STATE OF PUNJAB AND ORS. v. M/S. SHAKTI COTTON COMPANY

Citation: [1972] 2 S.C.R. 289; 1971 INSC 304

Court: Supreme Court of India

Bench: C.A. VAIDYIALINGAM , P. JAGANMOHAN REDDY, KUTTYIL KURIEN MATHEW

Judgment date: 1971-11-05

Case summary

1971 INSC 304. Supreme Court of India judgment dated 1971-11-05. STATE OF PUNJAB AND ORS. v. M/S. SHAKTI COTTON COMPANY. Read the judgment and case details...

Judgment text

290 SUPREME COURT REPORTS STATE OF PUNJAB AND ORS. v. M/S. SHA. KT! COTTON COMPANY November 5, 1971 [C. A. VAIDIALINGAM, P. JAGANMOHAN REDDY AND K. K. MATHEW, JJ. ] Punjab General Sales Tax Act, 1948 as amended the Punjab General Sales Tax (Amendment and Validation) Act 7 of 1967-Cotton pur· chased b. v dealer and subjected to ginning process-ResulPing products i. e. cotton seeds and ginned cotton sold,--Exemption under s. 5 (2) (a)(vi) whether al'ailable to dealer-Cotton one of declared goods under s. 2. (c) read with s. 14 of Central Sales Tax, Act, 1%6-Assessments in respect of declared goods made under Punjab Act as it stood on April I, 1960 held invalid-Validation under Act 7 of 1967-Reassessment undl'r s. l IAA of Act as amended. The respondents were registered dealers under the Punjab General Sales Tax Act, 1948. In proceedings relatjng to the years 1960-61. 1961· 62 and 196~·63 the question that fell for consideration was whether their daim under s.

5 ( 2) (a) (vi) of the Act in respect of cotton purchased by them and later sold by them after ginning as ginned cotton and cotton seeds could be allowed. . The assessing authorities disallowed the claim for exemption in respect of cotton seeds and allowed ooly purlial exemj>" ti on in respect of ginned cotton. The respondents filed v. nt petitions m the Punjab High Court. The petitions were allowed by the Single Judge who relied on a judgment of the same High Court in Patd Cotton Company Private Ltd. v. StoJe of Punjab wherein it had been held that when dealer buys unginned cotton which is mixed with cotton seeds and separates the two. bv process of ginning and proceeds to sell both the ginned cotton and the cotton seeds, the dealllr in fact s~lls the entire goods which he had purchased. Appeals were filed by the State before the Division Bench but were dismissed In Umlne. However a certificate of fitness to appeal to this Court was granted.

In the appeals filed by the State before this Court reliance was placed on the judgment of this Court in Mis. Chandulal K/shan Lars case wherein it had been held that ginning was a manufacturing process and the deduction under s. 5 ( 2) (a) (vi) could not be allowed in respect of cotton seeds obtamod after ginning. The respondents relied on the decision of . this Court in ·Bhawan Cotton Mills Ltd. and the char~es made in the Act by the Punjab General Sales Tax (Amendment and Validation) Act 7 of 1967. HELD : In Bhawani Cotton Mi/ls Ltd. a case relating to assessment years 1961 ·62 and 1962-63, this Court held that the scheme of Jevv of purchase tax under s. 2 (ff) read withs. 5 and specially the terms of s. 5(2) (a)(viJ of the Act was illegal in that contrary to the provisions of s. 15 of the Central Sales Tax Act, 1956. no definite sta~e at which the purchase tax in respect of cotton. a declared commodity, was to be levied, had been indicated.

As a result of this Judgment sales tax under the Act as it stood on Aoril I. 1960 on declared goods became illegal and void. The decision in Ml s Chandulal Kishori/a/ was given without taking in· 10 account the decision in Bhawani Cotton Mills or the provisions of Act 7 of 1967. Nor di N co. (Vaidialingam, J. ) 293 The appellants contested the writ petition on various grounds. But the material avennent, which has to be noted is fo tire effect that the assessee was entitled to deduction only on the purchase of cotton sold by it as required under s. 5'(2)(a)(vi) of the Act and that to_o on the purchase value of the commodity sold and not on its sale price. It was further averred that cotton seeds are different from cotton and the price realised by the sale of the fonner does not qualify for deduction under the said provision of the Act ·as the cotton seeds! are not the same commodity as cotton that had been originally purchased.

