- (1.)THESE tax revision cases have been filed against the orders of the Sales Tax Appellate Tribunal (Additional Bench), Madras in T.A. Nos. 740 of 1988, 741 of 1988 and 742 of 1988 dated March 22, 1989. These tax revision cases relate to tax, surcharge and additional surcharge and additional sales tax for the assessment year 1985 -86. The facts leading to the present tax revision cases are as follows :
The respondent claimed exemption on a turnover of Rs. 21,14,641.98 as relating to second sales of cotton sewing thread. The assessing authority on verification found that the dealer purchased only cotton yarn from local registered dealers, converted them into sewing thread and sold them locally as sewing thread. The sale bills showed the commodity sold as cotton sewing thread and not cotton yarn. As the goods purchased locally and sold locally are commercially different goods, the assessing authority proposed to levy 3 per cent single point tax on a turnover of Rs. 21,14,641.98 by disallowing the claim of exemption. In reply to the pre -assessment notice, the dealer contended that locally purchased tax suffered corded yarn from textile mills have been only dipped and dyed before reselling, that no twisting or doubling of the cotton yarn was done, that mere colouring and dyeing will not change the character of the cotton yarn and therefore the proposal to levy tax may be dropped. While overruling the objections of the dealer, the assessing authority observed that the dealer sold sewing thread meant for sewing purposes, that the goods were not sold as cotton yarn meant for weaving purposes, that the sewing thread sold is commercially a different product from cotton yarn as held in [1981] 48 STC 460 (Ker) (K.C. Pappu and Sons v. State of Kerala) that no person intending to purchase cotton yarn would be satisfied with sewing thread instead, that cotton yarn cannot be used in the place of sewing thread or sewing thread in the place of cotton yarn, that the dealer sold the cotton thread under the brand name Balamurugan, i.e., B.K. and therefore the objections are untenable. In the first appeal, the Appellate Assistant Commissioner observed that the respondent purchased cotton yarn from Tuticorin Spinning Mills Ltd., Tuticorin and sold Balamurugan brand (B.K.) sewing thread registered as B.K. brand product under the Trade and Merchandise Marks Act, 1958 in Trade Mark No. 164305 dated May 26, 1954 in respect of threads for sewing. On perusing the samples during hearing the first appellate authority observed that the commodity sold by the dealer is nothing but sewing threads in different shades and in different dimensions and that the commodity is used only for the purpose of sewing and stitching. Further, by Act 7 of 1977 cotton sewing thread was brought to single point levy vide entry 141 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 (herein referred to as "the Act"). Referring to the Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra reported in [1976] 37 STC 319 he observed that "the object of sales tax law is to tax sales of goods of each variety and not the sale of the substance out of which they are made and the mere fact that the substance or raw material out of which it is made has also been taxed in some other form, when it was sold as a separate commercial commodity would make no difference at all for purposes of law of sales tax". The first appellate authority further stated that the respondent purchased the substance which is cotton yarn and converted the same into sewing thread in the factory and sold the same under the registered trade mark name. Thus, the product sold is commercially different from cotton yarn and that in commercial parlance cotton yarn is not accepted as sewing thread and that no one intending to purchase cotton yarn would be satisfied with sewing thread. Accordingly, the order of the assessing authority, by following the ratio of the decision in Pyare Lal Malhotra's case [1976] 37 STC 319 (SC) was upheld. In the second appeal, the Appellate Tribunal found that the respondent bought grey combed signed cotton yarn and dipped and dyed it and then rolled the coloured yarn in small cones or spools and sold the goods as "Balamurugan brand". From this it was held to be not a manufacture of new product, but sale of dyed yarn rolled in small spools. The Appellate Tribunal referred to several decisions and particularly the decision of the Madras High Court in Madura Mills Company Limited v. Government of Madras [1970] 25 STC 407 and held that the commodity sold by the respondent has not lost its original identity and that it falls under entry 3 of the Second Schedule to the Act as cotton yarn only and therefore the sales of the respondent are eligible for exemption as second sales of cotton yarn. Hence, the present revisions preferred by the Revenue.

