M/S. J. K. Cotton Spinning &
Weaving Nulls Co. Ltd. V. Sales Tax Officer, Kanpur & ANR [1964] Insc 242
(28 October 1964)
28/10/1964 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 1310 1965 SCR (1) 900
CITATOR INFO:
R 1967 SC 234 (11) RF 1976 SC2469 (2,3,9) R
1989 SC2066 (4) RF 1990 SC 196 (3) E 1990 SC1893 (5) RF 1991 SC2222 (15)
ACT:
Sales Tax-Company manufacturing textile goods
and tilesGoods "intended for use in manufacture or processing of goods for
sale" -Drawing material, photographic goods, electricals, certain building
materials whether such goodsCentral Sales Tax Act, 1965, s. 8(3) (b) read with
Rule 13 framed under s. 13 of the Act.
HEADNOTE:
The assessee, a limited company carrying on
the business of manufacturing textile goods, tiles and other commodities, at
Kanpur, applied for registration under s. 7 of the Central Sales
Tax Act, 1956, and requested that certain goods be specified in its certificate
of registration for the purpose of getting benefit under s. 8(1) of the Act.
According to s. 8(3)(b) of the Act read with r. 13 framed under the Act the
assessee could get the aforesaid benefit in respect of goods which were
"intended for use in the manufacture or processing of goods for
sale". The Sales Tax Officer at first accepted the assessee's claim in
respect of all the goods as requested by the assessee but later on directed
that certain goods, namely, "drawing material, photographic material,
building materials including lime and cement (except cement used in manufacture
of tiles for resale), electricals, iron and steel, and coal", be deleted
from the assessee's certificate of registration. Against this order the
assessee filed a petition under Art. 226 of the Constitution. The High Court,
dismissing the petition, held that drawing materials, photographic materials,
colour, chemicals, electricals machinery and building materials such as cement
and lime were not comprehended in the expression "in the manufacture or
processing of goods for sale" within the meaning of s. 8(3) (b) read with
r. 13. The assessee appealed to this Court.
HELD : It was not open to the High Court to
expand the scope of the petition challenging the correctness of the order of
the Sales Tax Officer, and to deal with matters which were never in issue or to
decide that other categories of goods (colour, chemicals, machinery etc.),
which the Sales Tax Officer had not ordered to be deleted, did not fall within
the terms of s. 8 (3) (b) read with r. 13. [903 E] Where any particular process
is so integrally connected with the ultimate production of goods that but for
that process, manufacture or processing of goods would be impossible or
commercially inexpedient, goods required in that process would fall within the
expression "in the manufacture of goods". For goods to answer that
description, it is not necessary that they must of necessity be goods which are
used as "ingredient or commodity in the creation of goods", or which
are "directly and actually needed for turning out or making of the
goods." [905 F-G] Applying the above test, drawing and photographic
materials used for the making of designs for cloth to be manufactured by the
company, and electrical equipment necessary for the production of goods e.g.,
humidifiers, exhaust fans etc., are which qualify for special treatment under
s. 8(1). But electrical equipment which is not directly connected with the process
901 of manufacture such as fans, coolers, air-conditioning units, and building
material including lime and cement not required in the manufacture of tiles for
sale, would not fall under that category. [907 F-G; 908 A-B) Indian Copper
Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar and Others relied
on.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 857 of 1964.
Appeal by special leave from the judgment and
order dated April 27, 1964, of the Allahabad High Court in Civil Misc. Writ Petition
No. 2367 of 1962.
Sri Narain Andley and Rameshwar Nath, for the
appellant.
O. P. Rana, for the respondents.
The Judgment of the Court was delivered by
Shah J. Messrs J. K. Cotton Spinning and Weaving Mills Company Ltd. is a public
limited Company having its registered office at Kanpur. The Company
manufactures for sale cotton textiles, tiles and other commodities. The Company
applied on June 21, 1957, requesting the Sales Tax Officer, Sector II, Kanpur,
to register it as a dealer under S. 7(1) of the Central Sales Tax Act, 1956,
and prayed that the following goods which it ordinarily purchased in the course
of inter-State trade may be specified in the certificate :
Cotton staple fibre, yam, wastes, coal,
petrol, machinery, electricals, spares, hardwares, dyes and colours, chemicals,
auxiliaries, oils, lubricants, tallows, starches, woollen clothings, gums,
clays, salt, beltings, bobbins, shuttles, wooden accessories and other mill
stores for manufacturing cloth, yarn, tiles and paints etc." The Sales Tax
Officer granted the certificate as prayed.
