- (1.) THIS is a revision petition under sec. 14 (2) of the Rajasthan Sales Tax Act against the order of the learned Deputy Commissioner (Appeals) Commercial Taxes Rajasthan, Jaipur dated 1-9-71. The facts of the case in brief are that the applicant was assessed by the learned Commercial Taxes Officer Ward III Circle D Jaipur under sec. 12 of the Rajasthan Sales Tax Act for the year 1966-67 in respect of the escaped assessment. The assessment was originally made on 25-1-67 in respect of the sale of thread and tax was charged at 2% only. On receipt of an order from the Deputy Commissioner (Administration) Jaipur the applicant was re-assessed and tax was charged at 6%. The applicant feeling aggrieved filed an appeal before the learned Deputy Commissioner who accepted the appeal and remanded the case to the learned assessing authority with the direction that the sale of thread for flying kites be bifurcated from the sale of thread for sewing etc. The assessee feeling aggrieved has filed the present revision petition before this Court.
(2.) IT has been contended on behalf of the assessee that the orders of the learned lower authorities are wrong in law. IT has been further contended that in view of the provisions of secs. 14 and 15 of the Central Sales Tax Act tax exceeding 2% could not be charged as cotton yarn is a declared commodity under entry under sec. 14 (ii) (b ). IT is further contended that the tax under the Rajasthan Sales Tax Act is on the commodity and not on the use to which the commodity is put. IT was therefore contended that the learned Deputy Commissioner (Appeals) erred in law in holding that the thread used for flying kites is liable to be taxed at 6% while the thread used for showing or stitching cloths in liable to be taxed at 2% only. IT was further contended on behalf of the assessee that merely by twisting the thread a different commodity is not made out. In twisting the cotton yarn no manufacturing process is involved and therefore irrespective of the counts of the thread the cotton yarn should be taxed only at 2% and not at 6%. IT was also urged that whenever there is a doubt regarding the rate of tax chargeable on a particular commodity tax should be charged at a rate which is beneficial to the assessee. On behalf of the department it was contended that thread and yarn are two different things and as such the learned Deputy Commissioner was right in holding that the thread used for flying kites may be charged at 6%. It was further urged that the thread used for flying kites becomes a different commodity by use. It was also urged that the twisting of the yarn into greater counts changes the commodity and that the twisting of the yarn involves the process of manufacture. Reliance was placed on behalf of the department on the case State of Madras vs. Bell Mark Tobacco Co. (1967 Vol. 19 STC page 129) and on the case of State of Madras vs. Abdul Rehman (1967 STC Vol. 19 page 184 ). The respective contentions of the learned counsel for the parties have been considered and the record of the case perused. The entry under sec. 14 (ii) (b) of the Central Sales Tax Act is as under: - "cotton yarn rot including cotton yarn waste". The word "yarn" has been defined in the Webster's Seventh New Collegiate Dictionary as under: - Yarn - a continuous often plied strand composed of fibers or filaments and used in weaving and knitting to form cloth - A similar strand of metal, glass, asbestos, paper or plastic - Thread - rope yarn. In the case of State vs. M/s. Govindram Kaluram (1971 Tax Reporter 86) it was held that Moli is a thread and is liable to sales tax at the rate of 2% and not merely because the thread is coloured, its nature will not be changed. In the case of Commissioner Sales Tax U. P. vs. Ballabh Das (1970 STC vol. 25 page 372) it was held that so long as yarn is hand-spun it would continue to enjoy the exemption granted by the notification even after it undergoes the process of twisting. The emphasis in the notification is on the process of spinning, and the process of twisting has nothing to do with the process of spinning. Treatment of hand spun yarn by way of colouring and twisting will not destroy its essential nature of being hand-spun yarn. Therefore, hand spun yarn which underwent a process of twisting would still be exempt as hand-spun yarn under the notification dated 31st March, 1956. The essential thing to be kept in mind in such cases is to see if as a result of any process, including a process of manufacturing, the article concerned becomes commercially a different commodity. In the case of Madura Mills Company Ltd. vs. the Government of Madras (1970 STC Vol. 25 page 407) it was held that cord means twisted thread thicker than string and thinner than rope. String, cord and rope are different species of the same genus, namely yarn, which as such means spun thread. Yarn may form one of the threads of a