# STATE OF PUNJAB AND ORS v. M/S. SHA.KTI COTTON COMPANY

- **Citation:** [1972] 2 S.C.R. 289
- **Court:** Supreme Court of India
- **Decided:** 1971-11-05
- **Case number:** Civil Appeals Nos. 2319 F ·and 2320 of 1968
- **Bench:** C. A. Vaidialingam, P. Jaganmohan Reddy, K. K. Mathew
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-punjab-and-ors-v-m-s-sha-kti-cotton-company-5648
- **Pages:** 20

## Headnote

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
a 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<! it take into consideration all the points <it issue
between the oarties. The appeals of the State could not therefore be
straightway allowed on tbe basis of M / s. Chandulal Kishori/lll's case.
[298 0; 304 H-305 CJ
290
SUPREME COURT REPORTS
[1972] 2 S.C.R.
Act 7 .of 1967 was passed in order to retrosPl'Ctively remove the de·
f~ts in the Ac( pointed out by this Court in Bhawani Cotto11 Mills. The
validity of the Amending Act was upheld
by this Court in Rattan Lal
& Co.'s case.
The new s.
!!AA added in the Act bys. 9 of the
Amendment A~\. casts a duty on the assessing authority, even without any
application being made by the assessee in that behalf, to review all assess·
meats and re-as~essments made before the commencement of the Amend·
ment Act in respect of declared goods.
There was no controversy that
tt.e assessment orders in the present cases had been made before the date
of the commencement of the Amendment Act. If so the· assessing autho·
rity had to exercise his juri

## Text

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STATE OF PUNJAB AND ORS.
v.
M/S. SHA.KT! COTTON COMPANY
November 5, 1971
289
[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
a 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<! it take into consideration all the points <it issue
between the oarties. The appeals of the State could not therefore be
straightway allowed on tbe basis of M / s. Chandulal Kishori/lll's case.
[298 0; 304 H-305 CJ
290
SUPREME COURT REPORTS
[1972] 2 S.C.R.
Act 7 .of 1967 was passed in order to retrosPl'Ctively remove the de·
f~ts in the Ac( pointed out by this Court in Bhawani Cotto11 Mills. The
validity of the Amending Act was upheld
by this Court in Rattan Lal
& Co.'s case.
The new s.
!!AA added in the Act bys. 9 of the
Amendment A~\. casts a duty on the assessing authority, even without any
application being made by the assessee in that behalf, to review all assess·
meats and re-as~essments made before the commencement of the Amend·
ment Act in respect of declared goods.
There was no controversy that
tt.e assessment orders in the present cases had been made before the date
of the commencement of the Amendment Act. If so the· assessing autho·
rity had to exercise his jurisdiction under s. I !AA. It was also oblig1tory
on bis part to vary and revise the previous orders of assessment so as to
bring tbem in conformity with the provisions of the Act as amended by
the Amendment Act after following the procedure indicated therein. The
fact .that there w,_s a judgment of this Court w"' no bar to the assessing
authority to do the duty cast upon him under s. I !AA. This has been
made clear hy sub·s. (4) to s. !!AA, which makes the said sub-section
subject to the provisions of sub·ss. ( I ) to (3) of the section. [.306 D--
F]
Jn the result the cases must go back to the assessing authority for fresh
assessments to be made under s. llAA.
In the fresh assessment pro·
ceedings the assessing authority has to consider the matter in the light of
the provisions of the
Amendment Act incorporated in the Act; and the
Jec.ision of this Court in M /s. C!wndulal Ki.l·hnrilr./ could not operate to
the prejudice of the asscssces. i.107 B·G]
Bhawani Cotton Mills Ltd. v. State of Punjab & Anr. [19671 3 S.C.R.
577, applied.
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State of Punjab .v. Mis. Chandulal Kisliori/a/ & Ors. [1969] 3 S.C.R.
