# M/S. MODI SPINNING & WEAVING MILLS CO., LTD v. COMMISSIONER OF INCOME-TAX, PUNJAB & ANR

- **Citation:** [1965] 1 S.C.R. 592
- **Court:** Supreme Court of India
- **Decided:** 1964-10-05
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, M. Hidayatullah, Raghubar Dayal, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-modi-spinning-weaving-mills-co-ltd-v-commissioner-of-income-tax-punjab-anr-3358
- **Pages:** 9

## Headnote

Pun;ab General Sales Tax Act, 1948 (XLVI of 1948) as amended by
Punjab Act XIII of 1959, s. 5(2) (a) (ii)·-'-Exempflon clause amended without consequential amendment of form of registraJion-Effect of discrepanary
--Charging section wherher incomplete without an1endment of said Form.
Constitution of India, Art. 286(3 )-Rates of tax provided in Stare Act
hig)ier than ma.xin1u1n rates provided under ss. 14 and 15 of Central Sales
Tax Act-Provision in State Act ·whether becornes inoperative.
Section 7 of the Punjab General Sales Tax Act, 1948 (XLVI of 1948)
required from all dealers liable to pay tax under 1hc Act, as a conditjon
of carrying on business in the State, rhat they should secure a registration
certificate in the prescrihcd form i.e. Form Ill which would specify the
class or classes of goods for the purposes of s. 5 ( 2) (a) (ii).
The said
section provided for cxcmp1ion from inclusion in the taxable turn·-0ver of a
1 dealer of goods \vhich \\'Crc sold to a regLc;tercd dealer who purchased them
with the intention of using them "in the manufacture in the State of
Punjab of any goods for sale". The said section also provided that if the
goods \\·ere not used for the purpose d~clarcd, the purchaser would have
to pay s;ilcs 1::;.x on them. ·111e form of the declaration was prescribed in
r. 26 under the Act as Form S.T. XXll.
The words 'in the State of
Punjab' appearing ins. 5(2) (a)(ii) were introduced by an amendment in
1959. Consequential amendments \\'ere also made in rule 26 and in Form
X.Xll hut Form 111 remained unamended, till 1961. The appellants who
were registered dealers under the Act had secured a certificate of registrat.ion
in Fann Ill in the year 1956. For the year 1959-60 they claimed exemption on account of unginncd cotton purch<1sed by them v.•hich they ginned
in the Punjab and thereafter sent 10 Modinagar. U.P .. for use in the
manufacture of cloth there. Their claim "'as disallowed by the Sales Tax
authorities and they filed a writ petition in the l-ligh Court The same being
dismissed, they came to the Supreme (~ourt \vith a certificate of fitness.
It was contended on behalf of the appellants :
( 1) According to the certificate in Form Ill granted to the appellant
there was no condition that cotton purchased under that certificate shou1d be
subjected to manufacture in the Punjab.
(2) If the section required that the manufacture should be in the
Punjab, then as the ra\v cotton \Vas ginned in the Punjab, that condition
was s:ttisfied.
Ciinning of cotton was a manufacturing process.
( 3) There could be no tax because the charge in s. 5 of the Act was
not complete after its amendment in 1959 because the section and the
amended rules required a modified certificate of registration which was not
is.sued as the fonn was not prescribed.
( 4) Sections 4 and 5 of the Act which orovided for tax at 4% must be
hclJ to !'le inoperative as they y;cre in conffict with the provisions of ss. 14
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E
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G
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MODI MILLS v. C.I.T., PUNJAB (Hidayatullah I.)
593
and 15 of the 'centi:al Sales Tax Act, 1956 which created a maximum
limit.
HELD : (i) The company was wrong in reading the certificate of Registration by itself. Sections 5 and 7 had to be read with rule 26 and Form
S.T. XXII, and the declaration.
So read the old registration certificate
even though it did not contain the words "in the State of Punjab" would
stand impliedly modified by the sections, the rule, and Form S.T. XXll
operating together.
The company had to comply with the Act and the
Rules, and could not take shelter
behind
the
unamended
certificate.
