KARAM ELAHEE CHAUHAN, J.-The assessee runs a textile mills and a cotton factory in Multan. He purchases cotton which goes through the following processes:-
(a) First of all it is ginned whereby cotton seed and cotton are separated by cotton ginning machines and this process is called "Ginning" of the cotton. (In Urdu it is called ROI BAILNA ).
(b) While separating cotton from cotton-seed by the process of "ginning" certain amount of cotton '(or to be more exact short stiple cotton fibre) still remains stuck up to the cotton-seed which is later removed by an--other process known as "delinting" worked by delinting machines or delinters. This "delinted" cotton was sold in the assessment year in question by the assessee.
(c) The cotton obtained after ginning under (a) above in then put to another process which is known as the process of "blowing" which divides it into two separate fibres known as (i) fine fibre (also called as superior fibre or long stripped fibre), and (ii) rough fibre-(which is also known as inferior or smaller fibre). This procees in Urdu is known as (ROI BAILNA YA KATNA).
(d) The fine fibre is utilised by the assessee by the process of 'spinning' (known in Urdu as ROI KATNA) (worked by spindles) in the manufacture of fine yarn from which cloth is made by weaving through looms (this process is known as "KAPRA BUNANA). The inferior fibre though it is capable of being utilised in the manufacture of inferior yarn from which goods like 'durries' and carpets etc. Are made, but the assessee sold away the same in the open market in the assessment year in question. The assessee calls the inferior fibre as " cotton waste".
2. In the instant case the assessee, as already noted above, sold away the (i)"delinted cotton" and
(ii) "cotton waste", These sales were assessed to Sales Tax by the Sales Tax Officer by his order dated 27-6-1969. On appeal of the assessee the Appellate Assistant Commissioner by means of his order dated 28-11-1970 held that both the above items were not taxable, because, according to him, they were nothing but another form of "ginned cotton" on which reduced rate of tax was payable vide Notification issued under section 7 of the Act and bearing No. 1010(K)/62 dated 22-9- 1962' (which in its own turn amended an earlier Notification bearing No. 11 dated 27-6-1951)-and wherein it was indicated that "ginned cotton and cotton-seeds" were to be taxed at 3j per cent., ginned cotton to be taxed at the export stage and cotton seed at the ginning stage. "(For these notifications see The Law of Sales Tax in Pakistan (Fourth Revised Edition) by S. M. Raza Naqvi, page 87). The present not being a case of export, the Appellate Assistant Commissioner held that even reduced rate tax was not leviable on the goods in question. The Department went in further appeal to the Appellate Tribunal which by means of its judgment and order dated 3-5-1971 accepted the same, reversed the order of the Appellate Assistant Commissioner and restored that of the Sales Tax Officer holding that the goods in question were 'manufactured goods' having distinct names and characteristics, capable of different use and could no longer be called "ginned cotton" and were, therefore, liable to Sales Tax and that the aforesaid Notification had no application to the facts and circumstances of the present case. The actual finding recorded in this respect was that (goods like) 'durries' and "carpets" could rather be made only from the (so called). "Waste cotton".
Though not specifically mentioned in its order but it appears that the "Tribunal also took note of another Notification bearing No. S. R. O. 448(K)/69 dated 22-6-1964. Actually this is a Notification whereby "ginned cotton and cotton-seeds" were added as item No. 43 into the list of goods as contained in Notification No. 9 dated 27-6-1951 where it was indicated that "in exercise of the powers conferred by subsection (1) of section 7 of the Sales Tax Act, 1951 (111 of 1951), the Central Government is pleased to exempt the goods or class of goods specified hereunder being goods manufactured or produced fn Pakistan from the tax payable under the Act, but except in case of goods specified in item 33 (a) nothing in this exemption shall affect the tax payable on the raw materials from which the goods are manufactured". (These notifica--tions are reproduced at pages 81 and 82 of Raza Naqvi's book mentioned earlier). The Tribunal took the view that since the goods in question were not "ginned cotton" and were utilised in the manufacture of goods like 'durries' and carpets etc.- which could be made only from them the exemption mentioned hereinbefore was not applicable to them. (It is propably for this reason that the Tribunal has asked this Court to decide this case with reference to the aforesaid Notification dated 22-6-1964 as is clear from their reply/written statement dated 8-5-1972). The assessee has come up in reference to this Court requiring us to answer the following questions :- "Whether on facts and in the circumstances of the case the learned Appellate Tribunal was right in holding that "waste cotton" sold by the assessee was a manufactured article in respect of which the assessee was liable to Sales Tax under section 3 read with clause (11) and not a refuse or remains of the raw material i.e. Ginned cotton which had resulted in the failure of production or has not resulted in the production of any goods?."