849, held not applicable
E
Patel Cotton Co. Private Ltd. v. State of Punjab, [1964] 15 S.'f.C. 865,
State of Punjab v. Mis. Patel Cotton Co. Pvt. Ltd. Bha1inda, C.A.Nos.
1120/66 etc. di. 18·4-67 Ratan Lal & Co. \'.Assessing Authority, [19691
2 S.C.R. 544 and M/s. Aryavarta Industries P. Ltd. v. State of Punjab,
J 970 Revenue Law Reporter 341, refcrnd to.
CIVIL APPELLATE JuRISDICTION : Civil Appeals Nos. 2319
F
·and 2320 of 1968 and 1466 to 1470 of 1969.
Appeals from the judgments and orders dated July 23, May
17, May 28, May 27, May 26, 1965 of the Punjab High Court in
Letters Patent Appeals Nos. 182, 96, 127, 141, 145, 149 and
172 of 1965 r.espectively.
G
V. C. Mahajan and R. N. Sachthey, for the appellants (in
C.As. Nos. 2319 and 2320 of 1968 and C.A. No. 1468 of
1969).
V. C. Mahajan for R. N. Sachthey, for the appellants
(in
C.As. Nos. 1466, 1467, 1469 and 1470 of 1970).
H
S. V. Gupte, Hardev Singh and Ram Gopa/ Sing/a, for the
re.~pondent (in C.A. No. 2319 of 1968).
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PUNJAB v. SHAKTI COTTON co. ( Vaidia/ingam, ], )
2 91
Hardev Singh and Ram Go pal Singla, for respondent
(in
C.A. No. 2320 of 1968).
Hardev Singh, for respondent (in C.A. No. 1466 of 1969).
Charan Das Garg, O.P. Sharma and K. S. Suri, for the respondent (in C.A. No. 1468 of 1968).
The Judgment of the Court was delivered by
Vaidilllingam,
J.
These
seven
appeals,
on certificate,
are by ihe State of Punjab, challenging the judgments and orders
of the Letters Patent Bench of the Punjab High Court, dismissing
in limine 1the appeals filed by the State, against the decisions of
the learned Single Judge, either quashing the orders of assessment
of sales tax made by the concerned Sales Tax Officer or directing
the said officers to reconsider the orders and pass fresh orders of
assessment.
The assessments that were challenged before
the
High Court were made under the Punjab General Sales Tax Act,
1948 (Punjab Act No. XLVI of 1948 (hereinafter to be reforred
as the Act).
Civil Appeals Nos. 2320 of 1968 and 1468 of
1969 relate to the assessment years 1960-61; Civil Appeals Nos.
2319 of 1968 and 1467, 1469 and 1470 of 1969 relate to the
assessment years 1961-62 and Civil Appeal No. 1466 of 1969
relates to the assessment year 1962-63.
The controversy related to the assessment to sales tax under
the Act, in respect of cotton, which admittedly is
an
item of
"declared goods" within the meaning of s. 2 cl. ( c) read with
s. 14 of the Central Sales-tax Act, 1956 (Act 74 of 1956)
(hereinafter to be referred as the Central Act).
As the nature of the dealings and the approach made by the
assessing officers in respect of the respondents, who are diffierent
assessees, is the same, it is enough to refer to the facts in Civil
Appeal No. 2319 of 1968.
The respondent M/s Shakti Cotton
Company is a partnership firm carrying on business as a registered dealer under the Act.
Amongst iii other business, the firm
purchases kapas or unginned cotton and after ginning, sells
cotton and cotton seeds.
For the assessment year 1961-62, the
fim1 submitted a return under the Act showing its gross turnover of purchase at Rs. 23, 76,452.68 n.p. This amount included the purchase of unginned cotton i.e. Kapas and the sales were
shown as having been made to registered dealers and for inter
state trade and commerce.
The firm claimed deduction, from its
gross turn-over, value of the entire quantity of cotton it had purchased.
According to the firm, it was entitled to so deduct the
purchase price under s. 5(2)(a)(vi) of the Act.