Hence, it was pointed out that the assessing authority had acted according to law in allowing the deduc'ion only ori the purchase value of cotton sold by the finn. The State further pleaded that the stage for. levying sales-tax: 1 in respect of "declared goods" is indicated under the Act and the tirm is liable for payment of purchase tax on the purchase of cotton made by it subject to ~he proper deductions alhwable under s. 5(2)(a)(vi) of the Act. At the time when the writ petition was heard by the learned Single Judge of the High Court, there was already a decision of a Division Bench of the samd High Court reported in Patel Cotton Company Private Ltd. v. The State of Punjab and others('). We will refer later to the scope of this decision. The learned Single Judge, by his order dated March 5, 1965 held that there is no indication in the order of assessment that full deduction permissible to a dealer under s. 5(2)(a)(vi) of the Act, as laid down by the Divi.

sion Bench, in the above decision, has been granted to the firm. In this view, the learned Single Judge allowed the writ petition; and directed the Sales-tax Officer to re-decide the matter and modify and make an assessment order, in accordance with the law laJd down in Patel Cotton Campany· Private Ltd. (1). The State filed Letters Patent Appeal No. 182 of 1965 under cl. (x) of,the Letters Patent Act, which was dismissed, in limine, by the Division Bench on July 23, 1965. In Civil Appeal No. 2320 of 1968 the order of assessment is dated February 24, 1964. . The assessee filed Civil Writ No. 454 of 1964 and the High Court passed a similar order in his favour on March 5, 1965. The Letters Paient Appeal No. 196 of 1965 filed by the State was rejected in limine on July 23, 1965. ! In Civil Appeal No. 1466 of 1969, the assessment order is dated March 10, 1964. The assessee filed Civil Writ No. 810 of 1964.

The learned Single 'Judge by his order dated February 3, 1965 allowed the writ petition following the decision in Patel Cotton Company Private Ltd. (') and quashed the order of assess- - (') [1964] 15 S. T. C. 865. ' ment. The Letters Patent Appeal No. 127 of 1965 filed by the State was dismissed in limine on May 17, 1965. In Civil Appeal No. 1467 of 1969, the assessment order is ·dated March 9, 1964.. The assessee filed Civil Writ No. 608 of 1964 ih the High Court. The learned Single Judge by his order dated January 29, 1965 allowed 1he writ petition and dir~cted the assessing authority to reconsider and modify the order of assessment in accordance- with the law laid down by the Division Bench of the High Court. The Letters Patent Appeal No. 141 of l965 filed by the State was dismissed in limine on May 28, 1965. In Civil Appeal No. l 469 of 1969, the order of assessment is is dated June 11, 1963. Civil Writ No.

1599 of 1963 filed bv the assessee was allowed by the learned Single Judge on February 26, 1965 and 'the assessing authority was directed to modify the order of assessment according to the decision of the High Court. The Letters Patent Appeal No. 145 of 1965 filed by the State was dismissed in. limine on May 27, 1965. In Civil Appeal No. 1469 of 1969, the order of assessm~nt is dated March 22, 1963. Civil Writ No. 635 of 1963 filed by the assessee was allowed on February 26, 1965 and the learned Single Judge gave the same direction regarding the assessm~nt --Order to be reconsidered and modified.. The Letters Patent Appeal No~ 149 of 1965 fiie rejected and it was held that the (l) [1969] 2 S. C. R. 544. (2) [1967] 3 S. C. R. 577. PUNJAB v. SHAKT! COTTON co. (Vaidialingam, J. ) 303 Amendment Act cannot be struck down on the grounds raised by the assessees.

This Court finally held that the Amendment Act was valid and the retrospective effect given to it was also equally valid and that the new s. llAA was not discriminatory. In this view, the attack on the Amendment Act was rejected and the writ petition dismissed. From the decisions of this Court in 1 Bhawani Cotton Mills Ltd. ( ), The State of Punjab and other$ v. M/s Patel Cotton Co. Pvt. Ltd. Bhatinda and others etc. (2), and Rattan Lal and Company and another('), it is clear that levy of sales tax, under the Act as it stood on April 1, 1960 on declared goods is illegal and void. . We have already referred to the fact that certain decisions of the Punjab High Court, which had taken a view similar to the one in Patel Cotton Company Private Ltd. (') were also subject of appeals in this Court. They were disposed of on February 27, 1969 by the judgment of this Court in State of Punjab and others v. M/s Chandulal Kishori Lal and others(').