(2) "Whether on facts and in the circumstances of the case the learned Tribunal was right in holding that the sales of Rs. 1,47,606 on account of delinted cotton were liable to tax under the Sales Tax Act under section 3 of the Sales Tax Act 1951 ?
(3) "Whether on facts and in the circumstances of the case there is any material to support the finding of the Tribunal that Durries, Carperrs, cotton wool etc. Can only be manufactured out of cotton waste."
In its written statement/reply dated 8-5-1972, the Department has taken objection to the form of the question posed by the assessee and has submitted that only the following question arises from the order of the Tribunal and that the same may be answered by this Court I- "Whether the Tribunal was not right in holding that cotton waste and "delinted cotton" do not qualify for exemption from Sales Tax under Item No. 43 of the Notification No. S. R. O. 488-(K) 64, dated 22-6-1964 issued under subsection (1) of section 7 of the Sales Tax Act, 1951 in respect of the ginned cotton"? (This is the same Notification of which mention has been made by us earlier).
3. Learned counsel for the petitioners introduced us to the definitions of "goods", "manufacturer or producer" and "partly manufactured goods" as contained in clauses (6), (11) and (12) respectively of section 2 and also referred to sections 3, 4, and 7 of the Sales Tax Act III of 1951. They read as follows :- Section 2, Definitions.-In this Act, unless the context otherwise requires,- "(6) "goods" means all kinds of movable property other than actionable claims, money, stocks, shares and securities;
(7) -------------------------------------------------------------------------------------- -------..
(8)
(9)
(10) -------------------------------------------------------------------------------------- -..
(11) "manufacturer or producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods, and includes a printer, publisher, lithographer or engraver, or a person engaged in the ginning of cotton, and also any person (not being an employee) who manufactures goods, whether or not the materials of which the goods are manufactured are owned by him.
Provided that where one person, other than a person engaged in the ginning of cotton, manufactures goods for another, wholly or in part out of materials supplied by that other, and the goods are not for the use of, but are for sale by, that other, the person supplying the materials shall be deemed to be the manufacturer, and the person who so manufactures the goods shall be deemed not to be the manufacturer.
The expression also includes-
(i) The assignee, trustee in bankruptcy, liquidator, executor, or curator of any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity;
(it) any person, firm or company which owns, hold, claims, or uses any patent, proprietary, sales or other right to goods being manufactured, whether by them, in their name, or for or on their behalf by other, whether such person, firm or company sells, distributes, consigns, or otherwise disposes of the goods or not;
(12) (iii) "partly manufactured goods" means only goods which are to be incorporated into and from a constituent or component part of an article which is subject to the tax;"
Section 3. Charge of tax.-(1) There shall be levied and collected a tax on the value of-
(a) All goods produced or manufactured in Pakistan payable by the manufacturer or producer ; ,
(b) All goods imported into Pakistan, payable by the importer;
(c) all goods sold by a licensed wholesaler, payable by the licensed wholesaler;
(d) such goods or classes of goods as the Board may, by notification in the official Gazette, specify in this behalf which are exported ,from Pakistan, payable by the exporter ;
(e) such goods or classes of goods purchased without payment of Sales Tax by a licensed manufacturer or producer of taxable goods as are not used in the manufacture or production of taxable goods, payable by such manufacturer or producer.
(2) The tax shall be a tax of fifteen per cent. On the value of the goods as aforesaid except in the case of goods specified in the schedule to this Act in which case it shall be such percentage as may be fixed by the Board by notification in the official Gazette.
(3) The value of the goods shall be-
(i) in the case of goods falling under clause (a) of subsection (1)-the sale price ;
(ii) in the case of goods falling under clause (b) or clause (d) of the said subsection the duty paid value ;
(iii) in the case of goods failing under clause (c) of the said subsection being imported goods the duty paid value ;
(iv) in the case of goods falling under clause (c) of the said subsection being goods manufactured or produced in Pakistan the price for which the goods were purchased by the licensed wholesaler.
