Rajasthan High Court - Jaipur
Durga Cotton Industries vs State Of Rajasthan And Ors. on 10 December, 1993
Equivalent citations: 1994(1)WLC696, 1993WLN(UC)599
Author: A.K. Mathur
Bench: A.K. Mathur
JUDGMENT A.K. Mathur, J.
1. The petitioner by this writ petition has prayed that the notices Annexures 2, 3, 4, 5, 7, 8, 9 and 10 may be quashed and the respondents No. 2 and 3 may be directed to consider the rate of tax payable by the petitioner on absorbent cotton wool I.P. as 4% under item-No. 16 of the notification dated 27.6.1990. It is also prayed that the judgment given in the case of Vishwas Surgical Industries, Sri Ganganagar Asstt. Commercial Taxes Officer (1992) 10 STA 40 may be quashed.
2. The petitioner is a partnership firm registered under the provisions of the Indian Partnership Act. The petitioner is carrying on the business of purchase and sale of cotton at Nokha in District Bikaner. The petitioner is a registered dealer under the Rajasthan Sales Tax Act and the petitioner's sales tax number is 1812/29. One of the commodities which the petitioner sells is absorbent cotton wool I.P. Initially this item was governed by Item No. 11 of the notification dated 8.3.1988, which reads as under:
11. Cotton that is to say, all kinds of cotton (indigenous or Imported) in Its manufactured or un-manufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste.
3. The petitioner was collecting tax from the purchasers according to the rates fixed for this item by the State Government under the provisions of the Rajasthan Sales Tax Act and the rules framed thereunder. The notification dated 8.3.1988 was superseded by the notification dated 23.3.1989 and thereafter this notification dated 23.3.1989 was further superseded and amended vide notification dated 27.6.1990 which provided the rates of tax for cotton in Item No. 16, which reads as under:
16. Cotton, that is to say all kinds of cotton (indigenous or imported), whether ginned or unginned, baled, pressed or otherwise including cotton waste.
4. After the issuance of the notification dated 27.6.1990 the petitioner approached the Commissioner, Commercial Taxes Rajasthan, Jaipur under Section 12-A of the Rajasthan Sales Tax Act, 1954 (referred to hereinafter as the Act of 1954') for determining the rate of tax payable by the petitioner after the amendment in the language of Item No. 16. The petitioner and two other parties moved applications under Section 12-A of the Act of 1954 before the Commissioner. All the three applications came to be decided by the Additional Commissioner, Commercial Taxes, Rajasthan, Jaipur on 25.9.1991 by a common judgment and it was determined that tax payable on the said absorbent cotton wool I.P. was at the rate of 4%. He also held that the commodity will be covered under Item No. 16 of the notification dated 27.6.1990. After this order of the Additional Commissioner dated 25.9.1991 the petitioner was collecting the tax on the sales effected of this commodity accordingly. Despite the decision given by the Additional Commissioner dated 25.9.1991, the Commercial Taxes Officer (Anti-Evasion) issued notices dated 7.8.1992 to the petitioner relating to the assessment years 1991-92, 1992-93 under the Rajasthan Sales Tax Act as well as under the Central Sales Tax Act, the copies whereof have been placed on the record as Annexs. 2, 3, 4 and 5. Thereafter some more notices were received from the Department dated 25.11.1992 for the assessment years 1991-92 and 1992-93. They have been produced on the record as Annexs. 7 and 8. Thereafter the premises of the petitioner was surveyed on 16.1.1993 and notices were issued under Sections 10, 7AA, 11B and 16(1)(N) of the Rajasthan Sales Tax Act in relation to the period 1989-90 and a notice dated 18.1.1993 in relation to the period 1.4.1992 to 31.12.1992, the copies thereof have been placed on the record as Annexs. 9 and 10.
