State of Gujarat Vs. M/S. Ananta Mills
Ltd.  INSC 258 (23 November 1965)
23/11/1965 SIKRI, S.M.
CITATION: 1966 AIR 953 1966 SCR (2) 669
Bombay Sales Tax (Exemption, set-off and
Composition) Rules, 1954, rr. 6 and 12--Purchase Tax paid on unginned
cotton--Ginned Cotton used in manufacture--Sale of Cotton seeds--Purchase tax,
The respondent, a manufacturer of cotton
Textiles, purchased unginned cotton and paid purchase tax thereon.
The cotton was ginned and pressed by the
respondent, the ginned cotton was used in the manufacture of cotton textile
while the cotton seeds were sold by it. The respondent claimed refund of
purchase tax paid on the unginned cotton under the Bombay Sales Tax (Exemption,
Set-off and Composition) Rules, 1954 which was disallowed by the Sales Tax
authorities on the ground that r. 6(ii) was not applicable when subsidiary or
incidental product alone was ,,old and the main product was used in the
manufacture of the goods and looking at the working of the aforesaid Rule, all
the products of the unprocessed goods should be sold.
In reference, the High Court allowed the
refund of the purchase tax under r. 12(i).
HELD : The respondent was entitled to refund
What is necessary under rule 12(i) is that
the goods should have been actually used for the purpose specified viz., the
production of any of the goods aforementioned for sale. These conditions have
been satisfied in this case because unpinned cotton was used for the purpose of
producing one of the goods specified in column 2 for sale, namely, cotton
seeds. [672 H]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 807 of 1964.
Appeal by special leave from the judgment and
order dated December 10, 1962 of the Gujarat High Court in Sales- tax Reference
No. 8 of 1961.
R. Ganapathy Iyer and B. R. G. K. Achar, for
I. N. Shroff, for the respondent.
The Judgment of the Court was delivered by
Sikri, J. This appeal by special leave is directed against the judgment of the
Gujarat High Court in a Sales Tax Reference made to it by the Gujarat Sales Tax
Two questions were referred by the said
Tribunal to the High Court "1. Whether in the facts and circumstances of
the case, the purchase of the raw cotton by the applicant Mill 670 could be
said to have been intended for use in the production of cotton seeds for sale
within the meaning of clause (ii) of rule 6 of the Bombay Sales Tax (Exemption,
Set-off and Composition) Rules, 1954;
2. Whether the applicant Mill is entitled
under rule 12(1) to a refund of the purchase tax paid by it." The facts
set out in the statement of the case by the Tribunal are briefly as follows :
The respondent is a manufacturer of cotton textile, particularly of coarse and
medium variety cloth. During the assessment period from April 1, 1955 to March
31, 1956, it purchased unginned cotton worth Rs. 5,93,266/- from unregistered
dealers and paid purchase tax of Rs. 5,932/- under S. 10(a) of the Bombay Sales
Tax Act, 1953. The cotton was ginned and pressed by the respondent, the ginned
cotton was used in the manufacture of cotton textiles while the cotton seeds
were sold by it. During the course of assessment proceedings the respondent
applied for refund of purchase tax paid on the unginned cotton under the Bombay
Sales Tax (Exemption, Set- off and Composition) Rules, 1954, (hereinafter
referred to as the Rules). The Sales Tax Officer refused to allow any refund on
the ground that the conditions of r. 12 ( 1 ) read with r. 6 (ii) of the Rules
had not been fulfilled. The Assistant Collector of Sales Tax on appeal
confirmed the order of the Sales Tax Officer on the ground that "rule
6(ii) is not applicable when subsidiary or incidental product alone is sold and
the main product is used in the manufacture of other goods. Looking the working
of the aforesaid Rule, all the products of the unprocessed goods should be
sold." The respondent filed a revision before the Deputy Commissioner of
Sales Tax, who also upheld the order of the Sales Tax Officer. The respondent
then filed a revision before the Gujarat Sales Tax Tribunal. The Tribunal
rejected the revision on the ground that "the purpose underlying the
applicant's purchases was primarily the production of ginned cotton for
manufacture. The cotton seeds which form the bye-product of the ginning process
would no doubt have to be sold because the Mill has no use for them. But that
does not mean that the purpose for which unginned cotton was purchased was the
sale of cotton seeds.
