Rajasthan High Court - Jaipur
Mamta Surgical Cotton Industries And ... vs Assistant Commissioner Of Sales Tax on 23 January, 2003
Equivalent citations: (2003)181CTR(RAJ)234, RLW2003(4)RAJ2208, [2004]136STC317(RAJ)
Author: Bhagwati Prasad
Bench: Bhagwati Prasad
JUDGMENT Bhagwati Prasad, J.
1. All these revision petitions involve similar question of law and facts and, therefore, they are being decided by a common order.
2. For factual matrix, S.B. Civil Sales Tax Revision Petition No. 931/2002 (M/s Mamta Surginal Cotton Industries v. Asstt. Commr. (Anti-Evasion, Bhilwara & Ors.) is taken up. The petitioner is a partnership firm duly registered under the Rajasthan Sales-tax Act, 1994, Central Sales-tax Act, 1956, and rules framed thereunder. The petitioner is carrying on the business of processing the cotton and making it amenable for surgical cotton. The petitioner during the relevant period had purchased cotton after paying tax at the rate of 4 per cent and carried out the process for transforming the ordinary cotton into surgical cotton. The case of the petitioner is that in such a process, cotton does not get changed into such a new commodity which can be said to be one making it to be taxed over again. This contention raised by the petitioner prevailed with the assessing authority and assessment order were made. In this assessment, no tax was levied on surgical cotton.
The respondent-Department conducted a survey in the premises of the petitioner-firm on 25th May, 1999. According to the officers of the Department that not levying tax on surgical cotton was not correct. It was concluded that end product produced i.e., surgical cotton which is sold by the petitioner, was taxable. A show-cause notice was issued to the petitioner proposing to reopen assessment. It was also proposed that penalty and interest under Sections 65 and 58 pf Rajasthan Sales-tax Act are also attracted.
A detailed reply was filed by the petitioner to the show-cause notice as issued by the respondent-Department. The petitioner therein contended that there was no evasion and merely on the basis of change of opinion, reassessment proceeding cannot be initiated. It was submitted that surgical cotton is nothing but a form of cotton only. As such surgical cotton is not liable to be taxed, as the tax has already been paid on the original commodity. The levy of interest and penalty was also objected by the assessee.
The submissions in the reply as filed by the petitioner were not properly considered by the assessing authority and tax was levied with penalty to the tune of double the amount of tax and interest thereon. Being aggrieved by the aforesaid order passed by the assessing authority, the petitioner preferred an appeal before the Dy. Commr. (A), Commercial Taxes, Ajmer, who accepted the appeal. The Dy. Commr. (A) has clearly found that process adopted by the petitioner does not bring into existence any new commodity. According to the appellate authority, surgical cotton is nothing but yet another form of cotton. The Department preferred an appeal before the Rajasthan Tax Board against the order of Dy. Commr. (A). The Rajasthan Tax Board came to the conclusion that appellate authority has erred in reversing the order of the assessing authority. The Tax Board has found that surgical cotton is amenable to be taxed as an independent identity. Feeling aggrieved by the order of Rajasthan Tax Board, the present revision petition has been filed.
3. Learned counsel for the petitioner urged inter alia that may it be that the cotton in question is surgical cotton but it is same as cotton. No manufacturing process is involved in converting cotton into surgical cotton. Surgical cotton do not attain a stage which is different than cotton. That being the position, production of the commodity known as surgical cotton is not taxable under the Rajasthan Sales-tax Act, 1994 (for short 'the Act'), because tax has already been paid on the agricultural produced cotton after ginning.
4. Learned counsel for the petitioner submits that cotton after ginning is put into boiler and its roughage is separated from cotton. Such clean cotton is thereafter treated with caustic soda and acid. After the aforesaid treatment with caustic soda and acid, the cotton is cut in small pieces. These pieces are transferred to a tank where bleaching process takes place. Such bleached cotton is then transferred into tanks for washing. That takes four steps. Each step involves treatment of cotton for half an hour. The treated cotton as aforesaid is then transferred to a process known as hydro process where it is dried and then cotton is put in the blower for cleaning the same. Such blowed out cotton is transferred to kier where rolls are prepared and then cotton is got into pieces with the desired level, width and size. The rolled out calibrated pieces of cotton are then put in carding machine where thin layers are framed and such layers are packed in bundle for marketing. The rolled and compressed cotton is sent for trading.