string, cord or rope but cotton yarn is distinct by itself. Though 'cotton tyre cord warp sheet' manufactured by the assessee is a bunch of spun thread spread to a particular shape for a definite commercial purpose, it does not cease to be cotton yarn and is therefore of the 'declared goods'. In the case of B. Dar Laboratories vs. State of Gujrat 1968 STC (vol. 22) page 160 it was held that the article sold by the assessee completely retained its essential character as snuff and had only certain flavouring agents, preservative and water added to it to change its physical condition in order to make it more acceptable to the customers who used it for application to the gums. The article was tobacco and was therefore exempt from sales tax by virtue of entry 49 in Schedule to the Bombay Sales Tax Act. When a process is adopted for convenience of sale or making the article more acceptable to the customers, if the article in question retains its essential character, it has to be taxed as such article only and the processing will make no difference. The physical state or even the composition may change but so long as the essential character of the article continues to remain the same, it has to be taxed as that commodity alone. In the case of State of Raj. vs. Sohanlal Jethmal (1972 RRD 297) the Division Bench of this Court held that potatoes were covered by the term vegetables. Boiling of potatos, removing their jackets, slicing and drying them for sale as alu-ki-papri, did not alter the basic character of product. In the case of Deputy Commissioner of Agricultural Income Tax and Sales Tax vs. Travancore Rubber and Tea Co. (1967 STC Vol. 20 page 520), the Supreme Court held that the only facts that were established were that the assessee converted the latex tapped from its rubber trees into sheets and effected a sale of those sheets to its customers and that the conversion of latex into sheets was a process essential for the transport and marketing of the produce. In the case of Commissioner of Sales Tax, U. P. vs. Harbilas Rai and Sons (1968 STC vol 21 page 17) it was held by the Supreme Court that the word "manufacture" has various shades of meaning, and in the context of sales tax legislation, if the goods to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of manufacture. The assessees, dealers in pig bristles, bought bristles plucked by Kanjars from pigs, boiled them, washed them with soap and other chemicals, sorted them out according to their sizes and colours, tied them in separate bundles of different sizes and despatched them to foreign countries for sale. Held that the sales made in foreign countries were not taxable as the bristles were not manufactured goods. On behalf of the department reliance was placed on 1967 STC (vol. 19) page 129 (State of Madras vs. Bell Mark Tobacco Co.) in which the Supreme Court held that the various processes to which the raw tobacco was subjected amounted to a manufacturing process, and therefore the chewing tobacco sold by the respondent was not the same commodity as raw tobacco but was manufactured product from raw tobacco purchased by the respondents. In this case their Lordship of the Supreme Court have observed that the respondents purchased raw tobacco and after sprinkling jaggery or plain water on the bundles of tobacco, allowed the tobacco to ferment for some days. Heat was thereby generated and the tobacco was well processed. Stalks of tobacco were broken and removed, and sand and dust were also removed. After paying excise duty the bundles of tobacco were brought to the premises of the factory. Jaggery juice was sprinkled on the tobacco and it was then cut in to thin strips by shearing machines. This tobacco was allowed to dry for some days and flavouring essences were then sprinkled on it. It was then packed in special wrappers and these packets were known as "chewing tobacco" packets In the case of the State of Madras vs. Abdul Rehman (1967 STC vol. 19 page 134) the Supreme Court held that a dealer in tobacco and tobacco products is not entitled to deduction of the excise duty daid on raw tobacco in the computation of the taxable turnover of the sale of chewing tobacco. From the examination of the various case laws referred to above it is evident that the sales tax is charged on the commodity and not on the use to which it is put. The cotton yarn when twisted into various counts does not change its essential character of being a cotton yarn. Under such circumstances the thread made out of cotton yarn by process of twisting would still remain to be cotton yarn irrespective of the counts to which it is twisted. For the reasons stated above the revision petition deserves to be allowed. The revision petition is accordingly allowed and the orders of the learned Dy. Commissioner are hereby set aside. The tax shall be charged @ 2% as is permissible under sec, 14 read with sec. 15 of the CST Act.;