(4) The tax in respect of the goods mentioned in clauses (a) (c) and (d) of subsection (1) and clause (d) of subsection (6) shall be payable on the occurrence of the first of the following events-
(i) When the goods are delivered to the purchaser, or
(ii) When the property in the goods passes to the purchaser, or
(iii) when the goods are sent, consigned or exported to any place outside Pakistan, and for the purposes of this clause the goods shall be deemed to have been sold when they are sent, consigned or exported to any such place as aforesaid, or
(iv) when the goods are actually used by the manufacturer or producer: Provided that in the case of goods specified in the First Schedule to the Central Excise and Salt Act, 1944 (I of 1944), (hereinafter referred to as the said Act) the tax shall be payable at the same time and in the same manner as the duty of excise and the provisions of the said Act relating to the payment of duty and the removal of goods, shall so far as may be apply to the payment of the tax under this Act as they apply for the purposes of the said Act.
(5) The tax in respect of the goods mentioned in clauses (b) and (d) of subsection (1) shall be paid on importation or exportation, as the case may be, as provided hereunder-
(i) Where the goods on importation are directly cleared for home consumption-before the order of such clearance is made by the Customs Officer,
(ii) Where the goods on importation are taken out of bond for home consumption-before the goods are removed from the warehouse,
(iii) where the goods are exported by sea-before the shipping bill is passed by the Customs Collector;
(iv) Where the goods are imported or exported by land before the permit for the passage of the goods out of or into foreign territory is issuedand the provisions of the Sea Customs Act, 1878, and of the Land Customs Act, 1924, relating respectively to payment or refund of duty the -clearance, shipping and removal of goods and the passage of goods ,out of or into foreign territory shall, so far as may be, applied to ;the payment of the tax under this Act as they apply for the purposes .Of those Acts.
'(6) Determination of value for tax in certain circumstances: where goods are produced or manufactured in Pakistan under such circumstances or conditions as render it difficult to determine the value thereof for the tax because-
(a) A lease of such goods or the right of using the same but not the right of property therein is sold or given, or
(b) such goods having a royalty imposed thereon. The royalty is uncertain, or is not from other causes a reliable means of estimating the value of the goods, or
(c) such goods are manufactured by contract for labour only and not including the value of the goods that enter into the same, or under any other unusual or peculiar manner or conditions, or ,(d) such goods are for use by the manufacturer or producer and not for sale; The Sales Tax Officer may determine the value for the tax under this Act and all such transactions shall, for the purposes of this Act, be regarded as sales.
(7) If any person other than the manufacturer or producer or importer or licensed wholesaler or exporter hereinbefore mentioned acquires from or against any one of these persons the right to sell any goods, whether as a result of the operation of law or of any transaction not taxable under section 4, the sale of such goods by him shall be taxable .As if made by the manufacturer or producer or importer or licensed wholesaler or exporter; as the case may be, and the person so selling shall be liable to pay the tax.
Section 4. Tax not payable on certain transactions.-Notwithstanding anything contained in section 3, tl)e tax shall not be payable on- ;(a) goods sold by a licensed manufacturer to another licensed manu--facturer if the goods are partly manufactured goods, or,
(b) goods imported by a licensed manufacturer if the goods are partly manufactured goods, or
(c) goods imported by a licensed wholesaler, or
(d) goods sold by a licensed manufacturer to a licensed wholesaler or a licensed exporter; or
(e) goods sold by a licensed wholesaler to a licensed manufacturer if the goods are partly manufactured goods, or (f ) goods sold by a licensed wholesaler to another licensed wholesaler, or
(g) goods sold by a licensed exporter to another licensed exporter ; Provided that if a licensed wholesaler sells goods to another licensed wholesaler at a price less than the value upon which the tax would be computed under clause (iii) or clause (iv) of subsection (3) of section 3, the vendor shall forthwith become liable to pay the tax upon the difference between such value and his sale price: Provided further that nothing contained in .Clause (a) or .Clause (d) shall apply to the sale of cotton yarn and such other goods or class of goods as the Central Government may, by notification in the official Gazette specify in this behalf."
Section 7. Exemptions.-(1) The Central Government may, by notifica--tion in the official Gazette, exempt any goods or class of goods or any person or class of persons from the tax payable under this Act, and may also, by notification as aforesaid, make reduction in the rate of tax leviable in respect of any goods or class of goods.