5. Learned counsel submits that none of the processes which are undertaken to make surgical cotton as aforesaid involve manufacturing process. The end product remains cotton as such and, therefore, tax sought to be levied by taxation authorities is not attracted to this product. Learned counsel submits that, time-tested formula for understanding the manufacturing process, had been that, end product after undergoing a process should come out to be in a shape, which is entirely different from the original with which the process was initiated. According to the learned counsel, end product and the initial product, apart from being treated as aforesaid, is cotton and as such no manufacturing process is involved into it. The end product is not liable to be taxed in terms of the Act.
6. Learned counsel places reliance on a decision of Hon'ble Supreme Court in the case of Sterling Foods v. State of Karnataka and Anr. (1986) 63 STC 239 (SC) wherein following observations have been made :
"The test which has to be applied for the purpose of determining whether a commodity subjected to processing retains its original character and identity is as to whether the processed commodity is regarded in the trade by those deal is a distinct in identity from the original commodity or it is regarded, commercially and in the trade, the same as the original commodity. It is necessary to point out that it is not every processing that brings about change in the character and identity of a commodity. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences change. But it is only when the change of a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct commodity that it can be said that a new commodity, distinct from the original, has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity : vide Dy. CST v. Pio Food Packers (1980) 46 STC 63 (SC) : (1980) 3 SCR 1271"
Placing reliance on the aforesaid observations of the Hon'ble Supreme Court, learned counsel for the petitioner canvasses that end product i.e., surgical product is not a distinct commodity than the original commodity. It retains its original characteristics very much and, therefore, it cannot be said that end product is a commodity distinct than the original commodity and, therefore, it cannot be said that any manufacturing process is involved in turning ordinary cotton as surgical cotton.
7. Learned counsel has further placed reliance on the Supreme Court decision in the case of Dy, CST (Law), Board of Revenue (Taxes) v. Pio Food Packers (1980) 46 STC 63 (SC) wherein it has been observed as under :
"Section 5A(1)(a) of the Kerala General Sales-tax Act envisages the consumption of a commodity in the manufacture of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture, and the result must be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity".
8. Placing reliance on the aforesaid observations of the Hon'ble Supreme Court, learned counsel submits that essential ingredient of manufacturing process is consumption of original commodity and transformation into a different commodity wherein they clearly distinguish the original article with the end product and understanding it to be a different commodity then the raw product. Learned counsel submits that no process of consumption had taken place in the process involved in turning the ordinary cotton into surgical cotton. Since cotton has not been consumed, it has retained its identity, therefore, by no stretch of imagination, it can be presumed that there was a consumption of original cotton in making a surgical cotton. Learned counsel further submits that process involved only improves quality of product and that at best enhances condition of product. May be that product which is sold is a better product than the original product. The process involved in that case was conversion of raw pineapple into slices. The fact remains that raw pineapple is edible item so also slices packed into tins.
9. Learned counsel further places reliance on the Supreme Court decision in the case of CST v. Lal Kunwa Stone Crusher (P) Ltd. AIR 2000 SC 1161 wherein it has been held thus :
"The view taken by the Tribunal as affirmed by the High Court is that the goods continue to be stone and they are not commercially different goods to be identified differently for the purposes of sales-tax. The decision relied on by minority view in the Tribunal in Reliable Rocks Builders and Suppliers v. State of Karnataka (1982) 49 STC 110 turned on the concept of consumption of goods for the purpose of bringing into existence new goods. In that case the Court was not concerned with an entry of the nature with which we are concerned in the present case. Where the dealer had brought into existence new commercial goods by consuming the boulders to bring out small pieces of stone, it was held that such activity attracted purchase tax. In the present case, however, stone, as such, and gitti and articles of stones are all of similar nature though by size they may be different. Even if Gitti, Kankar, stone-ballast, etc., may all be looked upon as separate in commercial character from stone boulders offered for sale in the market, yet it cannot be presumed that entry 40 of the notification is intended to describe the same as not stone at all. In fact the term 'stone' is wide enough to include the various forms such as Gitti, Kankar, stone-ballast. In that view of the matter, we think that the view taken by the majority of the Tribunal and affirmed by the High Court stands to reason. We are, therefore, not inclined to interfere with the same."