It appears that
there was originally an order of assessment passed on June 30,
1962. On appeal by the firm, the Appellate Authority by its
292
SUPREME COURT REPORTS
[1972] 2 S.C.R.
order dated February 4, 1963 remanded the matter to the assessing authority for re-examination and re-consideration of the original order of assessment.
The assessing authority, Patiala District, took up· the assessment proceedings afresh and after an
examination of the account books and other vouchers produced
by the finn accepted as correct the gross tum-over returned by
the dealer. Regarding the various deductions claimed by the
finn, particularly in respect of the purchase price of unginned
cotton, which had been sold to registered dealers, it is not clear
from the assessment orders as to how exactly the claim for deductions were either allowed or rejected.
Ultimately, the assessing
authority fixed the taxable turn-over for the purposes of purchase
tax at Rs. 3,18,993.27 n.p. and levied purchase tax on this
amount at the rate of 2 per cent.
The assessment order was
passed on September 26, 1963.
The firm filed in the Punjab
High Court Civil Writ No. 452 of 1964 challenging the order of
assessment passed by the Sales-tax Officer.
The grievance of
the finn, as is seen from the said writ, is, that the assessing authority disallowed the claim, made by it, for deduction of purchase
price of ginned cotton sold to the registered dealers and for inter
state trade and commerce.
The firm's claim before the assessing
authority, appears to have been that if three maunds, of kapas is
ginned, it gives roughly one maund of ginned cotton, which if disposed of in toto should be equivalent to the purchase price of
three maunds of kapas originally purchased.
The assessing
authority appears to have proceeded on the basis that out of the
total quanuty of unginned cotton purchased by the finn, only
I/3rd quantity of the unginned cotton can be considered to have
been sold as ginned cotton. Deductions, according to the assessing authority, under s. 5(2) (a) (vi) of the Act from the purchase
tum-over of unginned cotton should be fixed at 1/3rd of the total
price paid for the unginned cotton. The assessing authority has
also proceedeJ on the basis that the amount realised by the finn
by sale of cotton seeds, as a result of ginning, cannot be taken
into account for calculating the tum-over under s. 5(2)(a)(vi)
of the Act, as the said material is something different from cotton.
The firm had also challenged the order of assessment that
the levy of sales tax on cotton, which is an item of "declared
!!oods" under the Central Act, is illegal and opposed to s. 15 of
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the Central Act, as no stage for levy of tax had been fixed.
As
the Excise and Taxation Conunissioner of Punjab bad given instruction to the assessing authorities to assess cotton in the manner
shown in the assessment order, the firm averred that no useful
purpose will be served by carrying the assessment orders in
appeals before the Departmental Authorities. It was
pleaded ,
that as the levy was unconstitutional, the relief can be obtained
H
. only from the High Court and hence its jurisdiction under Arts;
226 and 227. of the Constitution was invoked.
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PUNJAB v. SHAKTI COTTf>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
1that the stage for. levying sales-tax:
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.
'
294
SUPREME COURT REPORTS
[1972) 2 S.C.R.
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<l by the State was dismissed in /imine on
May 28, 1965.
In Civil Appeal No. 14 70 of 1969 the order of assessment is
dated December 12, 1963.
Civil Writ No. 205 of 1964 filed by
.the asseesee was allowed by the High Court on January 29, 1965
:and similar directions were given to the assessing authority.
The
Letters Patent Appeal No. 172 of 1965 filed by the State was
dismissed in limine on May 26, 1965.
It will be noted that in all the above appeals, except Civil
Appeal No. 1466 of 1969, the'assessing authority had been
directed to re9onsider and modify the orders of assessment already
passed by it.
It is only in Civil Appeal No. 1466 of 1969 that
the order of assessment was quashed by the learned Single Judge
of the High Court.
In all the appeals, certificates have been
granted by the High Court.