[598 C-E].
(ii) Whether the process of ginning was a process of manufacturing or
not was unnecessary to decide, because another requirement of the provision,. namely, that the manufacture must result in goods for sale, was
not satisfied by the appellants. They admittedly used the cotton for man11facturing cloth. [598 D-FJ.
(iii) The contention that the charging section was incomplete without
the

## Text

592
M/S. MODI SPINNING & WEAVING MILLS CO., LTD.
A
v.
COMMISSIONER OF INCOME-TAX, PUNJAB & ANR.
October 5, 1964
(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO,
M. HIDAYATULLAH, RAGHUBAR DAYAL AND
J. R. MUDHOLKAR JJ.)
Pun;ab General Sales Tax Act, 1948 (XLVI of 1948) as amended by
Punjab Act XIII of 1959, s. 5(2) (a) (ii)·-'-Exempflon clause amended without consequential amendment of form of registraJion-Effect of discrepanary
--Charging section wherher incomplete without an1endment of said Form.
Constitution of India, Art. 286(3 )-Rates of tax provided in Stare Act
hig)ier than ma.xin1u1n rates provided under ss. 14 and 15 of Central Sales
Tax Act-Provision in State Act ·whether becornes inoperative.
Section 7 of the Punjab General Sales Tax Act, 1948 (XLVI of 1948)
required from all dealers liable to pay tax under 1hc Act, as a conditjon
of carrying on business in the State, rhat they should secure a registration
certificate in the prescrihcd form i.e. Form Ill which would specify the
class or classes of goods for the purposes of s. 5 ( 2) (a) (ii).
The said
section provided for cxcmp1ion from inclusion in the taxable turn·-0ver of a
1 dealer of goods \vhich \\'Crc sold to a regLc;tercd dealer who purchased them
with the intention of using them "in the manufacture in the State of
Punjab of any goods for sale". The said section also provided that if the
goods \\·ere not used for the purpose d~clarcd, the purchaser would have
to pay s;ilcs 1::;.x on them. ·111e form of the declaration was prescribed in
r. 26 under the Act as Form S.T. XXll.
The words 'in the State of
Punjab' appearing ins. 5(2) (a)(ii) were introduced by an amendment in
1959. Consequential amendments \\'ere also made in rule 26 and in Form
X.Xll hut Form 111 remained unamended, till 1961. The appellants who
were registered dealers under the Act had secured a certificate of registrat.ion
in Fann Ill in the year 1956. For the year 1959-60 they claimed exemption on account of unginncd cotton purch<1sed by them v.•hich they ginned
in the Punjab and thereafter sent 10 Modinagar. U.P .. for use in the
manufacture of cloth there. Their claim "'as disallowed by the Sales Tax
authorities and they filed a writ petition in the l-ligh Court The same being
dismissed, they came to the Supreme (~ourt \vith a certificate of fitness.
It was contended on behalf of the appellants :
( 1) According to the certificate in Form Ill granted to the appellant
there was no condition that cotton purchased under that certificate shou1d be
subjected to manufacture in the Punjab.
(2) If the section required that the manufacture should be in the
Punjab, then as the ra\v cotton \Vas ginned in the Punjab, that condition
was s:ttisfied.
Ciinning of cotton was a manufacturing process.
( 3) There could be no tax because the charge in s. 5 of the Act was
not complete after its amendment in 1959 because the section and the
amended rules required a modified certificate of registration which was not
is.sued as the fonn was not prescribed.
( 4) Sections 4 and 5 of the Act which orovided for tax at 4% must be
hclJ to !'le inoperative as they y;cre in conffict with the provisions of ss. 14
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MODI MILLS v. C.I.T., PUNJAB (Hidayatullah I.)
593
and 15 of the 'centi:al Sales Tax Act, 1956 which created a maximum
limit.
HELD : (i) The company was wrong in reading the certificate of Registration by itself. Sections 5 and 7 had to be read with rule 26 and Form
S.T. XXII, and the declaration.