Relying on the aforesaid observations of the Hon'ble Supreme Court, it has been submitted by the learned counsel that essentially, stone boulders and the Gitties which are transferred after a mechanical process remain stones and no new material comes into existence. In that case, the Hon'ble Supreme Court has been of the view that when no new product comes into being and essential character of the stone remains the same, the only effect is on the size, and therefore, boulders having already been taxed, tax on Gitties (small pieces) have not been found to be leviable.
10. Learned counsel for the petitioner has also placed reliance on a decision of Bombay High Court in the case of CST v. Ruby Surgical and Allied Products (P) Ltd. 106 STC 26 (Bom) wherein it has been observed thus :
"The expression 'all kinds of cotton' is wide enough to include cotton in all its forms. It cannot be construed to mean 'cotton of all varieties' because that would be so even without the addition of the words 'all kinds of cotton'. The only exclusion is manufactured cotton. As a result, all forms of cotton will fall under this entry. The question that arises for consideration is what is 'manufactured cotton' or, in other words, when cotton can be said to be in its unmanufactured state. It is well settled by a catena of decisions of the Supreme Court and this Court that every process undertaken by a dealer on the goods to make them fit for the market or for improving their marketability does not amount to a process of manufacture. 'Manufacture' implies a change but every change is not 'manufacture'. Something more is necessary. There must be a transformation as a result of the process undertaken on the product and a new and different article, having a distinctive name of character, must emerge. The true test for determining whether manufacture has taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity. Where the commodity retains substantial identity through the process stage, it cannot be said that it has been manufactured. It remains despite such process in its unmanufactured state."................
"By defining the expression 'manufacture' to mean certain activities which may not amount to manufacture, the meaning of the expression 'manufacture' cannot be widened. The expression 'manufacture' in Section 2(17) of the Bombay Sales-tax Act, 1959, must be interpreted in a practical and workable manner and the mere fact that the words used in the definition of 'manufacture' are very wide cannot lead one to so widely interpret them as to render the provision practically meaningless and so as to treat the goods sold as different merely because some slight additions of changes are made in the goods. The provision should not be so interpreted to mean only such of the various processes referred to in the definition and applied to the goods as are of such a character as to have an impact on the nature of the goods. For the purpose of the definition there should be some alternation in the nature of character of the goods. Rule 3(xviii), of the Bombay Sales-tax Rules, 1959, supports the well recognised interpretation of the expression 'manufacture'. In effect, this clause is merely clarificatory in nature."
11. Learned counsel for the petitioner further urges that in Entry No. 16 all kinds of cotton is taxable even if it has been subjected to some processing. Entry No. 16 reads thus :
"Entry No. 26--Cotton, that is to say all kinds of cotton (indigenous or imported) whether ginned or unginned, baled, pressed or otherwise including cotton waste."
Learned counsel has developed his argument by saying that in Entry No. 16 all kinds of cotton has been described, If raw cotton is taxable under Entry No. 16 and also the processed cotton, then this is a comprehensive inclusion of all kind of cotton for the purposes of taxing and it cannot be said that surgical cotton will have to be taxed separately.
12. Learned counsel for the petitioner has also placed reliance on the decision of Hon'ble Supreme Court in the case of Tungabhadia Industries Ltd. v. CTO (1960) 11 STC 827 (SC) and submitted that hydrogenated oil which is a derivative of vegetable oil has not been held to be taxed separately.
13. Alternatively, it has been submitted by the learned counsel that even if it is assumed that end product i.e., surgical cotton is taxable, then instance of taxing had already taken place on the originally purchased raw cotton. Weightage has to be given to it and set off has to be provided under the provisions of relevant law.