The High Court, while granting the
certificates has observed that though Letters Patent Appeals were
dismissed in limine, certificates are being granted in view of the
fact that the decision in Patel Cotton Company Private Ltd.(1).
on the basis of which the present decision had been given, was the
subject of appeal before this Court. In view of this consideration, certificates of fitness have been granted by the Letters Patent
Bench.
We may also add that though the question, regarding
(') [1964] 15 S. T.C. 865.
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PUNJAB v •. SHAKTI. COTTON co. (Vaidia/ingaro, !.)
29 5.
the legality of the assessment under the Act as being opposed to
the Central Act, on the ground that no stage for collection ·of tax:
has been fix:ed, was raised by all the assessees, that point was not
adjudicated upon by the. High Court in any of these matters.
Mr. V. C. Mahajan, learned counsel for the State, pointed
out that the decision in Patel Cotton Company, Private Ltd.(')
which was relied QJl by the High Court, has been over-ruled by
this Court in State of Puniab and others v. M/s. Chandulal
Kishori Lal and others(2 ). In consequence, he urged that all the
State appeals will have to be allowed and the assessment orders
should be allowed to stand.
·
On the other hand, Mr. S. V .. Gupte, learned counsel appearing for the respondent in Civil Appeal No. 2319 of 1968 whose
contentions have been adopted by the other counsel appearing
for the respondents in ot,her appeals, urged that the decision of
this Court, 1-elied on by Mr. Mahajan, had no occasion to consider the position regarding collection of sales tax in . respect of
·'declared goods" coming unde~ the Central Act, after the Act
was amended by Punjab Act 7 of 1967 .. He further·pointed out
that neither the principles laid down by this Court in Bhawani
Cotton Mills Ltd v. Stat(! of Punjab and another('); nor the
effect of the amendments made to the Act by Punjab Act 7 of
1967, regarding levy and collection of sales tax: .in respect of
"declared goods" have been considered in State of Puniab and
others v. MI s. Chandulal Kishori Lal and others(').
Mr. Gupte in this connection, relied on the various aspects
discussed in Bhawani Cotton Mills Ltd.(') and the relevant"provisions of the Punjab General Sal.es Tax (Amendment and Validation) Act, 1967 (Act 7 of 1967) (hereinafter refurred to as
Amendment Act). He forther stressed that the Amendment Act
has changed the whole scheme of taxation regarding "declared
goods" and a duty has been cast on the assessing authority to
reopen the assessment and pass fresh orders in accordance with
the Amendment Act.
The counsel further pointed out that
State of Punjab and others v. M/ s. Chandulal Kishori Lal and
others( 2 ) except decidingi that cotton seeds do not come under
"declared goods", had no occasion to consider the language· of
s. 5(2)(a)(vi) of the Act regarding how the deduction is to be
allowed.
1
It is rtow necessary to consider the provisions of the Act, as
it stood on April 1, 1960.
1 Even here we may say that the entire
scheme of the Act and the Rules as well as of the Central Act
has been elaborately considered by this Court in Bhawani Cotton
Mills I-td.(').
Hence it i~ unnecessary to cover the same ground
in these appeals. It is enough to note that the ex:pressions
"dealer" "goods" "prescribed" "purchase" "sale" "tum-over" and
(') [1964] 15 S.T.C. 865.
(2) [1969] 3 S.C.R. 849. (') [1967] 3 S.C.R. 577.
296
SUPREME COURT REPORTS
(1972] 2 S.C.R.
'!year" are defined in els. (d), (e), (f), (ff), (h), (i) and (j)
of s. 2 respectively.
Item I of Schedule C of the Act dealing
with "Cotton" is as follows :
·
"(1) Cotton, that is to say, all kinds of cotton
(indigenous or imported) in its unmanufactured state,
whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste."
:Section 2(c) of the Central Act defines "declared goods" as
"goods declared under s. 14 to be of special importance in interState trade ot commerce." Section 14 declares the various goods
referred to therein as of special importance in inter-State trade or
commerce.