So read the old registration certificate
even though it did not contain the words "in the State of Punjab" would
stand impliedly modified by the sections, the rule, and Form S.T. XXll
operating together.
The company had to comply with the Act and the
Rules, and could not take shelter
behind
the
unamended
certificate.
[598 C-E].
(ii) Whether the process of ginning was a process of manufacturing or
not was unnecessary to decide, because another requirement of the provision,. namely, that the manufacture must result in goods for sale, was
not satisfied by the appellants. They admittedly used the cotton for man11facturing cloth. [598 D-FJ.
(iii) The contention that the charging section was incomplete without
the prescription of the proper Form for the certificate of registration was
without force.
The old form must be .deemed to be modified, and even
otherwise the section and the rules were complete, and did not depend on
the new Form. The registration certificate was only the evidence that the
Company was a registered dealer for purposes of certain commodities to
be used in manllfacture, one of them being cotton.
The omission to
prescribe the new form or to issue it did not render s. 5 or the rules in~
effective. [599 A-CJ.
(iv) The impugned provisions in the Punjab General Sales Tax Act
cannot be said to be improperly enacted because of the discrepancy in
rates between that Act and the maximum rates provided in s. 15 of the
Central Sales Tax Act. The meaning or intention of Art. 286(3) Is not
to destroy all charging sections in the Sales Tax Acts of the States which
are discrepant with s. 15 (a) of the Central Sales Tax Act, but to modify
them in accordance there,vith.
The law of the State is declared to be
subject to the restrictions and conditions contained in the J'a\v made by
Parliament and the rate in the State Act would protanto stand modified.
So the effect of the provisions of the Central Act was only to modify the
provision in the State Act without destroying it. [600 D-E].
CML APPELLATE JURISDICTION : Civil Appeal No. 534 of
1964.
Appeal from the judgment and order dated February 18,
1963, of the Punjab High Court in Civil Writ No. 1527 of
1962.
G. S. Pathak and K. K. Jain, for the appellant.
S. V. Gupte, Solicitor-General, S. Gopal Singh and R. N.
Sachthey, for the respondents.
The Judgment of the Court was delivered by
Hidayatullah J. This appeal by certificate against the judgment of the High Court of Punjab at Chandigarh dated February 18, 1963 questions the inclusion of certain items in the
tum-over of Messrs. Modi Spinning & Weaving Mills Co. Ltd.,
Modinagar in the assessment of sales-tax for the year 1959-60.
In that year the Company filed a return of its sales showing a
'594
SUPREMll
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[1965) l S.C.R.
•
gross turn-over of Rs. 40,89,954·24 nP and a taxable turn-over of
A
Rs. l,30,296·81nP.
In computing the taxable turn-over the
Company deducted Rs. 10,85,842·74nP on account of unginned
cotton purchased by it on a certificate of registration granted to
it on January 3, 1956.
This deduction was not permitted by the
Assessing Authority, Patiala District, also described as the District Taxation Officer, Patiala District.
Exemption from tax was
B
also clain1ed in respect of purchases of oil seeds amounting to
Rs. 4,47,437 · 33nP which the Company claimed to exclude from
the taxable turn-over under s. 5(2) (a) (ii) of the Punjab General
Sales Tax Act, 1948.
This claim was also disallowed by the
Taxing Authority.
The Company
then filed a petition under
Articles 226 and 227 of the Constitution in the High Court but
by the order under appeal the petition was dismissed.
In the
course of the hearing Mr. G. S. Pathak abandoned the claim
about oil seeds and no reference need, therefore, be made to that
part of the case.
c
The ta~ is being levied under the Punjab General Sales Tax D
Act, 1948 (XLVI of 1948). This Act was amended from tin\e
!o time and the amendmep.ts with which we are concerned were
!ast made by Punjab Act XIII of 1959.
Section 2(i) defines
the "turn-over" as including the aggregate of the 'amounts of the
sales and purchases and parts of sales and purchases actually made
by any dcalc~' during a given period less any sums allowable as
E
trade discount.
Section 4 lays down the incidence of tax and
makes every dealer whose turn-over exceeds the taxable quantum
liable to tax.