(2.)MR . R. Mahadevan, the learned Government Advocate, contended that State Legislature has specifically brought cotton sewing thread under the First Schedule to the Act with effect from July 25, 1977 and that the Appellate Tribunal has not followed [1981] 48 STC 453 (Orissa) (Srinivasa Distributing Agencies v. State of Orissa) wherein it has been held that the identity of the material, that is, cotton yarn is lost when the cotton yarn is converted into thread. He urged that the decision in Pyare Lal Malhotra's case [1976] 37 STC 319 (SC) relied on by the Appellate Assistant Commissioner is also relevant. He also referred to the decision of the Bombay High Court in Commissioner of Sales Tax, Maharashtra State, Bombay v. Arvind Trading Company [1995] 98 STC 288 which supports the case of the Revenue.
(3.)MR . V.V. Sivakumar, the learned counsel for the respondent, contended that no manufacturing activity took place in the dyeing and colouring of the cotton yarn as held in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. O. Sadasivan [1978] 42 STC 201 (Ker), that the Central Excise clarification in chapter 52.04 also speaks of cotton yarn including sewing thread and that cotton yarn and sewing thread are held to be same commodity in several decisions, namely, State of Tamil Nadu v. R.V. Krishniah Chetty and Sons [1990] 78 STC 422 (Mad.) and [1994] 92 STC 262 (Mad.) and State of Orissa v. Cuttack Monihary Store [1982] 51 STC 411 (Orissa). The ratio of the decision in Madura Mills Company Limited v. Government of Madras [1970] 25 STC 407 (Mad.) relied on by the Appellate Tribunal is very relevant. In Sree Arunachalaeswara Mills v. State of Tamil Nadu [1991] 81 STC 137 (Mad.), a separate entry for blended yarn introduced by the State Legislature was held to be beyond the powers and further held to be subject to the entry in the Second Schedule to the Act pertaining to "cotton yarn". Thus, in the present case also, notwithstanding a separate item 141 in the First Schedule to the Act, the entry "cotton yarn" would cover "cotton sewing thread" also, inasmuch as both are of the same commodity only. Thus, the order of the Appellate Tribunal is in order.
We have considered the rival contentions and perused the records. At the outset we shall consider the various decisions referred to by the learned counsel for the respondent for the proposition that cotton yarn and cotton sewing thread are one and the same commodity. In Madura Mills Company Limited v. Government of Madras reported in [1970] 25 STC 407 (Mad.), the issue considered was whether "cord" dealt in by the assessee is cotton yarn in the accepted commercial sense. It was found that the "cord" though manufactured on looms was admittedly not a textile fabric or cloth. Though twisted, the material did not give the impression that it is some unknown commodity, not being cotton yarn. The thin thread running vertically into the sheet was found to be for the purpose of holding the rest of the thread. In such circumstances, it was held that the identity of the goods yarn was not lost and accordingly held that "cord" is cotton yarn. In [1978] 42 STC 201 (Ker) in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. 0. Sadasivan, exemption in respect of dyed yarn in the context of the entry "cotton yarn other than hand spun yarn, but not including cotton yarn waste" was considered. It was held that despite the process of dyeing and colouring, "cotton yarn" still remained cotton yarn, that is the commodity mentioned in the entry, and does not undergo any process of transformation so as to make sales tax exigible separately on the said commodity after the process of dyeing and colouring. In State of Orissa v. Voona Suru Patra and Sons [1982] 51 STC 410 the Orissa High Court held that "sewing thread is taxable at the same rate as prescribed for the cotton yarn". The decisions in [19901 78 STC 422 (Mad.) and [1994] 92 STC 262 (Mad.) refer to an identical case, namely "State of Tamil Nadu v. R. V. Krishniah Chetty and Sons". Apart from Madura Mills Company Limited v. Government of Madras [1970] 25 STC 407 (Mad.), the decision in M. Muthusavari Pillai and Sons v. State of Tamil Nadu [1977] 39 STC 359 (Mad.) wherein it was held that a bunch of spun thread could also come within the definition of "cotton yarn" if it can be used for the manufacture of any textile was also referred to. Similarly the decision in State of Tamil Nadu v. M. Vaithilingam [1980] 46 STC 297 (Mad.) wherein it was held that "cotton thread" would continue to be cotton yarn was also quoted. After reviewing various decisions the Madras High Court held as follows : "Thus, having regard to the ratio of the decisions referred to above of our High Court, which are very much binding on us, we have no difficulty in coming to the conclusion that sewing thread does not lose its character as cotton yarn and continues to retain its identity and character as cotton yarn notwithstanding the fact that they are sold for being used as sewing thread. In our view sewing thread is no different from cotton yarn and they are one and the same commodity and consequently we agree with the conclusions of the Tribunal, reject the contention of the State and order that the tax revision also be dismissed."