem. (b) cotton fabrics, subjected to the process of Twenty per cent bleaching, mercerising, dyeing, printing, ad valorem.'" water-proofing, rubberising, shrink-proofing, organdie processing or any other process or any two or more of these processes. Similarly by section 4 of the amending Act, the First Schedule to the Additional Duties of Excise Act was amended in the following terms: "4. Amendmen....
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.............................. ................................. ................................. (iv) the amendments to clause (f) of section 2 of the Central Excises Act made by section 2 of this Act had been in force at all relevant times subject to the modifications that the reference therein- (A) to the 'goods comprised in item No. 19-I of the First Schedule' shall be construed as a reference to such 'cloth', 'cotton cloth' or, as the case may be, 'cotton fabrics'; (B) to the 'goods comprised in item No. 21(1) of the First Schedule' shall be construed as a reference to 'woollen fabrics'; ................................. ................................. ................................. Explanation.-In this section- (a) 'appointed day', in relation to- (i) 'cloth', means the 1st day of January, 1949; (ii) 'cotton cloth', means the 28th day of February, 1954; (iii) 'cotton fabrics' means the 1st day of March, 1955." Section 5(2) of the amending Act provides for the validation of any rule, notification or any action or thing made, issued, taken or done before the commencement of the Act in respect of cotton, woollen or rayon fab....
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....ential piece of legislation, no amendment made in the incorporated provisions of the parent Act can be read into the subsequent Act on recognised principles of interpretation. We must reject the counter contention of the learned Government Pleader for the obvious reason that we have to consider the result that is necessarily involved in the legal fiction about the retrospective operation of the amending Act. If as a necessary sequel to an amending Act the legislative mandate is to read the enlarged definition of the term, namely, in the present case "cotton fabrics" with effect from 1st March, 1955, we must read the definition accordingly and decide as if the enlarged definition was on the statute book which incorporated it for all intents and purposes from 1st March, 1955. Any other reading of law on the basis that the enlarged definition was not in fact on the statute book would be wholly unjustified on principle and authority. It is no doubt true that the enlarged definition has been inserted in the Excise Act in the first instance by Ordinance No. 12 of 1979 which came into force on 24th November, 1979, and was followed up by Act No. 6 of 1980 which came into force on 24th N....
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....e book for purposes of validating certain actions taken by the excise authorities in connection with the processed goods, inter alia, of cotton fabrics, and the excise duty levied and collected thereon as if they are the goods manufactured and also with a view to prohibit any legal proceedings being initiated for the refund of the excise duty so levied or against the enforcement of the decrees or orders passed by the courts. Nonetheless, the necessary result of the amendment is that the definition of "cotton fabrics" has been amended with retrospective effect so as to include even the processed goods which will also cover and take within its sweep the waterproof goods. It cannot be said that the legal fiction of the retrospectivity granted by the amending Act is sought to be projected beyond its original purpose as contended by the learned Government Pleader. Unless the amended definition is read as part not only of the original Act, but also of the Gujarat Act as if it was on the statute book with effect from 1st March, 1955, the amending Act would not achieve its tall purpose for which it has been placed on the statute book. We have, therefore, to reject the contention of the lea....
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....rmer, the subsequent amendments made in the referred statute cannot automatically be read into the adopting statute. In the case of latter category, it may be presumed that the legislative intent was to include all the subsequent amendments also, made from time to time in the generic law on the subject adopted by general reference. This principle of construction of a reference statute has been neatly summed up by Sutherland, thus: 'A statute which refers to the law of a subject generally adopts the law on the subject as of the time the law is invoked. This will include all the amendments and modifications of the law subsequent to the time the reference statute was enacted.' (Vide Sutherland's Statutory Construction, Third Edition, Art. 5208, p. 5208). Corpus Juris Secundum also enunciates the same principle in these terms: ".....Where the reference in an adopting statute is to the law generally which governs the particular subject, and not to any specific statute or part thereof, ............ the reference will be held to include the law as it stands at the time it is sought to be applied, with all the changes made from time, at least as far as the changes are consistent w....