14. Per contra, learned counsel for the respondent, Mr. Bhandari has submitted that manufacturing process which is involved in making the absorbent cotton commonly known as surgical cotton is a long one and according to that process, the raw cotton is first of all cleansed in the blower and thereafter certain chemicals are added to it, i.e., castic soda and acids, etc., and, thereafter, it is boiled, bleached and dried and is cut into pieces by machine which is called carding. It is submitted that the raw cotton itself is a commercial commodity which is being taxed at the rate of 4 per cent and after processing and manufacturing the raw cotton, the absorbent cotton is a distinct commercially marketable commodity, sold in the market, in the form of surgical cotton. In such circumstances, the assessing authority was justified in subjecting it to tax and imposing penalty upon the assessee under Section 16 of the Rajasthan Sales-tax Act.
15. It has also been submitted by the learned counsel for the respondent that for treating any process as manufacture, it is required that a new and distinct marketable commodity arises after undergoing certain process and, therefore, when cotton undergoes the aforesaid process of manufacturing which is also clear from Annexure 1 i.e., the assessment order and it is converted into surgical cotton, it is liable to be taxed. It has further been submitted that process is involved in the transformation from cotton in its unmanufactured state to make surgical cotton a new and different article having a distinct character and use. The surgical cotton is mainly used for medical purposes in hospital, dispensaries, etc. It is further urged that surgical cotton is extensively used for making napkins, sanitary pads and filters, etc. The surgical cotton is made sterile and fit for surgical use and it is not put to the same use to which the unmanufactured cotton is put and vice versa. Therefore, when unmanufactured cotton undergoes a manufacturing process, a new product saleable into the market which is having a distinct identity, comes into existence which is known in the commercial market by a different name and is -capable of being sold in new capacity. Moreover, the cotton in its unmanufactured state loses its identity and it is marketed as a new commodity which is commercially known as surgical cotton. This surgical cotton is having higher utility than the commodity which is put to the process i.e., the cotton in its unmanufacture state.
16. Learned counsel for the Revenue has submitted that all the process which has been enumerated hereinabove in converting ordinary cotton into surgical cotton converts the cotton into such a product which is exclusively and extensively used in the medical field for the purpose of treating the patient and the commodity thus is not the same commodity which was raw material. It is a commodity which is used with a completely distinct identity in itself. As what is used for medical purpose is a perfectly sterilized disinfected purified cotton. If raw cotton is used for surgical purposes, it would be counter-productive. It would result in catastrophe in medical field. Both the cottons are not used in common field. The use of both cottons is different and distinct. The surgical cotton is exclusively consumed into medical field and ordinary cotton has so many uses. Uses of both the cotton do not coincide. To support his argument, he placed reliance on the decision of Punjab & Haryana High Court (Division Bench) in the matter of State of Haryana v. National Scientific Industries (1996) 103 STC 455 (P&H) wherein the Division Bench has held as under :
"After opening the raw cotton in bale form, the same is loosened and dust and other particles are removed. The cotton is then sent to a kier where it is steam boiled for about 3-4 hours after adding chemicals such as caustic soda, soda ash, detergent, etc. This treatment removes much of the natural waxes and oils and softens and disintegrates any foreign matter that may remain after the cleaning operation. After the cotton is boiled, it is removed from the kier and taken to the tanks for washing. The washed cotton though absorbent is not of good colour. It is, therefore, bleached with chemicals such as hydrogen peroxide or sodium hypochlorite. The bleaching not only whitens the cotton but also improves its wetting properties and assists in disintegration of any remaining foreign materials. The bleached cotton is thoroughly washed again to remove the chemicals. A small amount of diluted sulphuric acid is also added to neutralise alkali excess. The cotton is then passed through hydroextractor to remove matter. It is then sent to a wet cotton opening machine. The cotton so opened is then passed through dryer. After the cotton is dried, it is again sent to the blow room where it is thoroughly opened and made into laps. The laps are then fed into the carding machine where cotton comes into thin layers. Paper is inserted under the laps and the cotton is rolled and simultaneously compressed. The rolls are then weighed and cut according to the retired sizes. The cut rolls are then further packed in a polythene roll after labelling and putting the weight mark and then sent for final packing. The item after undergoing these processes is known as surgical cotton and is covered under the Drugs Act and it can only be manufactured as per the specification.