The claim made by the assessees before the High Court was that in calculating the taxable turn-over under s. 5 ( 2 )(a)( vi) of the Act, as it stood on April 1, 1960, deductions must be made 0 on the purchase price of unginned cotton, which has been sold later as ginned cotton a(\d cotton seeds. The High Court had accepted this contention. The State of Punjab had filed the appeals in this Court. This Court in the above, decision, accepted the contention of the State that ginning process is a manufacturing process and that it is by such a manufacturing process that the cotton and the cotton seeds are separated. 'fhis Court further held that it is not correct to say that the seeds so separated, is cotton itself or part of the cotton. It is the further view of this Court that they are two distinct commercial goods though before the manufacturing process the seeds might have been a part of the cotton itself.

It was further held that the contention of the assessees that the sale of cotton seeds must be treated as a sale of declared goods under the Central Act .. cannot be accepted. In this view the decision of the High Court was set aside and the appeal of the State was allowed. The orders of the assessing authority declining to grant dedljction in respect of cotton seeds sold by the assessees to registered dealers were confirmed. In this dec;sion there is a reference to the decision of the High Court in Patel Cotton Company Private Ltd. ('). - According to Mr. Mahajan. the decision of this Court in the State of Punjab and others v. Mis. Chandulal Kislwri Lui and others(. ') having over-ruled the decision of the. Punjab High Court m Patel Cotton Company Prii'ate Ltd. ('). though not directly, all the appeals before us must be allowed. Prima facie and on a superficial consideration, it may appear that the con-llTI1967iTsc::-R. 57-7. - 12) C. A. S. NOS. 1120.

1123 & 1214 o' 1966 deoid'd on 18-4-1967. 0) [196912 S. C. R. 544. f4) [1964] 15 S. T . C. 865. 15) [1969] JS. CR. 849. tention of Mr. Mahajan is well-founded. Going by the actual decision of this Court in the State of Punjab and others v. M/ s 1 Chandulal Kishori Lal and others ( ), it must be said that the principle laid down by the Punjab High Court in Patel Cotton· Company_ Private Ltd. ('), which decision has been relied on by the High Court in the appeals before us, must be considered to have been over-ruled. But there are difficulties in accepting the contention of Mr. Mahajan, that in view of this circumstance, the State appeals before us must be allowed. We have already referred to the fact that the levy of sales tax under the Act as it stood on April 1, 1960, on cotton, which is an item of "declared goods" was struck down by this Court in Bhawani Cotton Mills Ltd. ('). certain provisions of the Act were also struck down as violative of the provisions of the Central Act.

It was in consequence of the decision of this Court in 8 Bhawani Cotton Mills Ltd. ( ) that the Amendment Act, which was preceded by the two Ordinances, referred to above, came to be enacted. We have also referred to the fact that the scheme of assessment regarding declared goods has been changed and altered by the. Amendment Act. When the Amendment Act was again challenged before this Court, the Constitution Bench in R. attan Lal and Company and another(') has approved the decision i. n Bhawimi Cotton Mills Ltd. (') and accepted the position that _under the Act, as it stood on April 1, 1960, sales tax in "respect· of declared goods could not be levied. Further it was pointed out in Rattan La} and Company and another(') th~t the infirmities that existed in the Act, 'as it stood on April 1, 1960 had been removed and the Amendment Act was valid. With great resped. to the learned Jildges, who decided the State of Punjab and bthers-v.

M/s Chand11lal Kishori Lal and others('), it must be held that there is absoiutely no reference to the decisions of 1his Court' in Bhawani Cotton Mills Ltd. (") and Rattan Lal and another('). Nor is there any refer~9ce to the decision in The State of Punjab and others v. Mis Patel Cotton Co. Pvt. Ltd. Bhatinda and others etc. (") which were appeals filed by the State directly challenging the decision of the High Court in Pqtel Cotton Company Pvt. Ltd. e). All these three decisions, as mentioned by us earlier, have uniformly held lhat no. sales tax can be levied under the AC! , as it stood on April 1, 1960 in respect of declared goods. This Court in The State of Punjab and others v. M/s Chand11lal Kishori Lal and others(') had to deal with a case of assessinehi of. sales tax under the Act, as it origi-nal! y stood, in respect of cotton, which is an item of declared goods, for the assessment year 1961-62.