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....d from an earlier Act. The Supreme Court, speaking through Fazl Ali, J., upholding the contention urged on behalf of the State of Madhya Pradesh observed that having regard to the preamble and objects of the Prevention of Corruption Act and the Penal Code, there could be no doubt that the Prevention of Corruption Act was a statute supplemental to the Indian Penal Code, and that being the position, any amendment in the definition of section 21 of the Penal Code would have to be necessarily read in section 2 of the Act. The Supreme Court considered the earlier decisions of the court in this connection and ultimately summed up the position as under in paragraph 16 at page 1841: "16. On a consideration of these authorities, therefore, it seems that the following proposition emerges: Where a subsequent Act incorporates provisions of a previous Act then the borrowed provisions become an integral and independent part of the subsequent Act and are totally unaffected by any repeal or amendment in the previous Act. This principle, however, will not apply in the following cases: (a) where the subsequent Act and the previous Act are supplemental to each other; (b) where the ....
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....rly supports our view. The facts in the said case were that the Legislative Assembly of the Union Territory of Pondicherry passed the Pondicherry General Sales Tax Act, 1965, which received the assent of the President on 25th May, 1965. Section 2(1) of the Act provided that the Madras General Sales Tax Act, 1959, as in force in the State of Madras immediately before the commencement of the said Act shall extend to and come into force in the Union Territory of Pondicherry subject to certain modifications and adaptations specified in that section. Section 2(2) of the Act provided that the Madras General Sales Tax Rules, 1959, and any other rules made or issued under the Madras Act and similarly in force, were to apply to Pondicherry. The Pondicherry Government issued a notification dated 1st March, 1966, bringing into force the Madras General Sales Tax Act, 1959, as extended by the Pondicherry Act to Pondicherry as from 1st April, 1966. In the meanwhile, the Madras Act was amended with effect from 1st April, 1966, by the Madras Legislature. The Pondicherry Legislature passed the Pondicherry Sales Tax (Amendment) Act, 1966, whereby it was, inter aria, provided that the Madras General ....
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....e was a complete non-application of mind. The immediate succeeding paragraph in the decision of Shelat, J., at page 225 indicates as to whether in cases of referential legislation it is permissible to read the future amendments from the principal Act. The said observation reads as under: "But Mr. Setalvad contended that the validity of such legislation has been accepted in Delhi Laws Act case [1951] SCR 747 and particularly in the matter of heading No. 4 as summarised by Bose, J., in Rajnarain Singh's case [1955] 1 SCR 290. In respect of that heading the majority conclusion no doubt was that authorisation in favour of the executive to adopt laws passed by another legislature or legislatures including future laws would not be invalid. So far as that conclusion goes Mr. Setalvad is right. But as already stated, in arriving at that conclusion each learned judge adopted a different reasoning. Whereas Patanjali Sastri and Das, JJ., accepted the contention that the plenary legislative power includes power of delegation and held that since such a power means that the legislature can make laws in the manner it liked if it delegates that power short of an abdication there can be no objec....
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....Act, on matter of principle and authority, it must be held that the amendment made in the earlier Act must necessarily be read into the subsequent Act; otherwise the incorporated provision in the subsequent Act would be wholly ineffective and unworkable. In order to decide this contention, therefore, we have to look shortly to what is the history of this referential legislation. The legislative history in this connection has been traced in detail in Hind Engineering Co., Rajkot v. Commissioner of Sales Tax Gujarat [1973] 31 STC 115. We need not set out in extenso the entire legislative history but it would be profitable to shortly refer to the same. Under the Bombay Sales Tax Act, 1953, "cotton fabrics" as such were not exempted. It was only handloom cloth which was exempted from the liability of tax. In 1956, the Central Government in the interest of inter-State trade or commerce, declared certain goods of special importance in the course of inter-State trade and commerce. The said goods were known as declared goods under the Central Sales Tax Act, 1956, which received the President's assent on 21st December, 1956. It should be recalled that cotton fabrics were not inclu....