It is not reasonable to suppose that a
textile mill purchases unginned cotton for the purpose of selling the cotton
seeds." At the instance of the respondent, as already stated, the Tribunal
referred the case to the High Court.
The High Court answered question 671 No. 2 in
the affirmative, but did not answer question No. 1 on the ground that the
answer to the question was not relevant for the purpose of determining the
matter in controversy.
Mr. Ganapathy Iyer, the learned counsel for
the appellant, contends before us that the Sales Tax authorities were right in
refusing to allow a refund to the respondent and that the High Court erred in
answering the second question in favour of the respondent. In order to
appreciate the contentions of the parties, it is necessary to set out ff. 6 and
12 and the Schedule to the Rules.
" 6. Classes of sales on which general
sales tax shall not be payable. The general sales tax leviable under section 9
shall not be payable in respect of the following classes of sales (i) .. .. ...
(ii) Sales of any goods falling under any
entry specified in column 1 of the Schedule hereto to a dealer who holds a
licence under s. 12 who furnishes to the selling dealer a certificate in Form
(4) declaring that the goods sold to him are intended to be used by him in
producing any goods falling under the corresponding entry in column 2 of the
said Schedule for sale SCHEDULE Goods from which the goods specified Goods
produced in Goods produced column 2 are produced 1 2 -------------------------------------------------------------.
1.Cotton in pod; unginned or unpressed cotton
Unginned cotton; ginned or pressed cotton; cotton seeds.
x x x x
12. Refund and remission of purchase tax in
certain cases.- (1) Where a dealer who has purchased any goods specified in
clauses (i) or (ii) of rule 6 shows to the satisfaction of the Collector that
they have been used by him for the purpose specified in the said clause, the
Collector shall on application for refund made by the 672 dealer in the manner
specified in rule 25 of the Bombay Sales Tax (Procedure) Rules, 1954, refund to
such dealer the amount of purchase tax paid by him in respect of such purchase;
or where the amount of purchase tax payable
under clause (a) of section 10 in respect of such purchase has not yet been p
aid, the Collector shall by order remit the amount so payable." Mr.
Ganapathy Iyer contends that when r. 12 speaks of the purpose specified in cl.
(ii) of r. 6, it means the purpose of "producing any goods falling under
the corresponding entry in column 2 of the said Schedule for sale." In
other words, he says that the purpose must be producing unginned cotton, ginned
or pressed cotton or cotton seeds for sale, and if any of these goods are
produced but not sold then r. 12 does not apply.
Mr. Shroff, on the other hand, contends that
the words "purpose specified in the said clause" only mean the
purpose of producing any goods falling under the corresponding entry in column
2 of the Schedule, and he wants us to omit from consideration the words
"for sale". We agree with Mr.
Ganapathy Iyer that the purpose must be the
purpose of producing goods-unginned cotton, ginned or pressed cotton, cotton
seeds-for sale, and the words "for sale" must be given effect to.
But even if this contention of Mr. Ganapathy
Iyer is accepted the respondent would still, in our opinion, be entitled to
refund under r. 12(1). Rule 6 speaks of the intention at the time of the
purchase, but r. 12 does not incorporate that intention by referring to the
purpose specified in cl. 6(ii). The intention at the time of the purchase is
irrelevant for the purpose of r. 12. In r.
6(ii) intention was relevant because the
purchasing dealer had to furnish to the selling dealer a certificate in Form
(4) declaring that the goods sold to him were intended to be used by him for
producing any of the goods falling under the corresponding entry in Column 2 of
the said schedule for sale. But when the respondent paid the purchase tax on
unginned cotton under s. 10(a) of the Act, he paid it because he purchased the
same from persons who were not registered dealers, and there was no question of
furnishing any certificate at that stage. As the High Court observed "what
is necessary is that goods should have been actually used for the purpose
specified viz., the production of any of the goods aforementioned for
sale." These conditions have been satisfied in this case because unginned
cotton was used for the purpose of producing one of the goods specified in
column 2, namely, cotton 673 seeds. Consequently, the respondent is entitled to
a refund under r. 12 and the High Court was right in answering the second
question in the, affirmative. We also agree with the High Court that in view of
its answer to question No. 2 it is not necessary to answer question No. 1.
In the result the appeal fails and is
dismissed with costs here and in the High Court.