From the above enumerated process, it is evident that unmanufactured cotton undergoes certain process of manufacture which converts it into surgical cotton which is used in hospitals, dispensaries, etc., for medical purposes. Surgical cotton is also called absorbent cotton or cotton wool as it absorbs fluids immediately. The main chemical properties desired in a surgical dressing are inertness and lack of irritation in use, which is provided by the surgical cotton if manufactured as per the standards specified. Raw cotton is purified by a series of processes and rendered hydrophilic in character and free from other external organic impurities for use in surgical dressings. Surgical cotton is, thus, completely different from ordinary cotton.
After undergoing the manufacturing process, the unmanufactured cotton is converted and transferred into a new and different article having a distinct character or use. Surgical cotton is mainly used for medical purposes in hospitals and dispensaries. It is also extensively used for making sanitary pads or napkins and filters. Unmanufactured cotton is made aseptic, surgically sterile and fit for surgical use. Surgical cotton is not put to the same use to which the unmanufactured cotton is put and vice versa, unmanufactured cotton cannot be put to use in hospitals and dispensaries for use in surgery or to some such similar use, being unhygienic.
There is no force in the contention of the counsel for the assessee that the surgical cotton is cotton which has undergone the process only of cleaning and packing and it can be called cotton after having been cleaned and packed and can be used as cotton for all purposes for which the cotton is used.
In a number of decided cases, it has been held that "manufacturing" implies the making of a different article having a distinctive name, character or use, commercially different from the basic component, by physical labour or mechanical process."
17. Learned counsel has further submitted that product known as surgical cotton is not ordinary cotton because where surgical cotton is required to be used, ordinary cotton cannot be used. Since ordinary cotton cannot be used for the purpose for which surgical cotton is used, it can be said that ordinary cotton has consumed itself and a distinct identity has come into being known as surgical cotton which is exclusively used for medical purpose. It never happens that ordinary cotton is used in place of surgical cotton in medical field. As such, manufacturing process is involved in the production of surgical cotton in terms of the definition of manufacturing. The process as given in Section 2(27) of the Act reads as under :
"(27) 'manufacture' includes every processing of goods which bring into existence a commercially different and distinct commodity but shall not include such processing as may be notified by the State Government."
18. Learned counsel has placed reliance on the decision of Hon'ble Supreme Court in the case of Ashirwad Ispat Udyog and Ors. v. State Level Committee and Ors. 112 STC 207 (SC) which it has been observed thus :
"9. Decisions construing the meaning of the word 'manufacture' as used in other statutes do not apply unless the definition of that word in the particular statute under consideration is similar to that construed in the decisions. The plain construction of the special definition of the word in a particular Act must prevail. In the special definition given in Section 2(j) of the said Act 'manufacture' has been defined as including a process or manner of producing, collecting, extracting, preparing or making any goods. There can be no doubt whatsoever that 'collecting' goods does not result in the production of a new article. There is, therefore, inherent evidence in the definition itself that the narrow meaning of the word 'manufacture' was not intended to be applied in the said Act. Again, the definition speaks of 'the process of lopping the branches (of trees), cutting the trunks, 'The lopping of branches and the cutting of trunks of trees also, self-evidently, does not produce a new article. The clear words of the definition, therefore, must be given due weight and cannot be overlooked merely because in other contexts the word 'manufacture' has been judicially held to refer to the process of manufacture of new articles.
10. The appellants treat iron and steel scrap of considerable bulk by cutting it down by mechanical processes into pieces that may be conveniently utilised in rolling mills and foundries. Such treatment, making saleable goods, would, in our opinion, fall within the wide definition of 'manufacture' under Section 2(j) of the said Act."
Relying on the aforesaid observations of the Hon'ble Supreme Court, learned counsel for State urges that for making cotton saleable in medical circles, cotton has been processed as narrated hereinabove in the earlier part of the judgment and such commodity having been made saleable in the medical circles, had acquired a different identity and, therefore, the process involved in converting ordinary cotton into surgical cotton falls within the wide definition of "manufacture" as contained in Section 228 of the Act.
19. Learned counsel has also placed reliance on the decision of the Supreme Court in the case of Rajasthan Roller Flow Mills Association v. State of Rajasthan AIR 1994 SC 64 wherein it has been observed thus :
"22. Applying the reasoning adopted hereinabove, it must be held that when wheat is consumed for producing flour or maida or suji, the commodities so obtained are different commodities from wheat. The wheat loses its identity. It gets consumed and in its place new goods/commodities emerge. The new goods so emerging have a higher utility than the commodity consumed. They are different goods commercially speaking. Indeed, the portion underlined by us in the above extract clearly affirms the said aspect.