5. It is alleged that a judgment was rendered by the Rajasthan Sales Tax Tribunal, Ajmer in the case of Vishwas Surgical Industries, Sri Ganganagar v. Assistant Commercial Taxes Officer was in relation to surgical cotton i.e. absorbent cotton or cotton wool. Copy of the judgment has been placed on the record as Annex. 11. All these notices have been issued on account of this judgment and a demand has been created for tax at the general rate of 10% on this item on account of the aforesaid judgment given by the Tribunal. Therefore, the petitioner has approached this Court by filling the present writ petition and submitted that no useful purpose would be served by submitting to the jurisdiction' of the authorities in pursuance of the notice because the authorities are bound by the decision given by the Tribunal and they are not bound by the decision given by the Additional Collector, Commercial Taxes under Section 12A of the Act of 1954 and as such there is no option left with the petitioner but to approach this Court for determination of the question whether this item is covered by the general rate of tax i.e. 10% or at the rate of 6% or at the rate of 4% as it is covered by item No. 16.
6. A reply has also been filed by the respondent Commercial Taxes Department and it has been stated that the petitioner may appear before the authorities in pursuance of the notices and raise all these objections and let the authorities may decide the matter. Secondly, it is submitted that in view of the decision given by the Tribunal the petitioner is likely to be taxed at general rate. Therefore, in this back ground the controversy has to be resolved.
7. So far as the first preliminary objection raised by the respondents that the petitioner should first approach the authorities in pursuance of the notices issued by the respondents is concerned, in this respect suffice it to say that this exercise will be a futile exercise because the authorities has already issued the notices in view of the decision of the Rajasthan Sales Tax Tribunal. Therefore the fate of the petitioner stands sealed and it will not be proper now to direct the petitioner to appear before the authorities in pursuance of the notices and therefore, suffer an order and go through the agony of the hierarchy of the courts for reaching this Court again. In this view of the matter I overrule this objection raised by the respondents.
8. Now, the question is whether the present item i.e. absorbent cotton wool LP. is covered by item No. 16 of the notification dated 27.6.1990 or not. If it is covered by item No. 16 of this notification then automatically the petitioner will be governed at the rate of 4% so far as the tax liability of the petitioner is concerned. Item No. 16 as reproduced above says that cotton of all kinds whether indigenous or imported and whether ginned or unginned, baled, pressed or otherwise including cotton waste is covered by this item. Therefore, the cotton in all shades has been covered by item No. 16. As against this the previous entry was that there was an additional factor in the item No. 11 of the notification dated 8.3.1988 that all kinds of cotton (Indigenous or imported in its manufactured or unmanufactured state was covered by this entry. The another factor was that in the previous entry it did not include cotton waste. But in this entry the cotton waste has also been included. Therefore, a simple reading of this entry means that cotton in all kinds namely, indigenous or imported whether ginned or unginned, baled, pressed or otherwise including cotton waste has been covered by this entry and tax payable is at the rate of 4%. Now, the question is whether the absorbent cotton wool. I.P. is covered by this entry or not. In this connection, the Additional Commissioner, Commercial Taxes has taken the view when the matter was referred to him under Section 12-A which empowers the Additional Commissioner for determination of the disputed questions if referred and in exercise of this power and after hearing the petitioner as well as the departmental representative determined this question and held that this item will be covered by entry No. 16 of the notification dated 27.6.1990 and shall be taxable at the rate of 4%. He has made a reference to the process and specification of this item as specified in Indian Pharma Copia and British Pharma Copia. Indian Pharma Copia prescribes the process as under:
Standards: Absorbent cotton wool consists of the trichomes or good quality new Bombers of trained from the seedcoat of various species of the genus Gossypium, tinned, cleaned, purified and bleached. It does not contain any colouring matter.
British pharma copia prescribes the standards under:
Absorbent cotton wool is prepared from cotton, which consists of the epidermal trichomes of the seeds Gossypium Herbacum L. & other cultivated species of Gossypium (Family Malvaceas). The seeds are removed mechanically loosened and separated to from a fleecy mass of soft while filaments which consists almost entirely of cellulose. Absorbent Cotton Wool absorbs water readily, but its absorbency may be considerably reduced by medication its absorbency may also be reduced by prolonged storage or by exposure to heat. It may be attacked by moulds when stored under conditions where the in the cotton wool exceeds.