The certificate of registration was later
modified and the following additional categories of goods were specified :
"Industrial gases, drawing instruments,
photographic materials, packing materials including wood, paper, straw and
card-boards etc. and building materials including iron, steel, cement, lime,
fire bricks and refractories. " 902 Thereafter by notice dated July 19,
1961, the Sales Tax Officer cancelled the specification in respect of coal and
called upon the Company to show cause why the certificate of registration be
not amended so as to exclude therefrom "drawing instruments, photographic
materials, building materials including iron, steel, cement and lime and
certain goods covered under the term electricals". The Company showed
cause against the notice and contended that all the articles specified in the
certificate were required in the manufacture and processing of goods for sale.
By order dated August 9, 1962 the Sales Tax Officer directed that from the
registration certificate the following items be deleted;
"Drawing material, photographic
material, building material including lime and cement (except cement used in manufacture
of tiles for re-sale), electricals. iron and steel and coal", and called
upon the Company to surrender the certificate of registration within three days
for making the proposed amendments.
The Company then applied to the High Court of
Judicature at Allahabad for a writ of certiorari calling for the record of the
case and quashing the order dated August 9, 1962. At the trial, counsel for the
Company did not press the petition in respect of iron, steel and coal. Counsel
for the Company submitted that the remaining items were covered by s. 8(3)(b)
of the Central Sales Tax Act read with Rule 13 framed under s. 13 of the Act,
and on that account the order passed by the Sales Tax Officer was illegal and
that in any event the items in question having been included in the certificate
of registration after due enquiry as required by the statute, the Sales Tax
Officer acted without jurisdiction in seeking to make the amendments. The High
Court negatived the contention of the Company that the Sales Tax Officer had no
jurisdiction to revise the certificate of registration issued after due
enquiry, and rejected the petition holding that drawing instruments,
photographic materials, colours, chemicals, electricals, machinery and building
materials such as cement, lime are not comprehended in the expression "in
the manufacture or processing of goods for sale" within the meaning of S.
8 (3 ) (b) read with Rule
13. Against the order dismissing the
petition, the Company has appealed to this Court.
Counsel for the Company has very properly not
sought to raise the contention that the Sales Tax Officer had no jurisdiction
to modify the certificate of registration, merely because the certificate 903 as
originally granted was issued after due enquiry. Under S. 7 (4) of the Act a
certificate of registration granted under s. 7(1) may be cancelled by the
authority granting it, inter alia, for any sufficient reason. If on account of
some error, the certificate specifies articles which did not fall within the
terms of s. 8 (3) (b) read with Rule 13, the error would manifestly be
"sufficient reason" within the meaning of S. 7 (4) a uthorising the
cancellation of the certificate qua the items which were erroneously included.
In the first instance, it must be pointed out
that the HighCourt has, in rejecting the petition, dealt with certain matters
which were never in issue between the Company and the Sales Tax Officer. By the
order of the Sales Tax Officer "machinery", and" colours and
chemicals" were not deleted from the certificate, and the exclusion of
"building materials, cement and lime" was expressly restricted so
that it was not to operate in respect of cement used in manufacture of tiles
for sale. The Sales Tax Officer had rejected the claim of the Company only in
respect of drawing instruments, photographic materials, building materials
including lime and cement (except cement used in manufacture of tiles for
re-sale), electricals, iron, steel and coal, and it was not open to the High
Court to expand the scope of the petition challenging the correctness of the
order of the Sales Tax Officer, and to deal with matters which were never in
issue or to decide that other categories of goods which the Sales Tax Officer
had not ordered to be deleted did not fall within the terms of s. 8 (3) (b)
read with Rule 13.
Section 6 of the Act which is the charging
section imposes liability upon every dealer with effect from the date as may be
specified by the Central Government to pay tax under the Act on all sales
effected by him in the course of interState trade or commerce during any year
on and from the date so notified. Section 7 sets up the machinery for
registration of dealers and s. 8 prescribed the rates of tax onsales in the
course of inter-State trade or commerce.