Therefore, it follows that those goods are "declared
goods" under s. 2(c) of the Central Act. Item II of s. 14 of the
Centrhl .Act. dealing with cotton is identical with Item I of Schedule C of the Act.
It is also necessary to note that the definition
of "sale" in s. 2(h) of the Act, excluded goods specified in
Schedule C and that the expression "purchase" under s. 2 (ff)
took in the goods specified in Schedule C of the Act.
Section 5
of the Act dealt witll the levy of tax on the turn-over of a dealer
at the-rates mentioned therein and other consequential matters.
Sub-section (2) dealt with the taxable turn-over, as well as the
various deductions which a dealer is eligible to claim in the computation of the said taxable turn-over. The claim for deduction
was made by the assessees before us under s. 5(2)(a)(vi} of the
Act which is as follows :
"5(2) In this Act the expression "taxable turn-over
means' that part, of a dealer's gross turn-over during
any i:)eriod which remains after deducting therefrom-
( a) his turnover during that period on-
(vi) the purchase of goods which are sold not
later than six months after the close of the
year, to a registered dealer,
or in the
course of inter-state trade or commerce, or
in the course of export out of the territory
of India:
Provided that in the case of such a sale to a regis- ,
tered dealer, a declaration, in the prescribed form and
duly filled and signed by the registered dealer to whom
the goods are sold, is furnished by the dealer claiming
deduction."
Section 15 of the Central Act imposes restrictions and conditions in regard tq tax on sale or purchase of declared goods with-
. in a State.
Section 15 (a) placing a restriction on the rate of
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PUNJAB v. SHAKT! COTTON co. (Vaidialingam, !.)
297
tax as "".ell as a prohibition regarding such collection at more
than one stage is as follows :
"15. 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 three per cent of the sale or purchase price
thereof, and such tax shall not be levied at more than
one stage.
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"
•
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We have broadly outlined the scheme of the Act, as well as
the Central Act.
There is no controversy that cotton i• liable
to purchase tax under the Act.
It is now necessary to advert to
the decision of the Punjab Bigh Court in Patel Cotton Company
Private Ltd.('). The assessee therein claimed that out of the
unginned cotton, which they had purchased and in respect cif
which they had become liable to pay purchase tax, certain quantities of ginned cotton as well as cotton seeds obtained after
ginning, had been sold to registered dealers within the prescribed
period or sold in the course of inter-State trade and commerce.
They further claimed that the purchase price of tho5e quantities
of ginned cotton and cotton seeds so sold should be deducted
in calculating the taxable tum-over under s. 5(2)(a) (vi) of the
Act.
The assessing authority allowed the deduction of the sale
price (as against the purchase price) of the ginned cotton sold to
registered dealers as also the sale price of the ginned cotton exported out of India or sold in the course of inter-State trade or
commerce.
The Sales-tax Officer, however, declined to allow
any deduction for similar sales on cotton seeds.
The assessee
contended before the High Court that the sale of cotton seeds,
was a 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
tum-over should be determined after deducting the purchase
price of the goods sold from the gross-turnover.
On behalf of the State, it was contended that unginned cotton
and ginned cotton are two different things and if unginned cotton
is purchased and purchase tax paid on it and later on the cotton
is ginned and sold, no part of the goods purchased can be considered to have been sold. It was urged that cotton seed is a
different thing from cotton and therefore the sale price of cotton
seeds cannot be deducted under s. 5(2)(a)(vi).
(') [1964] 15 S.T.C. 865.
298
SUPREME COURT REPORTS
(1972] 2 S.C.R.
The High Court held that no manufacturing process is involved in ginning cotton and in the process of ginning no new commodity is created.
The High Court further held that when a
dealer buys unginned cotton, which is mixed with cotton seeds
and separates the two, by process of ginning and proceeds to
sell both the ginned cotton and the cotton seeds, the dealer in
fact sells the entire goods which he had purchased.