In support of above contention, learned counsel also placed reliance on Mahendra Perfumery Works v. State of Karnataka (2000) 118 STC 74.
20. Replying the contention of learned counsel for the petitioner regarding Entry No. 16 in the notification dt. 27th July, 1990, learned counsel for the respondent places reliance on Section 14(ii) which reads as under :
"Section 14(ii)--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 not included cotton waste."
21. Learned counsel submits that cotton here does not include surgical cotton because the cotton had gone through some manufacturing process where this entry does not apply. Here, the word "cotton" is to be interpreted to be a cotton in an unmanufactured stated. In support of his contention, he places reliance on CST v. Fare Deal Corporation Ltd. (1962) 13 STC 750 and on Sri Ram Products v. State of Tamilnadu 1983 52 STC 187, wherein it has been held thus :
"Absorbent cottonwool 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 unmanufactured stage. The use of the expression IP.' in the very name as well as the requirement of its being sterilised 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."
22. He also placed reliance on the decision of Supreme Court in the case of Dy. CST (Law), Board of Revenue (Taxes) v. Coco Fibres 80 STC 249 (SC) wherein it has been observed thus :
"The question, therefore, is whether any manufacturing process is involved in converting the husk into the fibre, and whether the fibre is different from the husk as a commercial commodity. The word "manufacture" has not been defined under the Act, and therefore, we have to look into the meaning known in commercial parlance. In Black's Law Dictionary, Fifth Edition, the word manufacture' has been defined as, 'the process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by hand, by machinery or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand, labour or machine.' Thus by process of manufacture something is produced and brought into the existence which is different from that, out of which it is made, in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. The Constitution Bench of this Court in Ujagar Prints v. Union of India (1989) 74 STC 401 : (1989) 3 SCC 488, held thus :
The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the process. The principles are clear. But difficulties arise in their application in individual cases. There might be borderline cases where either conclusion with equal justification may be reached, Insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture', we are afraid, results in an oversimplification of both and tends to blur their interdependence in cases such as the present one..........' Therefore, the article that emerged as a result of the process of manufacture, must be a distinct and new article recognised or known as such in the commercial parlance for sale or supply."
On the basis of above observations, learned counsel urges that whether commodity which has come into being is a commercially distinct commodity or not. With this consideration, it is relevant for determining difference in between two commodities. It is canvassed that surgical cotton being commercially distinct commodity which is not only a distinct commodity in its use but commercially also. It would be wrong to say that the surgical cotton is not a distinct commodity than raw cotton. Therefore, it has been submitted that petitions are liable to be dismissed.
23. Learned counsel has tried to distinguish the case of Tungabhadra Industries Ltd. (supra) by placing reliance on the following observations of Hon'ble Supreme Court :
"There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used. Similarly we consider that hydrogenated oil still continues to be "groundnut oil" notwithstanding the processing which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for those who desire to consume groundnut oil. In our opinion, the assessee-company was entitled to the benefit of the deduction of the purchase price of the kernel or groundnut, under Rule 18(2) which went into the manufacture of the hydrogenated groundnut oil from the sale turnover of such oil."
It has been contended by the learned counsel for the respondents that in case of hydrogenated oil and vegetable oil, there is a reciprocity of use which is absent in surgical cotton and ordinary cotton and, therefore, this case will not govern the case of petitioner.
24. Learned counsel has also submitted that petitioner cannot claim any set off with regard to the payment of tax which has been made by him because the petitioner had neither raised this issue before the appellate Court nor before the assessing authority in revision petition. Under Section 86, scope of revision is very limited and it can only decide the question of law arising out of the orders passed by the authorities below. Since, the question of set off had never been raised before the authority below, the same cannot be raised here. If the petitioner is aggrieved, he can very well raise this issue before the learned authorities below afresh in accordance with law.