Sub-section (1) of s. 8, as it stood at the
material time, provided for the rates of tax to be paid on the turnover by a
dealer selling in the course of inter-State trade or commerce to registered
dealer goods of the description mentioned in sub-s. (3). Sub-section (2)
prescribed the rate of tax payable by any dealer in any case not falling within
sub-s. (1) in respect of the sale by him of any goods in the course of
inter-State trade or commerce. Sub-section (3) enacted 904 "The goods
referred to in clause (b) of subsection (1)(a) in the case of declared goods
are goods of the class or classes specified in the certificate of registration
of the registered dealer purchasing the goods as being intended for re-sale by
him;
(b) in the case of goods other than declared
goods are goods of the class or classes specified in the certificate of
registration of registered dealer purchasing the goods as being intended for
re-sale by him or subject to any rules made by the Central Government in this
behalf for use by him in the manufacture or processing of goods for sale or in
mining or in the generation or distribution of electricity or any other form of
power;" Section 13 conferred power upon the Central Government, to make
rules on several matters including enumeration of goods or class of goods used
in the manufacture or processing of goods for sale or in mining or in the
generation or distribution of electricity or any other form of power. In
exercise of this power, Rule 13 was framed by the Central Government, which as
amended read at the material time, as follows :
"The goods referred to in clause (b) of
subsection (3) of section 8 which a registered dealer may purchase, shall be
goods intended for use by him as raw materials, processing materials,
machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or
lubricants, in the manufacture or processing of goods for sale or in mining, or
in the generation or distribution of electricity or any other form of
power." The High Court confirmed the exclusion of drawing and photographic
materials on the ground that those materials are required merely in the
preparation of designs which though necessary for turning out textile goods cannot
be said to be goods intended for use in the manufacture of goods. In the view
of the High Court, designing is a process distinct from the process of
manufacture i.e. of making or fabricating raw materials by hand, art or
machinery, and work into forms convenient for use. But without a design of the
goods sought to be manufactured in a factory which is geared to production of
goods of uniform pattern, it would be impossible to attempt manufacture of
goods on a commercial scale. The production itself has to be of a set pattern,
905 and deviation from the design prepared would be impermeable. That without
the use of drawing and photographic materials, designing of patterns would, if
not impossible, be very difficult, is conceded. But the High Court was
apparently of the view, and that view is supported by counsel for the Sales
Tax' Officer, that goods intended for use in the manufacture of goods or
processing of goods for sale must of necessity be goods which are used as
"ingredient or commodity in the creation of goods", or which are
"directly and actually needed for turning out or making of the
goods".
Section 8 (3) (b) authorises the Sales Tax
Officer to specify, subject to any rules made by the Central Government, goods
intended for use by the dealer in the manufacture or processing of goods for
sale or in mining, or in the generation or distribution of electricity or any
other form of power. By Rule 13 the Central Government has prescribed the goods
referred to in s. 8 (3) (b): such goods must be intended for use in the
manufacture or processing of goods for sale or in mining or generation or
distribution of power, and the intended use of the goods must be as specified
in Rule 13. It is true that under Rule 13, read with s. 8 (3) (b) mere
intention to use the goods in the manufacture or processing of goods for sale,
will not be a sufficient ground for specification: the intention must be to use
the goods as raw materials as processing materials, as machinery, as plant, as
equipment, as tools, as stores, as spare parts, as accessories, as fuel or as
lubricants. A bare survey of the diverse uses to which the goods may be
intended to be put in the manufacture or processing of goods, clearly shows
that the restricted interpretation placed by the High Court is not warranted.
The expression "in the manufacture of goods" would normally encompass
the entire process carried on by the dealer of converting raw materials into
finished goods. Where any particular process is so integrally connected with
the ultimate production of goods that but for that process, manufacture or
processing of goods would be commercially inexpedient, goods required in that
process would, in our judgment, fall within the expression "in the
manufacture of goods". For instance, in the case of a cotton textile
manufacturing concern, raw cotton undergoes various processes before cloth is
finally turned out. Cotton is cleaned, carded, spun into yam, then cloth is
woven, put on rolls, dyed, calendered and pressed.
All these processes would be regarded as integrated
processes and included "in the manufacture" of cloth. It would be
difficult to regard goods used only in the process of weaving cloth and not
goods used in the anterior 906 processes as goods used in the manufacture of
cloth. To read the expression "in the manufacture" of cloth in that
restricted sense, would raise many anomalies. Raw cotton and machinery for
weaving cotton and even vehicles for transporting raw and finished goods would
qualify under Rule 13, but not spinning machinery, without which the business
cannot be carried on. In our judgment, Rule 13 does not justify the importation
of restrictions which are not clearly expressed nor imperatively intended.