In view of the fact that the turn-over of the Com-
:1any exceeds the taxable quantum there is no need to discuss
the section in detail.
The section lays down the definition of
taxable quantum and the Company
is within that definition.
F
Section 5 then provides as follows :-
"5. Rate of tax.
( I ) Subject to the provisions of this Act,
there
shall be levied on the taxable tum-over every year of
a dealer a tax at such rates not exceeding four naye.
paise in a rupee as the State Government
may
by
notification direct :
Provided ............. .
. . . . . . . . . . . .
-....... .
Provided further that the rate of tax shall not
exceed two naye paise in a rupee in respect of any
declared goods as defined in clause ( c) of section 2 of
G
H
MODI MILLS v. C.I.T., PUNJAB (Hidayatul/ah J.)
595.
A
the Centrali Sales Tax Act, 1956, and such tax shall
not be levied on the purchase or sale of such goods at
more than one stage : (This was inserted with effect
from 1st April, 1960 by Act No. 18 of 1960).
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Provided .............. .
(2) In this Act the expression "taxable tum-over"
means that part of a dealer's gross tum-over during any
period which remains after deducting therefrom -
(a) his tum-over during ,that period on-
(i) ............... .
(ii) sales to a registered dealer of goods declared
by him in a prescribed form as being intended for re-sale
in the State of Punjab or sale in the course of interState trade or commerce or sale in the cour~e of export
of goods out of the territory of India or of goods specified in his certificate of registration for the use by him
in the manufacture in the State of Punjab of any goods
for sale and on sales to a registered dealer of containers
or other materials for the packing of such goods :
Provided that in case of such sales, a declaration
duly filled up and signed by the registered dealer to
whom the goods are sold and containing prescribed
particulars on a prescribed form is furnished by the
dealer who sells the goods :
Provided further that when such goods are used by
the dealer to. whom these are sold for purposes other
than those for which these were sold to him, he shall
be liable to pay tax on the purchase thereof at the rate
of tax leviable on the sale of such goods, notwithstanding that such purchase is not covered by clause (ff)
of section 2;
....................
"
The registration of clealers is p1ovided by s: 7 which provides.
inter alia :
H
"7. Registration of dealers.
( 1) No dealer shall, while being liable to pay tax
under this Act, carry on business ns a dealer unless he
596
SUPREME
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( 1965] I S.C.R.
has been registered ani possessu a registration certiftcate.
(2) Every dealer required by sub-section (I) to be
registered shall make application in this behalf in the
prescribed manner to the prescribed authority.
( 3) If the said authority is satisfied that an application for registration is in order, he shall, in accordance with s11ch rules and on payment of such fees as
may he prescribed, register the applicant and grant
him a certificate of registration in the prescribed form
which may specify the class or classes of i;oods for the
purposes of sub-clause (ii) of clause (a)
of subsection (2) of section 5.
..
I
................... .
A
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c
Section 5(2)(a)(ii) was substituted by Act No. 13
of 1959. n
The words underiined in it we•c inserted with effect from April
20, 1959 by Punjab Act No. 18 of 1960.
When s. 5(2)(a)(ii) was amended by the addition of tkc
words "in the State of Punjab", which did not formerly exist.
rule 26 of the Punjab General Sales Tax Rules, 1949 was al"J
E
amended.
Rule 26, amended by virtue of various notifications
(last being on 29th September, 1961), reads as follows :-
"26. A dealer, who wishes to deduct from his turnover the amount in respect of a sale on the ground
that he is entitled to make such deduction under the
provisions of sub-clause (ii) of clause
(a) of subsection (2) of section 5 of the Act, shall on demand,
produce
in respect
of suca a sale the copy of the
relevant cash memo or bill, according as the sale is
a cash sale or a sale on credit, and a declaration in
writing in Form S.T. XXII by the purchasing dealer
or by his agent, that the goods in question are intended
for re-s:i le in the Slate of Punjab or such goods are
specified in his certificate of registration for use by him
in the manufacture in the State of Punjab of any goods
for sale."