As deduction under s. 5(2) (a) (vi) is to be the tum-over on the purchase
of goods which are sold and as the goods (ginned cotton and
cotton seeds) sold are the same as purchased, the dealer is entitled to a full deduction.
As the assessing authority has not made
the assessment in accordance with the principles laid down by
the High Court, the order of assessment was quashed and the
assessing authority was directed to make a fresh assessment, in
accordance with the decision of the High Court.
This decision
was rendered on May 14, 1964.
Certain other decisions of the Punjab High Court, similar to
the one in Patel Cotton Company Private Ltd.( 1 ) were the subject of appeals and they were disposed of by this Court on
February 27, 1969 in State of Punjab and others v. M/s. Chandulal Kishori Lal and otherse), to which we will refer later.
In the mean while, certain other dealers dealing in cotton,
had challenged before the Punjab High Court the levy of purchase tax under the Act on the ground that the levy opposed to
the Central Act.
One of the contentions was that no stage for
collection of the tax; as is mandatory under the Central Act, has
been provided for in the Act.
The Punjab High Court, by its
judgment and order dated November 23, 1965 dismissed the writ
petitions filed by the assessees.
The assessee, Bhawani Cotton
Mills Ltd.(3 ) came to this Court in appeal on certificate.
This
Court after a very elaborate and exhaustive consideration of the
Act, as wen as the Central Act, by majority, upheld the contention of the assessee and held in Bhawtini Cotton Mills Ltd. v
State of Punjab and another( 3 ) that the scheme of levy of purchase tax under s. 2 (ff) read with s. 5 and specially the tenns of
s. 5(2) (a) (vi) of the Act is illegal in that, contrary to the provisions of s. 15 of the Central Act, no definite stage at which the
purchase tax in respect of cotton, a declared commqdity. is to be
ievied, has been indicated.
The judgment and order of the High
Court were reversec and the assessment orders quashed.
This
decision was rendered on April 10, 1967.
The years with which
this Court was concerned, in the said decision, were the years of
assessment 1960-61 and 1961-62.
The decision in Patel Cotton Company Private Ltd. (1) was
.the subject of appeals in this Court in The State of Punjab and
others v. M / s. Patel Cotton Co. Pvt. Ltd., Bhatinda and
(l) [1%4} 15 S.T.C. 865.
(2) [1969] 3 S.C.R. 849. (3) [1967] 3 S.C.R. 577 .
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PUNJAB v. SHAKTI COTTON co. (Vaidialingam, J.)
299
others(.').
This Court, by its judgment dated April 18, l<l67
did nO't think it necessary to consider the correc•tness or otherwise of the decision of the High Court that the assessees, when
they sold ginned cotton and cotton seeds, had sold the same commodity that had been purchased by them.
The State appeal was
dismissed on the short ground. that the levy of purchase tax was
opposed to the Central Act, as held by this Court in
Bhall'ani
Cotton Milli Lid.("). Though the High Court
had
directed
fresh assessments to be made in accordance with
its decision,
this Court, however, quashed the orders of assessment also.
We have already indicated that the certificates were issued in
the appeals before us by the High Court in· view of the fact that
the decision in Patel Cotton Company Private Ltd.(") was
the
subject of appeal in this Court.
That appeal was disposed of in
the manner, referred to above.
In view of the decision of this Court in
Bhawani Cotton
Mills Ltd.('), t\vo Ordinances were issued by the Governor of
Punjab, Ordinances Nos. 1 and 12 of 1967, dealing, among other
matters, with the levy of sales-tax regarding
declared
goods.
These Ordinances were replaced by the Amendment Act, which
received the assent of the Governor on December 29, 1967 and
published in the State Gazette on December 30. 1967.
Certain
provisions of the Amendment Act, in so far as they relate to
declared goods, have to be referred to.
·
Section 2 ( 1) incorporated in the Act after cl. ( d) 'of s. 2 a
new clause defining "declared goods".
