TMI Blog2003 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion raised by the petitioner prevailed with the assessing authority and assessment orders were made. In this assessment, no tax was levied on surgical cotton. 3.. The respondent-department conducted a survey in the premises of the petitioner-firm on May 25, 1999. According to the officers of the department that not levying tax on surgical cotton was not correct. It was concluded that end-product produced, i.e., surgical cotton which is sold by the petitioner, was taxable. A show cause notice was issued to the petitioner proposing to reopen assessment. It was also proposed that penalty and interest under sections 65 and 58 of the Rajasthan Sales Tax Act, 1994 are also attracted. 4.. A detailed reply was filed by the petitioner to the show cause notice as issued by the respondent-department. The petitioner therein contended that there was no evasion and merely on the basis of change of opinion, reassessment proceedings cannot be initiated. It was submitted that surgical cotton is nothing but a form of cotton only. As such surgical cotton is not liable to be taxed, as the tax has already been paid on the original commodity. The levy of interest and penalty was also objected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier where rolls are prepared and then cotton is got into pieces with the desired level, width and size. The rolled out calibrated pieces of cotton are then put in carding machine where thin layers are framed and such layers are packed in bundle for marketing. The rolled and compressed cotton is sent for trading. 8.. Learned counsel submits that none of the processes which are undertaken to make surgical cotton as aforesaid involve manufacturing process. The end-product remains cotton as such and therefore tax sought to be levied by taxation authorities is not attracted to this product. Learned counsel submits that, time tested formula for understanding the manufacturing process, had been that, endproduct after undergoing a process should come out to be in a shape, which is entirely different from the original with which the process was initiated. According to the learned counsel, end-product and the initial product, apart from being treated as aforesaid, is cotton and as such no manufacturing process is involved into it. The end-product is not liable to be taxed in terms of the Act. 9.. Learned counsel places reliance on a decision of the honourable Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumed, the consumption should be in the process of manufacture, and the result must be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end-result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different. Even if gitti, kankar, stone-ballast, etc., may all be looked upon as separate in commercial character from stone boulders offered for sale in the market, yet it cannot be presumed that entry 40 of the notification is intended to describe the same as not stone at all. In fact the term 'stone' is wide enough to include the various forms such as gitti, kankar, stone-ballast. In that view of the matter, we think that the view taken by the majority of the Tribunal and affirmed by the High Court stands to reason. We are, therefore, not inclined to interfere with the same." 14.. Relying on the aforesaid observations of the honourable Supreme Court, it has been submitted by the learned counsel that essentially, stone boulders and the gitties which are transferred after a mechanical process remain stones and no new material comes into existence. In that case, the honourable Supreme Court has been of the view that when no new product comes into being and essential character of the stone remains the same, the only effect is on the size, and therefore, boulders having already been taxed, tax on gitties (small pieces) have not been found to be leviable. 15.. Learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various processes referred to in the definition and applied to the goods as are of such a character as to have an impact on the nature of the goods. For the purposes of the definition there should be some alteration in the nature or character of the goods. Rule 3(xviii) of the Bombay Sales Tax Rules, 1959 supports the well-recognised interpretation of the expression 'manufacture'. In effect, this clause is merely clarificatory in nature." 16.. Learned counsel for the petitioner further urges that in entry No. 16 all kinds of cotton is taxable even if it has been subjected to some processing. Entry No. 16 reads thus: "Entry No. 16-Cotton, that is to say, all kinds of cotton (indigenous or imported), whether ginned or unginned, baled, pressed or otherwise including cotton waste." 17.. Learned counsel has developed his argument by saying that in entry No. 16 all kinds of cotton has been described. If raw cotton is taxable under entry No. 16 and also the processed cotton, then this is a comprehensive inclusion of all kinds of cotton for the purposes of taxing and it cannot be said that surgical cotton will have to be taxed separately. 18.. Learned counsel for the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pads and filters, etc. The surgical cotton is made sterile and fit for surgical use and it is not put to the same use to which the unmanufactured cotton is put and vice versa. Therefore, when unmanufactured cotton undergoes a manufacturing process, a new product saleable into the market which is having a distinct identity, comes into existence which is known in the commercial market by a different name and is capable of being sold in new capacity. Moreover, the cotton in its unmanufactured state loses its identity and it is marketed as a new commodity which is commercially known as surgical cotton. This surgical cotton is having higher utility than the commodity which is put to the process, i.e., the cotton in its unmanufactured state. 