(2) Any exemption notified under subsection (1) may be made subject to such conditions as may be specified in the notification.
(3) The Board may, by special order in each case, exempt from the payment of the whole or any part of the tax under circumstances of an exceptional nature to be stated in such order, any goods on which the tax is leviable."
Law on the subject.
4. The first point argued by the learned counsel for the petitioner was that to hold that goods have been manufactured or produced or that a. Person is engaged in the manufacture or production of a goods, it was-- essential that (a) there must be a transformation and the mere fact that some labour has been applied through machinery will not make it a manufacturer production unless the process has progressed so far that transformation ensures; and (b) secondly the article becomes commercially known as another article different from that at which it begins its existence. On this principle it was suggested by way of an illustration example that "ginning" strictly speaking, could not be termed as a process of manufacture or production of cotton seed or ginned cotton, inasmuch as, after ginning the new components remained the same which were already contained in the generic kapass. The principle advanced by the learned counsel seems to be of extreme view and cannot be said to be of universal application especially when it does not seem to have been endorsed by our Supreme Court in Superintendent of Central Excise, Lyallpur v. Ch. Faqir Muhammad (PLD 1959 SC (Pak.) 103) where their Lordships were confronted with a similar contention which had, found favour in the High Court. The actual passage of the High Court judgment which came under examination before the Supreme Court was to the following effect:- "Now when the cloth is given to the petitioner for calendaring, it is --either cloth or cotton cloth as envisaged by entry 15 of the Central Excise and Salt Act, 1944 and there is no doubt that it remains the --same article even after the petitioner has calendered it because, though the cloth may get a fines look and may fetch more price, its relevant contents remain precisely the same. If the contents of the cloth do not change by the process of calendering to which the petitioner subjects it I fail to see how that process can be deemed to be a process in the manufacture or production of the cloth. If the First Schedule of the Central Excise and Salt Act had made calendered cloth, as distinguished from cloth dealt with in. Entry 15 of the Schedule, an excisable article it is obvious that the process of calendering would have altered the goods for the purposes of the schedule but as the only entry which can be invoked by the respondent is entry 15 of the Schedule which concerns itself only with cloth, I cannot see how the respondent can claim, as was claimed by this learned counsel, that because the price of the cloth after calendering would be more than it was before it was calendered the process of calendering was manufacture of cloth within the meaning of the definition of that term contained in section 1(f ) of the Act. It is well settled that taxing Statutes and it is hardly open to question that the Central Excise and Salt Act, 1944, is a taxing statute should be very strictly construed so that the Government does not get money for a thing which the Legislature did not intend to be liable to tax. But even if that strict interpretation is not applied to the case of the petitioner. The business of calendering cannot be brought within section 6 of the Central Excise and Salt Act, 1944, or Rule 171 (1) (c) of Central Excise Rules, 1944."
The Supreme Court did not accept the above enunciation of law and held as follows:- "As contended for the appellant this conclusion of the learned Judges is not correct. "Manufacture" is defined in the Act (section 2 (f ) as including any process incidental or ancillary to the completion of the manufactured product. We are unable to agree with the view of the learned Judges that unless the content of the article is changed it remains the same in spite of its being given a finish. It might have been so if without the finish the goods were not marketable, but uncalendered cloth is also sold in the market. The fact that its price is higher after it is calendered shows that the purchasing public regards calendered cloth as a different article having a positive and specific use in its new state. There is no force in the argument of the learned Advocate for the respondent that calendering is nothing more than ironing the cloth already manufactured. That calendering like dyeing, bleaching and printing is a distinct process which transforms the article is clear from the following extract from Encyclopaedia Britannica (1953 Edition, Vol. 5, page 846): "In its modern significance, finishing comprises a large and diverse range of processes intended to produce in the fabric a desired appearance or feel; and the machines required for this purpose are correspondingly numerous and varied, finishing operations require plant for, to name some of the important processes, shearing, stretching, drying, damping, pressing, embossing, impregnating, covering and raising cotton cloths. Classification of finishes in relation to the many different kinds of cotton fabrics is difficult, because many of the processes are applicable to a wide range of clothes. They may be considered under the following headings Gray goods, Le. Cloth direct from the loom, white goods, Le. Cloth which has undergone a bleaching process, plain dyed goods; colours and black print red goods; raised goods. Grey goods.