9. So, this absorbent cotton wool I.P. is noting but a cotton which is purified and which is made more absorbent of water. Certain procedure has been given as quoted above as to how it is prepared. It is only a very purified kind of cotton from which all kinds of seeds or epidermal trichomes of seeds of Gossypium Harbacum are removed and it is made more readily absorbed of water. In the commercial parlance k is known as surgical wool. In this connection, he has also made a reference to various decisions, viz M/s. United India Surgical Works reported in STI Allahabad High Court 228 where a similar item came up for consideration and it was held that it is taxable at the rate of 4%. He has also made reference to the two decisions i.e. Commissioner of Sales Tax, Maharashtra State, Bombay v. Fairdeal Corporation Ltd. (1962) XIII S.T.C. 750, and Sri Ram Products v. The State of Tamil Nadu (19S3) 52 S.T.C. 187. He has also referred to the argument of the Departmental Representative that when the cotton undergoes process of manufacture and a new product comes into being which different from cotton as the" very name indicate Absorbent Cotton Wool and that is not covered by this entry. Therefore, it will be taxed at the general rate i.e. 10%.
10. After referring to all these decisions and considering over the matter he has come to the conclusion that this is covered by entry No. 16. As against this, the Rajasthan Sales Tax Tribunal, Ajmer while deciding the case of Vishwas Surgical Industries (Supra) has taken a different view and after referring to various decisions on the subject including the two decision namely, Fairdeal Corporation Ltd. and Sri Ram Products (Supra) held that absorbent cotton wool which is commonly known as surgical cotton in commercial market is a pharmaceutical preparation and it will be taxed at the rate of 6% instead of 10%.
11. The question before the Tribunal was whether this cotton is to be taxed at the rate of 4% or at the rate of 6% treating it to be surgical cotton as a pharmaceutical preparation or at the genera rate of 10%. It was held that it will be taxed at the rate of 6% being a pharmaceutical preparation.
12. However, it may be stated here that the Government has resolved this controversy now by issuing a notification dated 12.4.1993 and they have added the word "absorbent cotton wool I.P. in entry No. 16 after the existing word "cotton waste." Therefore, the whole controversy is now academic but so far as the petitioner is concerned, it is relevant for the purpose of tax liability for previous years.
13. In fact, it was not brought to the notice of the Additional Commissioner that whether this commodity can be covered under entry 56 i.e. pharmaceuticals of the notification dated 27.6.1990 which reads as under:
56. Medicines, drugs and all kinds of pharmaceutical preparations excluding items mentioned at item No. 72.
14. Both the parties had concentrated on entry No. 16 only as the arguments were confined in that context. But the question before the Tribunal was that surgical cotton which is known in the commercial market as such is nothing but the absorbent cotton wool I.P. is to be taxed at the general rate of tax i.e. 10% or at the rate of 6% treating it to be a pharmaceutical preparation. Therefore, there is a shade of difference between both the decisions. But both the cases have been cited before me and I have to consider that whether this item is to be taxed at the rate of 4% according to entry No. 16 or is to be taxed at the rate of 6% according to entry 56 or it is to be taxed as per the residuary entry i.e. 105 general rate for goods which are not covered at the rate of 10%.