25. I have heard learned counsel for the parties and have given my thoughtful consideration to the rival submissions.
26. The test which is to be applied for deciding the present case is whether a commodity entirely distinct comes into being after process. This is also important to note that when the two forms of cotton i.e., raw and surgical are to be compared, in commercial parlance. How are they understood. Are they considered at par for the purpose for which they are being purchased. The utility also comes into being. If utility of the final product is different than utility of original product, then also, the product is different. Learned counsel for the respondents has delineated the possible tests as under:
(a) whether the surgical cotton is a distinct marketable commodity;
(b) whether, it is extensively used for any purpose;
(c) whether, such a product comes into existence which is known in the commercial market by different name and is capable of being sold as such, and
(d) whether the new commodity so emerging have a higher utility than the original commodity which was processed.
'Meaning thereby, whether some value is added in the process of manufacture or transformation of a new and distinct product which becomes a commercial marketable commodity.
These tests can be a pointer on which if the use of the commodity is required to be judged, answer may come. The Courts have judged the utility for making these parameters to be fundamental parameters for testing taxability of commodity. It is an admitted fact that a definite chemical process is involved in deriving out a surgical cotton. During this process when cotton is treated with acid and alkaloid, waste is consumed. When cotton is cleaned, some part of the cotton is further consumed. If total weight is calculated, as introduced in the process., that may not be the same. With the production of end product, a sizable amount of raw cotton is consumed weight-wise. That being the position, the end product is amenable to that test where it is said that whether original product is consumed in the manufacture of end product. Thus, the cases relied upon by the learned counsel for the petitioner wherein it is emphasised whether original commodity consumed would not support his case. It cannot be said that original product is not consumed in the process of manufacturing surgical cotton.
27. Surgical cotton is basically used for medical purposes. For medical purposes, use of ordinary cotton is not permissible in medical ethics. Alopathic method of medicine fixes standards for the quality of surgical cotton. Those standards are so definite and definable that none of them would be available in ordinary cotton. If those parameters cannot be met in the ordinary cotton and surgical cotton is only used in alopathic form of medicine, then it cannot be said that use of commodity is interchangeable and in that view of the matter, surgical cotton is a different commodity.
28. In the lighter way, learned counsel for the petitioner suggested that there is no bar that surgical cotton cannot be used for the purposes for which ordinary cotton is used. May be that somebody may use the surgical cotton for ordinary use but for the cost factor would make it available to only those who have a desire to make a vulgar use of money. Otherwise, ordinary user cannot use surgical cotton because its price are prohibitive. The price structure between surgical cotton and ordinary cotton in the market is to the effect that broadly raw cotton is sold at the price of Rs. 40 per Kg. and surgical cotton at Rs. 85 per kg.
29. The process by virtue of which the surgical cotton comes in the market, it implies a change. Change gives it such an identity in its appearance and saleability, that raw cotton would not be acceptable in the market for the uses defined for surgical cotton. The ordinary cotton does not fit in any of those segments where surgical cotton is accepted. For both these commodities operational territories are different. Thus, the argument of learned counsel for the petitioner cannot be accepted that it is the same commodity.
Both cottons have a different consumer segments. That puts surgical cotton as a new commercial identity. In that view of the matter also, surgical cotton is a different item. Since surgical cotton has a definite definition for itself distinct from the ordinary cotton, it is a different commodity and tax paid on the raw cotton cannot be countenanced to be the tax paid on surgical cotton. These two commodities are distinct, different and based on distinguishing definable parameters. In this view of the matter, the argument of learned counsel for the petitioner is not considered valid to displace the foundation on which the judgment of the Tax Board is passed. Thus, if the Tax Board has considered the surgical cotton to be a commodity taxable otherwise than ordinary cotton, this Court feels that there are no reasons which will persuade this Court to take different view than the view taken by the Tax Board. In its revisional jurisdiction, this Court has to act in a limited sphere. Thus, the order of the Tax Board is maintained.
30. Learned counsel for the petitioner has further raised question that if on the original commodity, tax has been paid once, then the traders are entitled to get set off in terms of the law governing the field. Learned counsel for the Revenue submitted that this question was not raised before the original lower authority. In the facts of this case, there was hardly any scope to raise this question before the lower authority. The parties are left to raise this question before the appropriate authority, if law permits. The appropriate authority will pass appropriate orders in this regard.
With the above observations, the aforementioned revision petitions are disposed of accordingly.