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....The preamble of this Act, inter alia, stated that it was enacted with a view to exempt the sales or purchases of certain goods which became assessable to an additional duty of excise. Cotton fabrics as such were not included in the category of exempted goods under this amending Bombay Act of 1957. The Indian Parliament thereafter amended the Central Sales Tax Act by the Central Sales Tax (Second Amendment) Act (No. 31 of 1968) which came into force from 1st October, 1958. Cotton fabrics as defined in item No. 12 of the First Schedule to the Excise Act were added to the category of goods declared by section 14 of the Central Sales Tax Act to be of special importance in inter-State trade or commerce and original section 15 of the Central Sales Tax Act was substituted by a new section 15 by this amending Act. Besides prescribing the twofold restriction which was there in the original section 15, a further provision was made for making a refund to a person who has paid sales tax or purchase tax under the State law in respect of the declared goods which were sold in the course of inter-State trade or commerce. Thus, the tax already paid in respect of such goods was made refundable by ne....
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....f fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadders, bed-sheets, bed spreads, counterpanes, table-cloths, embroidery in the piece, in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials but does not include 'any such fabric if it contains- .................................... ...................................." It should be further stated for completing the history that this item was again amended by the amending Act, 1980, as stated above. This is shortly the legislative history of this item which has passed through many vicissitudes. Having regard to the legislative history it cannot be a matter of debate and it is not in the larger interest of the State to dispute that the entry pertaining to cotton fabrics in the schedule exempting goods from sales tax is supplemental legislative provision to the Central Sales Tax Act as well as the Excise Act and the Additional Duties of Excise Act. As a matter of fact, there is an integrated scheme evolved in connection with the goods of special importance in inter-State trade or commerce. Th....
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....en urged on behalf of the State Government has found favour with the Tribunal. The next question of law which, therefore, arises is, whether the Tribunal was justified in applying this principle of user's test which it did by relying on two decisions of the Madras High Court in (i) State of Tamil Nadu v. East India Rubber Works, Madras [1974] 33 STC 399 and (ii) M. Jeewajee & Co. v. State of Tamil Nadu [1974] 34 STC 4. No doubt, on principle as well as on authority, the user's test is well-recognised; vide Hind Engineering Company's case [1973] 31 STC 115 where a Division Bench of this Court held that the process of superimposition of rubber on the cotton fabrics brought about such a basic change in its character, nature and form that the base material loses its identity and would convert into altogether a different commercial commodity which, therefore, could not be said to fall within the meaning of the expression "cotton fabrics". In State of Gujarat v. Prakash Trading Co. [1972] 30 STC 348 (SC) the Supreme Court held that shampoo is a kind of liquid soap and it has all the essential ingredients of a soap and its liquid state would not alter the basic character of shampoo and....
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....re a commodity retains a continuing substantial identity through the processing stage, it cannot be said to be a new article that has come into existence. The Supreme Court in Pio Food Packers' case [1980] 46 STC 63 (SC) was concerned with the question as to whether processed pineapple slices can be said to be commodity other than the original pineapple fruit, and therefore, not entitled to claim exemption from levy of purchase tax under section 5 A(1)(a) of the Kerala General Sales Tax Act, 1963. The Supreme Court, speaking through Pathak, J., ruled that where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another, and although it has undergone a degree of processing, it must be regarded as still retaining its original identity. In the course of the judgment, reference was made to the decision of the Supreme Court of the United States in East Texas Motor Freight Lines v. Frozen Food Express 100 LEd 917 and the decision in Anheuser-Busch Brewing Association v. United States 52 LEd 336. The following passages were quoted from the decision of the....
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....al plastic materials. Now this approach of the Tribunal, in our opinion, was not justified for the simple reason that the Tribunal has to address itself to the question whether after the processing, namely, application of wax and other chemicals, the product which has emerged had assumed different characteristic then those of cotton fabrics. There is an additional reason for disapproving this approach of the Tribunal which has come into existence after the reference has been made, namely, the enlarged definition by the amending Act of 1980 which has in effect and substance entitled the waterproof cloth for being treated as cotton fabrics. In support of the view which has been canvassed by the Tribunal two decisions of the Madras High Court have been relied on and again pressed before us at the time of hearing of this reference. In East India Rubber Works' case [1974] 33 STC 399 the question was whether waterproof cloth, such as rexine, P.V.C. cloth, rubberised or synthetic waterproof fabrics, etc., made with cloth as base, are not textiles falling within item 4 of Schedule III to the Tamil Nadu General Sales Tax Act, 1959. The Madras High Court held that inasmuch as the processe....