15. The absorbent cotton wool I.P. is a technical name of this cotton which is sold in the market and commonly known as surgical cotton i.e. a pharmaceutical product. The commercial name for this product is surgical cotton and the procedure which has been undertaken for the preparation of this cotton as mentioned above shows that this cotton is prepared from the cotton after certain process i.e. it is thoroughly cleaned freed from fatty matter by treatment with caustic soda and then bleached, washed and mechanically loosened and separated to form a fleecy mass of soft white filament which consists entirely of cellulose. It is true that this process does not involve any manufacturing operations but it does involve a chemical treatment of this raw cotton so as to acquire pharmaceutical quality and this is normally known as surgical cotton. Apart from this the expression 'manufactured' or 'unmanufactured' which existed in the earlier notification dated 8.3.1988 were subsequently amended and the expression 'manufactured' or unmanufactured' state was taken out and the entry remained as plain and simple cotton with all its kinds indigenous or imported, whether ginned or unginned, baled, pressed or otherwise including cotton waste. That shows that the expression 'manufactured or unmanufactured' was clearly taken out so as to render it to be a plain and simple cotton and not a cotton which is manufactured or undergoes a manufacturing process. The 'manufacturing process' has been defined in Section 2(k) of the Act of 1954 which reads as under:
2(k) "Manufacture' includes any process or manner of producing, collecting, extracting, preparing or making any goods but does not include such manufactures or manufacturing processes as may be notified by the State Government'
16. Therefore, the expression 'manufacture' means and includes processing of the particular item according to the standards laid down. In the Standard Books on Pharmacology and the standards quoted above it shows that the cotton in order to acquire a shape of absorbent cotton wool I.P. i.e. commercially known as surgical cotton has to go a certain process and after cleaning and chemically processed it becomes surgical cotton i.e. a pharmaceutical product. These pharmacological books prescribe the manufacturing process of this surgical cotton and once it goes to a certain process it becomes a manufactured item and it acquires a particular new shape which is known in the commercial market as surgical cotton, Therefore, I think the view taken by the Tribunal appears to be correct as against the view taken by the Additional Commissioner, Commercial Taxes. In this connection, the Tribunal has made a reference to 1986 RTC 350; 1968 (21) STC 171; 1970 (25) STC 53; 1983 (53) STC 203. Against this reference has also been made to Sri Ram Products and Fairdeal Corporation Ltd. (supra). Both these cases were also considered by the Tribunal, which were also considered by the Additional Commissioner.
17. The case of Sri Ram Products (supra) was a case of surgical cotton and it was observed as under:
Absorbent cotton wool I.P.", which goes through some manufacturing processes, cannot fall under entry 2 of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, because for that entry to apply, the cotton must be in manufactured state. The use of the expression "I.P." in the very name as well as the requirement of its being sterilized before use as mentioned in the label show that the product will fall within the classification of "surgical dressings" in entry 95 of the First Schedule to the Act.
18. In this case the question was whether the surgical wool is covered by entry 95 or entry 2 of the Schedule. Entry 95 of the First Schedule reads as under:
95. Drugs, patent or proprietary medicines as defined in Section 3 of the Drugs and Cosmetics Act, 1940 (Central Act XXIII of 1940), or medicinal mixtures or compounds, the components of which have not already suffered tax, but excluding Arishtams or Asavas and including surgical dressing.
Item 2 of the Second Schedule reads as under:
2. Cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state whether ginned or unginned, baled, pressed or otherwise, but excluding cotton waste.
19. It was held by the Madras High Court that the very fact that the product which is described as absorbent cotton wool I.P. and it has been packed in 100 grams for being used as surgical dressing and the label also mentions that it has to be sterilised before use. Therefore, it was held that it is covered by entry 95 as being used for surgical dressing. Therefore, the Tribunal is right in relying on this judgment to hold that this product falls within entry 56 pharmaceutical product.
20. Likewise, in the case of Fairdeal Corporation Ltd. (supra) also the same question arose that whether this item fell under entry raw cotton whether ginned or unginned or in general category not covered by item raw cotton. In this context, it was held as under:
Absorbent cotton wool prepared by cleaning, boiling, bleaching, drying and carding the ginned cotton, and sold as surgical cotton is not "raw cotton (whether ginned or unginned)" within the meaning of item I of Schedule B to the Bombay Sales Tax Act, 1953, as amended by Act 10 of 1954, and it is therefore liable to tax under the residuary entry covered by item 80 of Schedule S.
21. Therefore both these cases go to show that the present item 'absorbent cotton wool I.P.' which is commercially known as surgical cotton is prepared after certain process and it will fall in entry 56 us pharmaceutical product and it wilt not be covered by entry 16 i.e. cotton of all kinds (indigenous or imported), whether ginned or unginned.
22. In this back-ground 1 think the view taken by the Tribunal is correct and the absorbent cotton woo! I.P. or surgical cotton is covered by entry 56 of the notification dated 27.6.1990 and not by entry 16. The petitioner's liability of tax shall be assessed at the rate of 6% under entry 56 of the notification dated 27.6.1990.
23. In the result, the writ petition is allowed in part.