Though the words "in Form S.T. XXII" to the end were inserted
as far back as June 28, 1955 the words "in the State of Punjab"
were inserted on February 1, 1960 after the passing of Act 13
f.
G
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MODI MILLS v. C.I.T., PUNJAB (Hidayatullah J.t
597
A of 1959. Form S.T. XXII was altered on February l, 1960.
That Form is for declarations to be furnished
by
registered
dealers purchasing goods from another
registered
dealer for
exemption of tax under rule 26 read with s. 5 of the Act quoted
above.
Form S.T. XXII required the dealer to declare in respect of the goods that they were for the purpose of "manufacB ture in the State of Punjab for sale".
Unfortunately, though the
section and the rule contemplated the certificate of registration
also to be amended in the same manner, the certificate in Form
S. T. III was not amended till a Government Notification dated
September 29, 1961 prescribed the new Form, that is to say,
after the period of assessment in the present case.
The Come pany, threfore, held a certificate of registration in which there
was no condition that the goods were for use by the dealer "in
the manufacture in the State of Punjab of goods for sale." The
underlined words were not present in the old certificate which
the Company held.
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The contention <if the Company is that according to the certificate granted to it there was no condition that cotton purchased
under that certificate should be subjected to manufacture in the
Punjab.
The case of the Company was that. it purchased raw
cotton for manufacture and ginned it in its ginning mills in the
Punjab and sent the bales to Modinagar in Uttar Pradesh for
manufacture of cloth in the Company's mills situated there. It
was thus claimed that the purchases of cotton were free of tax
under s. 5(2)(a)(ii) of the Sales Tax Act.
Alternatively, it
was submitted that if the section required that the manufacture
should be in the Punjab, then as the raw cotton was ginned in
the Punjab that
condition was satisfied.
It was claimed that
ginning of cotton was a manufacturing process which
turned
raw cotton into ginned cotton.
It was thus contended that the
requirements of the section were also fulfilled.
A third argu·
ment was that there could be no tax because the charging section (s. 5) of the Sales Tax Act was not complete after its
G amendments in 1959 because the section and the amended rules
\
!!?quired a modified certificate of registration
which was not
·. iss,ued as the Form was riot prescribed.
Lastly, it was contended
that ss. 4 and 5 of the Act provided for tax at 4 % ( 4 paise
per rupee) which was in conflict with the provisions of ss. 14
and 15 of the Central Sales Tax Act, 1956 which created a
H
maximum limit and 'must, therefore, be held to be inoperative ..
All the arguments (except the last) that are raised in this
case are based on the unfortunate omission to prescribe a new
598
SUPREMP.
COURT
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(1965) I S.C.ll.
certificate of registration in line with the amended section and
the amended rule and to issue it.
The Company admitted that
though it purchased the goods (raw cotton) in the Punjab, gin·
ned the cotton in its ginning mills in the Punjab, it sent the bales
to its spinning and weaving mills situated at Modinagar in the
State of Uttar Pradesh for purposes of manufacture of cloth.
It was admitted before us in the arguments (as indeed it was
narrated in the facts in two writ petitions which were filed under
Art. 32 but were withdrawn at the hearing of this appeal) that
the ginne<l cotton bales were not sold but were used for manufacture of cloth outside the State of Punjab.
The Company is wrong in reading the certificate of regis·
tration by itself. Sections 5 and 7 have to be read with rule 26
and Form S. T. XXII, the declaration.
So rea~ the old registration certificate even though it did not contain the words "in
the State of Punjab" would stand impliedly modified by the sections, the rule and Form S.T. XXll operating together.
The
Company had to comply with the Act and the Rules anJ could
not shelter behind the unamended certificate.
We hav~ to consider whether the Company complied with the Act and the Rulei;
in the present case.
Many rulings were cited to us as to the
meaning of the word 'manufacture' to establish that ginning of
raw cotton may in a sense be called a manufacturing process.
We are not required in
tl1is case to decide this because
s. 5(2)(a)(ii) provides that the goods specified in the certificate
of registration must be for the use of the dealer "in the manufacture in the State of Punjab of any goods for sale".