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.... that waterproof cloth or for that matter tarpaulins cannot be classified as textiles. In appeal at the instance of the assessee, the Supreme Court reversed this decision of the Punjab and Haryana High Court as reported in Porritts and Spencer (Asia) Ltd. v. State of Haryana [1978] 42 STC 433 (SC) where Bhagwati, J., speaking for the court held as under at pages 436-438: "There can, therefore, be no doubt that the word 'textiles' in item 30 of Schedule B must be interpreted according to its popular sense, meaning 'that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it'. There we are in complete agreement with the Judges who held in favour of the revenue and against the assessee. But the question is: What result does the application of this test yield? Are 'dryer felts' not 'textiles' within the ordinary accepted meaning of that word? The word 'textiles' is derived from the Latin 'texere', which means 'to weave' and it means any woven fabric. When yarn, whether cotton, silk, woollen, rayon, nylon or of any other description or made out of any other material is woven into a fabric, what comes into being is a 'textile' and....
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.... they first came to be made, they must have been intruders in the field of 'textiles' because only cotton, silk and woollen fabrics were till then recognised as 'textiles'. But today no one can dispute that rayon and nylon fabrics are textiles and can properly be described as such. We may take another example which is nearer to the case before us. It is common knowledge that certain kinds of hats are made out of felt and though felt is not ordinarily used for making wearing apparel, can it be suggested that felt is not a 'textile'? The character of a fabric or material as textile does not depend upon the use to which it may be put. The uses of textiles in a fast developing economy are manifold and it is quite common now to find 'textiles' being used even for industrial purposes. If we look at the Customs Traiff Act, 1975, we find in Chapter 59 occurring in section XI of the First Schedule that there is a reference to 'textile fabrics' and textiles articles, 'of a kind commonly used in machinery or plant' and clause (4) of that chapter provides that this expression shall be taken to apply inter alia to 'woven textile felts of a kind commonly used in paper-making or other machiner....
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....construction, width and amplitude of an entry which is in pari materia with the one with which we are concerned in this reference. It was common ground before the Supreme Court that rayon fibre is spun into rayon and twisted into cord which were arranged lengthwise and were packed 25 to an inch. By a process of weaving, cotton threads are wefted through a loom across the cords which were packed not more than two to five per inch. The unprocessed rayon was sold in the form of rolls in the market and after initial chemical treatment it was put through a process of rubberizing in the tyre manufacturing plant. The rayon tyre cord fabric was used as a reinforcing base in the manufacture of tyres, and therefore, was a product generally intended for industrial use. The rayon tyre cord employed as a component in the manufacture of rayon tyre cord fabric was also sold directly as such and it was sold packed on cones, somewhat like yarn is sold. In that context the Supreme Court considered whether they could be said to be rayon fabrics. Pathak, J., speaking for the court negatived the contention urged on behalf of the State Government that the Additional Duties of Excise (Goods of Special Im....
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....e concession is in the following terms: "It was contended by Shri L.N. Sinha, for the respondents, that industrial fabrics are not envisaged within the expression 'rayon fabric' in item 22 of the First Schedule to the Central Excises and Salt Act. As we have already pointed out, the item refers to 'all varieties of fabrics' and it will be noticed that item 22(3) speaks of fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials which, we are told, would include rubberized cloth, tarpaulin cloth, P.V.C. cloth, waterproof cloth and tent cloth. A whole range of fabric is included." It was, therefore, urged relying on this passage that tarpaulins would be covered under all varieties of fabrics. We are not, however, inclined to conclude the question by solely relying on this passage where some concession appears to have been made by the parties before the Supreme Court. The only question, therefore, is, as we have stated, whether the Tribunal has committed an error in holding that tarpaulins are not cotton fabrics. We are of the opinion that having regard to the enlarged definition of the term "cotton fabrics" in item 19 as ....