22.. Learned counsel for the Revenue has submitted that all the processes which have been enumerated hereinabove, in converting ordinary cotton into surgical cotton convert the cotton into such a product which is exclusively and extensively used in the medical field for the purpose of treating the patient and the commodity thus is not the same commodity which was raw material. It is a commodity which is used with a completely distinct identity in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is covered under the Drugs Act and it can only be manufactured as per the specification. From the above enumerated process, it is evident that unmanufactured cotton undergoes certain process of manufacture which converts it into surgical cotton which is used in hospitals, dispensaries, etc., for medical purposes. Surgical cotton is also called absorbent cotton or cotton wool as it absorbs fluids immediately. The main chemical properties desired in a surgical dressing are inertness and lack of irritation in use, which is provided by the surgical cotton if manufactured as per the standards specified. Raw cotton is purified by a series of processes and rendered hydrophilic in character and free from other external organic impurities for use in surgical dressings. Surgical cotton is, thus, completely different from ordinary cotton. After undergoing the manufacturing process, the unmanufactured cotton is converted and transferred into a new and different article having a distinct character or use. Surgical cotton is mainly used for medical purposes in hospitals and dispensaries. It is also extensively used for making sanitary pads or napkins and filters. Unmanufactured cott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 'manufacture' has been defined as including a process or manner of producing, collecting, extracting, preparing or making any goods. There can be no doubt whatsoever that 'collecting' goods does not result in the production of a new article. There is, therefore, inherent evidence in the definition itself that the narrow meaning of the word 'manufacture' was not intended to be applied in the said Act. Again, the definition speaks of 'the process of lopping the branches (of trees), cutting the trunks'. The lopping of branches and the cutting of trunks of trees also, self evidently, does not produce a new article. The clear words of the definition, therefore, must be given due weight and cannot be overlooked merely because in other contexts the word 'manufacture' has been judicially held to refer to the process of manufacture of new articles. 10.. The appellants treat iron and steel scrap of considerable bulk by cutting it down by mechanical processes into pieces that may be conveniently utilised in rolling mills and foundries. Such treatment, making saleable goods, would, in our opinion, fall within the wide definition of 'manufacture' under section 2(j) of the said Act." 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cotton wool I.P.', which goes through some manufacturing processes, cannot fall under entry 2 of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, because for that entry to apply, the cotton must be in unmanufactured state. The use of the expression 'I.P.' in the very name as well as the requirement of its being sterilised before use as mentioned in the label show that the product will fall within the classification of 'surgical dressings' in entry 95 of the First Schedule to the Act." 30.. He also placed reliance on the decision of the Supreme Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Coco Fibres [1991] 80 STC 249, wherein it has been observed thus: "The question, therefore, is whether any manufacturing process is involved in converting the husk into the fibre, and whether the fibre is different from the husk as a commercial commodity. The word 'manufacture' has not been defined under the Act, and therefore, we have to look into the meaning known in commercial parlance. In Black's Law Dictionary, Fifth Edition, the word 'manufacture' has been defined as, 'the process or operation of making goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are liable to be dismissed. 32. Learned counsel has tried to distinguish the case of Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 by placing reliance on the following observations of the honourable Supreme Court: "There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used. Similarly we consider that hydrogenated oil still continues to be 'groundnut oil' notwithstanding the processing which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for those who desire to consume groundnut oil. In our opinion, the assessee-company was entitled to the benefit of the deduction of the purchase price of the kernel or groundnut, under rule 18(2) which went into the manufacture of the hydrogenated groundnut oil from the sale turnover of such oil." 33.. It has been contended by the learned counsel for the respondents that in case of hydrogenated oil and vegetable oil, there is a reciprocity of use which is absent in surgical cotton and ordinary cotton and therefore this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when cotton is treated with acid and alkaloid, waste is consumed. When cotton is cleaned, some part of the cotton is further consumed. If total weight is calculated, as introduced in the process, that may not be the same. With the production of end-product, a sizable amount of raw cotton is consumed weight-wise. That being the position, the end-product is amenable to that test where it is said that whether original product is consumed in the manufacture of end-product. Thus, the cases relied upon by the learned counsel for the petitioner wherein it is emphasised whether original commodity consumed would not support his case. It cannot be said that original product is not consumed in the process of manufacturing surgical cotton. 38.. Surgical cotton is basically used for medical purposes. For medical purposes, use of ordinary cotton is not permissible in medical ethics. Alopathic method of medicine fixes standards for the quality of surgical cotton. Those standards are so definite and definable that none of them would be available in ordinary cotton. If those parameters cannot be met in the ordinary cotton and surgical cotton is only used in alopathic form of medicine, then it can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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