The new
clause
( dd)
was as follows :
"(dd) "Declared goods" means
goods
declared
under section 14 of the Central Sales Tax Act, 1956,
to, be of special importance in inter State .trade or
commerce.;'
-
We have already referred to the fact that .cl. ( e) of s. 2 of the
Act defined the expression "gootls".
Section 5 of the Amendment Act. incorporated various amendments in s. 5 of the Act as
follows :
"Section 5. Amendment of section 5 of Punjab
Act 46 of 1948. In section 5 of the principal Act-
( a) in sub-section (1)-
( i) in the 1-~cond proviso.
the
words.
brackets.
letter and figures ''as defined in clause ( c) 0f
section 2 of the Central Sales Tax Act. 1956.
and such tax shall not be levied on the purchase
or sitle of such goods at more than one stage"
shall be omitted :
(l) C.A.S. No•. 112J. 1123 & 1214 of 1966 dddcd on 18-1-1%7.
(2) [19671 3 S.C.R. 577. (') [1961J 15 S.T.C. 865.
6-LSOO Sup Cl/72
t:;.
300
SUPREME COURT REPORTS
[ 1972) 2 S.<;:.R.
(ii) after the second proviso, the following proviso
shall be inserted, namely :
"Provided further that with effect from the date of
commencement of the
Punjab
General
Sales
Tax
(Amendment and Validation) Ordinance, 1967, the
rate of tax shall not exceed three paise in a rupee "in
respect of any declared goods";
(b) in sub:section (I-A) for the words "in respect
of such goods the words "in respect of such goods
other than declared goods" shall be substituted and be
deemed to have been substituted with effect from the
16th day of December, 1965."
( c) after sub-section (2) the following sub-section
shall be inserted with effect from the 1st day of October,
1958, namely:-
"(3) Notwithstanding anything contained in this
Act-
( a) in respect of declared goods, tax shall be levied
at one stage and that stage shall be--
(i) in the cas.e of goods liable to sales tax, the
stage of sale of such goods by the last dealer liable to
pay tax under this Act :
(ii) in the case of goods liable to purchase tax,
the stage of purchase of such goods by the last dealer
liable to pay tax under this Act;
(b) the taxable turnover of any dealer for any
period shall not include his turnover during that period
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on any sale or purchase of declared goods at any stage
F
other than the stage referred to in sub-clause (i) or as
the case may be, sub-clause (ii) of clause (a)."
Section 9 of the Amendment Act incorporated a new section
11 AA in the Act, which is as follows :
"1 lAA. Review of certain assessments etc. of tax
on declared goods-
( 1) Notwithstanding anything contained in this
Act, the Assessing Authority shall (whether or not an
application is made to him in this behalf), review all
assessments and re-assessments made before the commencement of .the Punjab General Sales Tax (Amendment and Validation) Act, 1967 in respect of declared
goods and make such order varying or revising
the
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PUNJAB v. SHAKTI COTTON co. ( Vaidialingam, J.)
301
order previously made as may be necessary for bringing the order previously made into conformity with the
provisions of this Act as amended by the Punjab General Sales Tax
(Amendment
and
Validation)
Act,
1967 :
Provided that no proceeding for review shall
be
initiated without giving the dealer concerned a notice
in writihg of not less than thirty days.
( 2) Any dealer on whom a notice is served under
sub-section (I) may within thirty days from the date
of receipt of such notice intimate in writing the assessing authority of his intention to abide by the assessment
or re-assessment sought to be reviewed and if he does
so, the assessing authority shall not review such assessment or re-assessment under this section.
( 3) No order shall be made under this section
against any dealer without giving such dealer a reasonable o'pportunity of being heard.