Such an ~ss~ssment fo~ the said year had been struck down as illegal and vmd m Bhawa111 Cotton Mills Ltd. (') and in The State of Punjab and others v. (1) [19~913. S. C R 849. (2) [1964] 15 S. T. C. 865. ' (3) [1967] 3. S. C. R. 577· (4) [1969] 2 sc. R 544. (5) C. A. s. Nos. 1120, 1123 & 1214 of 1966 decided on 18-4-67. PUNJAB v. SHAKTI COTTON co. (Vaidialingam, J. ) 305 Mis Patel Cotton Co. Pvt. Ltd. Bhatinda and others etc. (') The decision in State of Punjab and others v. MI s Chandulal Kishori Lal and others(') has, however, proceeded on the basis that all the relevant assessments, with which they were concerned, had to be dealt with under the Act, as it stood on April 1, 1960 and that has to be applied to the declared goods. On such a reasoning, s. 5(2)(a)(vi) of the Act was applied and the assessment held to be valid and the deductions declined by the officer were approved. In our opinion, the decision in the State of Punjab and others v.

Ml s Chandulal Kishori Lal and others (') cannot enable the appellant, State, to have the appeals before us straightaway allowed. 'That will amount to ignoring the decisions of this Court in B. hawani Cotton Mills Ltd. ('). Rattan Lal and Company and another(') and The State of Punjab and others v. Mis Patel Cotton Co. Pvt. Ltd. Bhatinda and 1 others etc. ( ). More important than all these, is the circumstance, that by accepting the contention of Mr. Mahajan, we will be completely ignoring the provisions of the Amendment Act which, we have already said, has evolved a new scheme regarding the levy of sales tax in respect of declared goods. The decision in the State of Punjab and others v. Mis Chandulal Kishori Lal and others(") can at the most be considered to have decided that cotton seeds are not declared goods and that it is by the manufacturing process that cotton and cotton seeds are, separated.

As the Act, as amended by the Amendment Act, has to be applied in respect of assessment of sales tax on declared goods, the decision in the State of Punjab and others v. Mis Chandula/ Kishori Lal and others("), is, in our opinion, no bar to the assessees urging their objections regarding the validity of the orders of assessment. Further, this Court had no occasion to consider in the State of Punjab and others v. MI s Chandulal Kishori Lal and others('), whether when unginne:l ccttca has been purchased and the entire quantity of ginned cotton obtained therefrom has been sold, the price obtained from the latter is "a turn-over on the purchase of goods which are sold" within the meaning of s. 5(2)(a)(vi). even on the basis that the said I? rovision applies. Further, in the said decision, this Court had no occasion to consider the question whether purchase price or sale price has to be taken into account ull~er. cl.

(vi), nor ~ad it occasion to consider the question whether the mere sale of cotton seeds, even though the entire ginned cotton obtained from unginned cotton originally purchased. had been sold, will make any difference in such circumstances. All th¢se matters have neither been adverted to nor considered ff by this Oourt in the said decision. In fact, if we may say so with res ect, when an assessment under the Act, as it stood on April ) c •. s. Nos. t120. tl2J &1214 of1966 decided on 18-4-67. (2) 1196913. S. C. R. 849. (3) [19671 J s. c. R. 577. (4) l t96912 S. C. R. 544. • 1, 1960 in respect of declard goods is illegal, the question what deduction, if any, should or should not be allowed in calculating the turnover in respect of such goods, should not at all arise. From the discussions contained above, it follows that the assessments before us, cannot be confirmed on the basis of" the Act, as it stood on April 1, 1960, as urged by Mr. Mahajan.

That contention is opposed to the decision of this Court in 1 Bhawani Cotton Mills Ltd. ( ). It may also be pointed out that even in the writ petition, the ass. essees have challenged that the levy of sales tax is illegal, as no stage has been fixed as is mandatory under the Central Act. No doubt, the High Court has not considered this question, as it was ~atisfied that the writ petitions can be. disposed of on the basis of the decision in Patel Cotton Company Private Ltd. ('). We have already referred to the elaborate provisions made in the new section 11 AA added in the Act by s. 9 of the Amendment Act. The new section casts a duty on the assessing authority, even without any application being made by the assessee in that behalf, to review all assessments and re-assessments made before the commencement of the Amendment Act in respect of declared go. ods.

