STATE OF PUNJAB Vs. ARYAVARTA INDUSTRIES PVT LTD

JUDGEMENT

(1.) THIS order will dispose of L. P. As. Nos. 515 to 527, 669 to 680, 698 and 700 of 1970, L. P. As. Nos. 12, 13, 22, 48 and 325 of 1971 and Civil Writ No. 96 of 1971 as they raise a common question relating to the liability of cotton seed extracted in the process of ginning cotton to purchase tax. These L. P. As. have been preferred by the State of Punjab against the judgment of a learned single Judge, holding that the petitioner-company was not required to include in its turnover the purchase of unginned cotton when it was not the last purchaser thereof, irrespective of the fact that cotton seeds remained with it. In the writ petitions out of which these appeals have arisen as well as in Civil Writ No. 96 of 1971, the assessing authority under the Punjab Sales Tax Act had held that the cotton seed extracted in the process of ginning cotton is liable to purchase tax. In holding that it was not liable to sales tax in the hands of the person ginning the cotton, the learned single Judge has relied upon the Supreme Court decision in State of Punjab and Ors. v. Chandu Lal Kishori Lal A. I. R. 1969 S. C. 1073 wherein it was observed as follows : But it is by a manufacturing process that the cotton and the seeds are separated and it is not correct to say that the seeds so separated is cotton itself or part of the cotton. They are two distinct commercial goods though before the manufacturing process the seeds might have been a part of the cotton itself. There is, hence, no warrant for the contention that cotton seed is not different from cotton. It follows that the respondent is not entitled to deduct the sale price of the cotton seeds from the purchase turnover under Section 5 (2) (a) (vi) of the Act. In our opinion, the assessing authority was right in holding that the respondent was not entitled to deduction in respect of cotton seeds sold by it to registered dealers.

(2.) IN following this judgment, the learned single Judge observed: In this judgment, their Lordships held that cotton ginned or un-ginned is a single commodity and is to be treated as a single species of declared goods and cannot be subject, under Section 15 (a) of the Central Sales Tax Act, to a tax exceeding two per cent, of the sale or purchase price thereof or at more than one stage. Their Lordships further held that cotton seeds are not 'cotton' and no deduction can be allowed on account of the sale proceeds of the cotton seeds extracted from unginned cotton and sold to the registered dealers under Section 5 (2) (a) (vi) of the Act, but deduction was admissible in respect of the ginned cotton obtained from the unginned cotton by the process of manufacture if the same was sold to a registered dealer under the said provision. It is quite apparent that in view of the addition of Section 5 (3) to the Act, this method of assessment in respect of cotton is not permissible. Cotton being declared goods and only liable to purchase tax, the last dealer liable to pay this tax has to be found. This finding has not been given by the assessing authority although it was necessary to be given in view of the fact that the petitioner-company had denied that it was the last purchaser to pay the tax. The question, however, arises whether the petitioner-company can be said to be the last purchaser of cotton in the present case, in view of the admitted fact that the ginned cotton extracted out of the unginned cotton purchased by the petitioner-company was sold to registered dealers. Cotton ginned or unginned is to be considered as a single commodity, according to their Lordships of the Supreme Court in the case referred to above. It shall have to be presumed that the unginned cotton purchased by the petitioner-company was sold by it to registered dealers in the form of ginned cotton. If no part of the unginned cotton or ginned cotton obtained therefrom remained with the petitioner-company, it could not be said to be the last purchaser of cotton liable to pay tax under the Act, merely because cotton seeds, a by-product from the unginned cotton by process of manufacture, have remained with the petitioner-company, for cotton seeds cannot be said to be cotton. . . The fact that the cotton seeds have remained with the petitioner is not to be taken into consideration, for that purpose.

(3.) UNDER the Punjab Sales Tax Act as amended by Act 7 of 1967 both cotton and cotton seeds are "declared goods" on which admittedly the tax has to be paid by the last purchaser. Now, it is firmly settled that the word "cotton" includes both ginned and unginned cotton and even after ginning when ginned cotton and cotton seeds are obtained, we have to find who is the last purchaser of cotton. If the entire ginned cotton is sold away after ginning, then obviously the purchaser who carried out the process of ginning is not the last purchaser of cotton. Thus, he is not liable to purchase tax. In that case, we have to find out who is the last purchaser.