( 4) Notwithstanding anything contained in
any
judgment, decree or order of any court or other authority to the contrary but subject to the provisions of the
foregoing sub-sections any assessment, re-assessment,
levy or collection of any tax in
respect of declared
goods made or purporting to have been made, and any
action or thing taken or done or purporting to have been
taken or done in relation to such assessment, re-assessment, levy or collection, under the provisions of this
Act before the commencement of the Punjab General
Sales Tax (Amendment and Validation)
Act,
1967
shall be as valid and effective as if such assessment,
re-assessment levy or collection or
action or thing
had been made, taken or don~ under this
Act as
amended by the Punjab General Sales Tax (Amendment and Validation) Act, 1967."
From the various amendments made by the Amendment Act,
in the Act. the following aspects broadly emerge : There is a
definition of "declared goods" under s. 2 ( dd).
Certain omissions were made in the second proviso of the Act in view of the
specific definitiO'll of "declared goods" under s. 2 ( dd) and also
in view of the fact that the stage, at which tax is to be levied in
respect of "declared goods" is specifically dealt with under the
new sub-section (3) incorporated in section 5.
The third proviso incorporated in sub-section (I) of s. 5 of the Act provided
that with effect from the date of the Ordinance No. 12 of 1967,
the rate of tax in respect of declared goods was not 10 exceed 3
302
SUPREME COURT REPORTS
[1972) 2 S.C.R.
pies in a rupee.
In sub-section ( 1-A) of s. 5 of the Act "declared goods" have been excluded from 1he reference made therein
· to "such goods".
This amendment is also deemed to have come
into effect from December 16, 1965.
The new sub-section ( 3)
added to s. 5 of the Act was to have effect from October 1, 1958.
Under the new sub-section (3), in respect of declared goods, the
stage of levy either in respect of purchase or sale has also been
definitely fixed.
Under cl. (b) of s. 3, certain turn-overs in respect of sale or purchase of declared goods, as referred to therein,
cannot be included in the taxable turn-over.
The new section
l lAA makes it obligatory on the assessing authority, under the
circumstances mentioned therein, to review all assessments and
re-assessment made b~fore the commencement of the
Amendment Act in respect of declared goods.
There is also an obliga·
tfott" cast on the officer to make orders varying or revising the
previous orders, so as to bring them into conformity with the provisions of the Act, as amended by the Amendment Act.
Even
the provisions contained under sub-section ( 4) of s. 1 lAA have
been made subject to the provisions of sub-sectiOns (1 ) to ( 3)
of the said section.
It will be seen from tb,e amendments, referred to above, that
an entirely new scheme, so as to say, has been evolved in the
matter of assessment to sales tax of declared goods.
ln the case
before us, we are concerned with "cotton" which is an
item ot
"declared goods" under the Central Act.
There is no controyersy that purchase tax is to be levied in respect of the said commodity.
Under the new sub-section (3) cl. (a) sub-clause (2)
of s. 5 of the Act, in the case of purchase tax, the levy is to be
at the stage of purchase'of such goods by the last dealer. Therefore. the question whether the assessee comes under this clause,
for levy of purchase tax, which is a question of fact, will have to
be investigated.
The Amendment Act itself was again challenged before this
Court in Writ Petition filed under Art. 32 of the Constitution.
We will now refer to the decision in the said writ petition of this
Court in Rattan Lal and .company and another v. The Assessinl?
Authority and another(') rendered on October 29, 1968.
This
Court, in the said decision had t<J-i(fonsider the attack made by
certain assessees regarding the validity of the Amendment Act.
The contention of the assessees was th-at the same infirmities,
pointed out by this Court in Bhall'ani Cotton Mills Ltd.(') still
exist even in the Amendment Act and hence the levy of sales tax
on cotton was illegal. After a reference to the infirmities pointed
out in the Act as it stood on April 1, 1960, in Bhawani Cotton
Mills Ltd.(') and after a reference to the Amendment Act, the
contention of the assessees wa> rejected and it was held that the
(l) [1969] 2 S.C.R. 544. (2) [1967] 3 S. C.R. 577.
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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
Bhawani Cotton Mills Ltd.( 1), 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.