There is no controversy· that the assessmeni orders, in the cases before us, have all been made before the date of commencement of the Amendment Act. If so, the assessing authority has to exercise his jurisdiction under s. 11 AA. It is also obligatory on his part to vary or revise the previous orders of assessment, so as to bring them in conformity with the provisions of the Act as amended by the Amendment Act, after following the procedure indicated therein. The fact that there is a judgment of a Court is also no bar to the assessing authority to do his duty cast upon him under s. l IAA. This has been made clear bv sub-section ( 4) to s. 11AA. which makes the said sub-section· subject to the provisions of sub-sections (I) to (3) of the section. In view of the specific provisions contained in s. 11 AA, we do not think it necessary to consider and express any opinion regarding the contention of Mr. Gupte.

The assessees are entitled to raise all objections available to th·~m in law or on facts in respect of declared goods, when the assessing authority takes action under s. 11 AA of the Act, as he is bound to do. Bur we make it clear that in the fresh assessment proceedings. the assessing authority has to consider the matter. in the light of the provisions of the Amendment Act incorporated in the Act; and the (I) [t967J 3 S. C. R. 577. (2) {1964] IS S. T. C. 865. PUNJAB v. ·sHAKTI COTTON co. (Vaidialingam, J. ) 307 decision of this Court is the State of Punjab and others v. M/s Chandu/a/ Kishori Lal and others(') cannot operate to the prejudice of the assessees. We have already made it clear that the said decision has decided the question of assessment of declared goods under the provisions of the Act, as they stood on April 1, 1960, which provisions have no ·application for levy of sales tax in respect of declared goods as held by this Court in Bhawani 2 Cotton Mills Ltd.

( ) ·and two other cases, referred to above. Therefore, the fresh revised assessments will have to be made, without reference to the decision in the State of Punjab and others v. M/s Chandulal Kishori [;al . and others(1), which decision has no application, when the question has to be now decided, on the basis of the Act, as amended by the Amendment Act. We have already pointed out that in all the appeals, except in Civil Appeal No. 1466 of 1969, the learned . Single Judge has directed the assessing authority to rec~nsider and vary the order of assessment. That direction has been confirmed by the Letters Patent Bench in the said appeals. Those directions, in our opinion, do not require any interference by this Court, except to make it clear that the fresh assessments will have to be made under s. 1 lAA of the Amendment Act, and subject to the directions contained in this judgment. Regarding Civil Appeal No.

1466 of 1969, the learned Single IE justified in quashing the assessment order in toto. The prop~r confirmed by the Letters Patent Bench in Letters Patent Appeal No. 127 of 1965. In our opinion, the High Court was not justified ·;n quashing th·~ assessment order in toto. The proper direction should have been, as given in other writ petitions, namely, to direct the assessing authority to reconsider the assessment order. Therefore, the order of the learned Single Judge in Civil Writ No. 810 of 1964, as confirmed In Letters Patent Appeal No. 127 of 1965, quashing the order of assessment dated March I 0, 1964, will have to be set aside. The assessing autho, rity will reconsider and revise the assessment order dated March 1O. 1964 in accordance with the provisions of s. llAA of the Act and pass a revised order of asses,ment in conformity with the Act, as amended by the Amendment Act. · Before closing, ':"e must mer. lion that Mr.

Gupte, brought to our notice a decision of the Punjab High Court reported in Mis Aryavarta Industries Pvt. Ltd. v. The State of Puniab and 3 another( ) regarding as to how the assessment is to be made in respect of declared goods, after the Amendment Act. As we (IJ [l969J 3 s. c:R--s;r--- (2) [l\67] J S. C. R. 577. OJ [1970] Rtvenue Law Reporter 3f. J. A have directed the assessing authority to exercise his jurisdiction under s. 11 AA, we do not think it necessary to deal with this decision any further. Subject to the directions and observations contained above, Civil Appeals Nos. 2319 and 2320 of 1968 and 1467, 1468, 1469 and 1470 of 1969 are dismissed. Civil Appeal No. 1466 8 of 1969 is allowed to the limited extent of modifying the order of the High Court, as indicated earlier. Parties will bear their own costs in all these appeals. G. C. C. A. No. 1466 of 1969 allowed in part. Other appeals dismrssed. .

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