Goods used as equipment, as tools, as stores, as spare parts, or as accessories
in the manufacture or processing of goods, in mining, and in the generation and
distribution of power need not, to qualify for special treatment under S. 8(1),
be ingredients or commodities used in the processes, nor must they be directly
and actually needed for "turning out or the creation of goods." In
our judgment if a process or activity is so integrally related to the ultimate
manufacture of goods so that without that process or activity manufacture may,
even if theoretically possible, be commercially inexpedient, goods intended for
use in the process or activity as specified in Rule 13 will qualify for special
treatment. This is not to say that every category of goods "in' connection
with" manufacture of or "in relation to" manufacture, or which
facilitates the conduct of the business of manufacture will be included within
Rule 13. Attention in this connection may be invited to a judgment of this
Court in which it was held that vehicles used by a Company (which mined ore and
turned out copper in carrying on activities as a miner and as a manufacturer)
fell within Rule 13, even if the vehicles were used merely for removing ore
from the mine to the factory, and finished goods from the factory to the place
of storage. Spare parts and accessories required for the effective operation of
those vehicles were also held to fall within. Rule 13. See Indian Copper
Corporation Ltd v. Commissioner of Commercial Taxes, Bihar and Ors(1).
The High Court has rightly pointed out that
unless designs are prepared it would be "impossible for the workmen"
to turn out goods for sale. If the process of designing. is so intimately
connected with the process of manufacture of cloth, we see no reason to regard
the process of designing as not being a part of the process of manufacture
within the meaning of Rule 13 read with s. 8 (3) (b). The process of designing
may be distinct from the actual process of turning out finished goods. But
there is no warrant for limiting the meaning of the expression "in the
manu(1) C.A.No. 1021 of 1963 decided on Oct. 19,1964.
907 facture of goods" to the process of
production of goods only. The expression "in the manufacture" takes
in within its compass, all processes which are directly related to the actual
production. Goods intended as equipment for use in the manufacture of goods for
sale are expressly made admissible for specification. Drawing and photographic
materials falling within the description of goods intended for use as
"equipment" in the process of designing which is directly related to the
actual production of goods and without which commercial production would be
inexpedient must be regarded as goods intended for use "in the manufacture
of goods".
Building materials including lime and cement
not required in the manufacture of tiles for sale cannot, however, be regarded
within the meaning of Rule 13, as raw materials in the manufacture or
processing of goods or even as "plant".
It is true that buildings must be constructed
for housing the factory in which machinery is installed. Whether a building is
a "plant" within the meaning of Rule 13, is a difficult question on
which no opinion need be expressed.
But to qualify for specification under s. 8
(3) (b) goods must be intended for use of the nature mentioned in Rule 13, in
the manufacture of goods. Building materials used as raw materials for
construction of "plant" cannot be said to be used as plant in the
manufacture of goods. The Legislature has contemplated that the goods to
qualify under s. 8 (3) (b) must be intended for use as raw materials or as
plant, or as equipment in the manufacture or processing of goods, and it cannot
be said that building materials fall within this description. The High Court
was, therefore, right in rejecting the claim of the Company in that behalf.
The expression "electricals" is
somewhat vague. But in a factory manufacturing cotton and other textiles,
certain electrical equipment in the present stage of development would be
commercially necessary. For instance, without electric lighting it would be
very difficult to carry on the business. Again electrical humidifiers, exhaust
fans and similar electrical equipment would in the modern conditions of
technological development normally be regarded as equipment necessary to
effectually carry on the manufacturing process. We are not prepared to agree
with the High Court that in order that "electrical equipment" should
fall within the terms of Rule 13, it must be an ingredient of the finished
goods to be prepared, or "it must be a commodity which is used in the creation
of goods". If, having regard to normal conditions prevalent in the
industry, production of the finished goods would be difficult without the use
of electrical equipment, the equipment 908 would be regarded as intended for
use in the manufacture of goods for sale and such a test, in our judgment, is
satisfied by the expression "electricals". 'Ibis would of course not
include electrical equipment not directly connected with the process of
manufacture. Office equipment such as fans, coolers, air-conditioning units,
would not be admissible to special rates under s. 8(1).
We therefore set aside the order passed by
the High Court and direct that the order passed by the Sales Tax Officer be
modified by deleting from paragraph-4 of the order the words "drawing
materials, photographic materials and electricals".
The rest of the order of the Sales Tax
Officer will stand.
The Company has substantially succeeded. The
appeal must therefore be allowed with costs.
Appeal allowed.
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