PETITIONER: M/S. J. K. COTTON SPINNING & WEAVING NULLS CO. LTD. Vs. RESPONDENT: SALES TAX OFFICER, KANPUR AND ANOTHER DATE OF JUDGMENT: 28/10/1964 BENCH: SHAH, J.C. BENCH: 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 tiles- Goods "intended for use in manufacture or processing of goods for sale" -Drawing material, photographic goods, electricals, certain building materials whether such goods- Central 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. JUDGMENT:
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 refrac-
tories. ”
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 juris-
diction 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 High-
Court 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 inter-
State 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
on- sales 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 sub-
section (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 sub-
section (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 acces-
sories 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 manu-
facturing 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.
910