TMI Blog1976 (1) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... tention. The appellate authority, however, held that cotton sewing thread on cops and cones partook the nature of "cotton yarn on cops and cones" and was not liable to tax. The revising authority, however, set aside the order of the appellate authority and upheld the order of the Sales Tax Officer. Thereupon an application was made for a reference to this court and ultimately by its order dated 15th December, 1972, the abovementioned question has been referred to this court. Identical questions arise in all the three references and they are being dealt with together. In the notification issued by the State Government ST-911/X dated 31st March, 1956, "cotton yarn on cops and cones" was made exempt from sales tax. It is contended that "cotton sewing thread on cops and cones" came within the meaning of the words "cotton yarn on cops and cones" and is, therefore, not liable to any sales tax. In the years to which the assessment relates there was no separate entry either levying tax or exempting from tax the item "cotton sewing thread on cops and cones". In a notification issued on 1st October, 1961 [ST-927/X-902(ii) 1958], it was stated that the turnover in respect of cotton sewing thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two items have distinct and separate user although the cotton sewing thread basically emanates from cotton yarn after going through a process. The principal question, therefore, to be decided in this reference is what are the tests to be applied to find out whether the "cotton sewing thread on cops and cones " is a part and parcel of the commodity known as "cotton yarn on cops and cones". It will now be appropriate to examine the various decisions cited at the Bar. In the case of State of Madhya Bharat v. Hiralal[1966] 17 S.T.C. 313 (S.C.); A.I.R. 1966 S.C. 1546., the Supreme Court held that scrap iron after converting it into flats, bars and plates did not lose its character as iron and steel and, since the latter was exempt under the notification, the sale of the former was also exempt from sales tax. The reason given by their Lordships are in the following words: "........iron and steel used as raw material for manufacturing other goods are exempted from taxation. So long as iron and steel continue to be raw materials, they enjoy the exemption. Scrap iron purchased by the respondent was merely re-rolled into bars, flats and plates. They were processed for convenienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Division Bench of this Court was considering whether twisted yarn could be allowed absolute exemption on the ground that it was hand-spun yarn. This court held that the emphasis in the notification was on the process of spinning and the process of twisting had nothing to do with the process of spinning. It was held that the treatment of hand-spun yarn by way of colouring and twisting will not destroy its essential nature of being hand-spun yarn. The court held that hand-spun yarn which underwent a process of twisting would still be exempt as hand-spun yarn. The court held that no material had been placed before the court to show that the twisted yarn was commercially a different commodity or that the twisted yarn did not serve the purposes which untwisted yarn did. The court was of the view that the intention behind the notification appeared to exempt from sales tax the turnover of hand-spun yarn as opposed to mill-spun yarn. The basic principle on which reliance was placed in the above decision was stated in the following words: "The principle that emerges from the perusal of various authorities cited above is that in answering a question like the one before us, the essential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Sales Tax, U.P. v. Tata Iron Steel Co. Ltd.[1976] 38 S.T.C. 10; 1975 U.P.T.C. 104. In that case, this court was considering whether plain and corrugated iron sheets were not iron and steel. It observed that galvanisation and corrugation process does not change the essential character of iron and steel and sheets made of iron remained iron and steel. It relied on the decision of State of Andhra Pradesh v. Sri Durga Hardware Stores[1973] 32 S.T.C. 322. The court held that galvanisation was nothing but coating the iron sheet with zinc by an electrical process or some other process to prevent it from oxidation. It was held that galvanisation improved the utility of the raw material of iron. It further held that corrugation was merely wrinkling of the sheets in one direction for the purpose of making the sheets more suitable for roofing and walling and the corrugation and galvanisation improved the utility of the raw material. This case, in our opinion, does not assist the petitioner. In the above case, the basic material, viz., iron and steel, was changed into a different shape, viz., into sheets, plain or corrugated, for better utilisation but they did not cease to be iro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to which the cotton yarn was put. This decision, in our opinion, is in pari materia with the question involved in the present case. Three tests have been indicated in this decision. Firstly, the material has undergone a drastic change, secondly, it had acquired the character of a new commodity and, thirdly, that the new commodity cannot be put to the same use as the original commodity. If all these tests are applied in the present case too the same result would follow. In the case of Ganesh Trading Co. v. State of Haryana[1973] 32 9.T.C. 623 (S.C.); A.I.R. 1974 S.C. 1362., the court was considering whether paddy and rice could be considered as identical goods for the purpose of imposition of sales tax. It was argued before their Lordships that the dictionary meaning of the word "paddy" showed that rice was nothing but dehusked paddy. It will be relevant to quote the view expressed by their Lordships on the point: "This court has firmly ruled that in finding out the true meaning of the entries mentioned in a Sales Tax Act, what is relevant is not the dictionary meaning, but how those entries are understood in common parlance, specially in commercial circles. Sales tax primarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced, there has been a change in the identity of the goods." A consideration of all these decisions leads us to conclude that two principles have to be borne in mind while deciding the question whether cotton sewing thread was cotton yarn. Firstly, whether the things are not two different things in ordinary parlance. Secondly, whether the identity of the goods is retained even in its changed form or shape. It has also to be borne in mind that the exemption clause has to be construed strictly. Applying these principles it would be seen that cotton yarn and cotton sewing thread are two distinct and well-known commodities. They are separate things in ordinary parlance. It cannot be said that they are the same thing. Even their user is distinct and separate. Thus in the commercial world when one asks for cotton yarn one would not be given cotton sewing thread or vice versa. It is, therefore, evident that cotton yarn and cotton sewing thread are two distinct and separate items in ordinary parlance. On the question whether cotton sewing thread retained its characteristic of its being cotton yarn the question has to be answered in the negative. The cotton sewing thread, although it ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
