Usha Cotton Ginning and Pressing Factory Bhucho vs The State of Punjab and another

B.R. Tuli, J.—The Petitioner is a Company incorporate under the Companies Act, with its registered office at New Delhi. It runs a Yarn manufacturing mills at Badarpur, a place now falling in the State of Haryana. It has a purchasing agency at Bhatinda where ginned cotton is purchased. It also takes on lease cotton ginning and pressing factories where unginned cotton purchased by, it is ginned and the ginned cotton is sent to Delhi office for being utilised in the Company''s mill at Badarpur. The cotton seeds obtained from the unginned cotton by the process of manufacture are sold locally in the State of Punjab.

The present case relates to the assessment year 1965-66. In that year, the Company was running a cotton ginning and pressing factory at Bhucho, in the district of Bhatinda. According to the assessment order passed by the Assessing Authority, Bhatinda, on December 30, 1968, the gross turnover of the Petitioner-Company came to Rs. 95,35,867-32. Sales to the registered dealers were to the tune of Rs. 20,38, 649-53. Out of the amount of sales to registered dealers, the learned Assessing Authority deducted Rs. 80,000.00 on account of expenses and profit on an estimate basis and gave a deduction to the extent of Rs. 19,58,649-53. The balance of the turnover thus worked to Rs. 75,77,217-79. Cotton worth this amount was stated to have been transferred to the head office which fact was accepted by the Assessing Authority but the Assessing Authority has proceeded to assess this amount to a tax at the rate of two per cent u/s 5(2) (a) (ii) of the Punjab General Sales tax Act, 1948 (hereinafter called the Act), on the ground that all the purchases of cotton were made on the basis of. the registration certificate of the Petitioner-Company but the cotton so purchase was not used for the purpose for which it was purchased. The Assessing Authority also levied sales tax on goods used in the process of ginning cotton on the ground that ginning of cotton was not a manufacturing process. The present petition has beed filed challenging the said order of the Assessing Authority and the argument advanced by the learned Counsel for the Petitioner is that the proviso to Section 5(2) (a) (ii) of the Act has no application to the facts of the present case His argument is that cotton is declared goods and is entered in Schedule ''C'' to the Act, on which only purchase tax can be levied and no sales tax can be levied. Section 4(2-A) of the Act provides chat no sales tax shall be levied on the goods on which puachase tax is leviable. It is thus apparent that on transactions with regard to cotton no sales tax can be levied and only purchase tax can be levied. According to the proviso, if a registered dealer uses the goods purchased on the strength of his registration certificate for purposes other than those for which they were sold to him. he is liable to pay tax on his purchase value of those goods at the rate at which sales tax on those goods is payable. Since no sales tax is payable on the sale of cotton, no tax could be levied under the said proviso on. the purchases made by the Petitioner-Company on the strength of its registration Certificate.

The second argument of the learned Counsel for the Petitioner is that according to Section 5(3) of the Act, cotton being declared goods, the tax on the purchase thereof is payable by the last dealer purchasing it. It has, therefore, to be found by the Assessing Authority whether a particular dealer is the last dealer liable to pay tax under the Act. This finding has not been given by the Assessing Authority in the instant case. The argument of the learned Counsel is that the Petitioner-company, not being a dealer within the definition of the term as given in Section 2(d) of the Act, it could not be held to be the last dealer liable to pay tax on the purchase of cotton. The definition of the term "dealer" makes it quite clear that only that dealer is liable to pay tax who sells or purchases goods in the normal course of his trade for the purpose of consumption in the State of Punjab. The Assessing Authority in the present case, accepted that Cotton other than the quantity sold to the registered dealers was transferred by the Petitioner-Company to its head office at Delhi and was not consumed in the State of Punjab. With regard to the quantity sold to the registered dealers, the Petitioner-Company was not required to include the sale proceeds thereof in its turnover, according to Section 5(3) of the Act, as interpreted by their Lordships of the Supreme Court in Rattan Lal and Co, and Anr. v. The Assessing Authority (1970) 25 S.T.C. 136. at page 144.

4 The learned Assessing Authority determined the Petitioner-Company as a dealer merely on the ground that it held a registration certificate and was thus a registered dealer. This fact is not enough to conclude that every registered dealer is a "dealer" as defined in the Act. A person doing business may be a dealer qua certain transactions and may not be a dealer qua other transactions but he has to be rgistered as a dealer in case his turnover exceeds the limits provided in Section 8 of the Act Without being registered, he cannot carry on business but all his transactions cannot be considered as a dealer under the Act. It has, therefore, to be found out with regard to each transaction whether the Assessee is a dealer or not. He will be liable to pay tax only if he is a dealer as defined in Section 2(d) of the Act. This matter has been made clear by their Lordships of the Supreme Court in Deputy Commissioner of Agricultural income tax and Sales Tax Quilon v. Midland Rubber, and Produce Co. Ltd., (1970) 25 S.T.C. 57. wherein their Lordships observed:-

In the present case also the only facts found are that the Assessee was a public limited company which was engaged in the business of planting and graving rubber trees and converting the later obtained from the trees into rubber sheets and regularly selling the rubber sheets thus produced by it. It was argued for the Appellant that the Company was registered as a ''dealer'' as defined u/s 2(b) of the Act. But this fact in itself is not decisive on the question as to "whether the turnover of inter-State sales of rubber is taxable under the Act.

The Assessing Authority does not seem to have paid any attention to this aspect of the case. If the Petitioner-Company had purchased cotton for the purpose of sending it out of the state, it could not be held to be a dealer of cotton and no tax could be levied in respect of that turnover under the Act. There is thus an error of law apparent on the face of the order of assessment by reason of which the said order is liable to be quashed.

For the reasons given above, this petition is accepted with costs and the order of assessment dated December 30, 1968, a copy of which is annexure ''B'' to the writ petition, is hereby quashed. Counsel''s fee Rs. 100/-