There
are three conditions involved : the fir<t is that they must be for
the use of the dealer: the second is they must be for manufac·
ture in the State of Punjab; and the third is that the manufac·
ture must result in goods for sale. It is not necessary to decide
whether the sale should also be in the Punjab for the reason that
no sale as required took place.
The exemption could only be
claimed if the Company satisfied all the three conditions.
The
last conciition does not appear to be fulfilled in this case.
The
words "for sale" show the quality of goods and it is clear the
goods that are manufactured in the Punjab must be for sale.
According to the section the goods which are the result of manu·
facture must be for sale and not for use hy the manufacturer in
some manufacture outside the State resulting in different goods.
The goods which the Company manufactured
in the State of
Punjab were bales of ginned cotton and they were admittedly not
for sale because they were sent to its spinning & weaving mills
A
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M.OD! MILLS v. C.I.T., PUNJAB (Hidayatu/lah /.)
599
A in Uttar Pradesh. The exemption, therefore, could not be claimed
in view of the fact that all the requirements of the section were
not complied with.
The contention that the charging section is incomplete without the prescription of the proper Form for the certificate of
B
registration need not detain us.
We have already shown that
the old Form must be deemed to be modified and even otherwise
the section and the Rules did not depend on the new Form. They
were complete and effective.
The registration certificate was
only the evidence that the Company was a registered dealer for
purposes of certain commodities to be used in manufacture, one
C
of them being cotton.
The omission to prescribe the new Forni
or to issue it did not render s. 5 and the Rules ineffective.
Mr. G. S. Pathak then raised the contention that s. 5 ( 1)
which prescribes the maximum rate of 4 nP in the rupee as the
tax must fail in view of ss. 14 and 15 .of the Central Sales Tax
D
Act.
He pointed out that the second proviso to s. S ( 1) was
added with effect from April 1, 1960 only and before that date
the section could not operate.
Section 14 of the Central Sales
Tax Act declares certain goods to be of special importance in
inter-state trade or commerce and mentions cotton of all kinds
in unmanufactured state, whether ginned or unginned.
Section
E
15 then provides as follows :-
F
G
"15. Restrictions and conditions in regard to tax
on sale or purchase of declared goods withfo. a State.
Every sales tax law of a State shall, in so far as
it imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the
following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of any
sale or purchase of such goods inside the State
shall not exceed two per cent of the sale or purchase
price thereof, and such tax shall not be levied at more
than one stage;
(b) ................ : . ...... "
It is contended that by reason of the declaration and s. 15(a)
H quoted above the rate of tax is discrepant with s. 15 of the Central Sales Tax Act and sub-section ( 1) of s. 5 of the Punjab
General Sales Tax Act must fail as a law properly enacted
Thi~
L2Sup.C.l/65-J3
600
SUPREME
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[1965] I S.C.R.
argument cannot be accepted because Art. 286(3) under which
A
the declaration is made provides as follows :-
"286 (I) ............... .
(2) ................. · .. .
( 3) Any law of a State shall, in so far as it imposes,
B
or authorises the imposition of, a tax on the sale or
purchase of goods declared by Parliament by law to be
of special importance in inter-State trade or commerce,
be subject to such restrictions and conditions in regard
to the system of levy, rates and other incidents of the
tax as Parliament may by law specify."
C
The meaning or the intention of cl. (3) of Art. 286 is not to
destroy all charging sections in the Sales Tax Acts of the States
which are discrepant withs. 15(a) of the Central Sales Tax Act,
but to modify them in accordance therewith.
The law of the
State is declared to be subject to the restrictions and conditions
D
contained in the law made by Parliament and the rate in the
State Act would protanto stand
modified.
The effect of Art.
286 ( 3) is now brought out by the second prgviso to s. 5 (I).
But this proviso is enacted out of abundant
caution and even
without it the result was the same.
In our judgment none of the contentions urged by the Com·
pany can be accepted.
The appeal, therefore, fails and will be
dismissed with costs.
Appeal dismissed.
E