-These may be finished pure i.e. Without any additional size or stiffening. After passing through a shearing machine or a combined moting and shearing machine, the cloth may be conditioned in a damping machine of the brush type or the spray type (fig. 1) and afterwards calendered in a suitable calender such as the three bowl swissing calender (fig. 2) or a five or seven bowl calender arranged to give a bright finish on both sides of the cloth, or a friction calender giving a glazed surface on one side only. Grey goods which are stiffened before being calendered are passed through a range comprising a mangle and cylinder drying machine (fig. 3). The mangle may have two or three bowls, and the draying set may be horizontal or vertical. There can thus be no doubt that calendering is a process ancillary to the completion of the manufactured product which is the calendered cloth. It is true that under section 6 a licence is necessary only if the manufactured goods are excisable; but there is nothing in Article 15 of the First Schedule to show that it excludes calendered cloth. If the respondent's mills had manufactured cloth and calendered it before issuing it out he could not have pleaded that as calendered cloth is not specifically mentioned in the Article 15 of the First Schedule he need not pay duty at all. As for the liability to pay duty a second time, which has been pressed before us on behalf of the respondent, there is the fact that notification No. 6 dated 29-4-1955 issued-' under section 37 of the Act exempts cloth undergoing any process incidental or ancillary to the completion of its manufacture from so much of the duty liable under the Act as may have already been levied on it prior to that process. In the present case duty was admittedly levied when the cloth was manufactured by the concerned mill and before it came into the market, and to that extent further duty is not leviable on it after it is calendered. But that does not mean that calendared cloth is not excisable".
In the Law of Sales Tax by Muhammhd Amin Butt (the learned counsel in this case), and Muhammad Saeed But (1969 Edition), there occurs an instructive passage at page 58 with reference to Hiralal Jitmal v. Commissioner of Sales Tax (1957) 8 S T C 325, Badri Prasad Prabha Shankar v. Sales Tax Commissioner U P (1963) 14 S T C 208 and G. K Kulkarni v. State (1957) 8 S T C 294 wherein it is written that "in order to constitute manufacture" it is not necessary that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article becomes commercially known as another and different article from the raw materials. All that is necessary is that the material should have been changed or modified by man's art or industry so as to make it capable of being sold in an acceptable form to satisfy some want, or desire or fancy or taste of man". Examined in the light of these legal pronouncements even the illustrative example which was given by the learned counsel with regard to ginning of cotton cannot be endorsed or taken as a guide. It will be evident that when kapass is ginned the commodities which come into being are two different commodities, namely, cotton-seed and ginned cotton both of which are different in commercial field from the generic item kapass. The uses to which kapass can be put are not always the same to which cotton--seed or ginned cotton in their own way can be independently put. Similarly conversely the uses to which cotton seed and ginned cotton are put in their own independent way are not also those to which the generic kapass could be put. The process of ginning, therefore, does give rise to manufacture and production of goods which can be put to separate uses and different commercial value. It was for this reason that when doubts were sought to be created with regard to chargeability of tax on ginned cotton and cotton seed the Legislature rose to the occasion and stopped that controversy by retrospectively adding a sentence into the definition, of "manufacturer or producer" as contained in section 2(11) of the Act that it shall include "a person engaged in the ginning of cotton" (See Sales Tax (Amendment) Ordinance XXVIII of 1959). At this stage learned counsel argued that the fact that this aspect of the matter was statutorily included in the definition of "manufacturer or producer" rather showed that ordinarily it was not so included because generally speaking when the Legislature states that definition of a particular word shall include such and such thing this is acceptance of the proposition that natural or popular connotation of that word was insufficient to embrace the meanings which were being given to it by saying that it shall include additional things as well. We may observe that what is the correct construction of the word "include" depends upon the facts and circumstances of each case. Some times it is used in interpretation clauses in order to enlarge th meaning of the words or phrases occurring in the body of the statute, and when it is so used these words and phrases must be construed as corn pretending, not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include. But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the word or expression defined. It may be equivalent to 'mean and include' (as is the position in section 2(11 of the Act) and in that case it may afford an exhaustive explanation of the meaning which, for the purpose of the Act must invariably be attached to those words or expressions. See Interpretation of Statutes by Bindr (Fourth 1965 Edition) page 747). Cases are available wherein it was held that ginning and' pressing of cotton was manufacture. See Shaikh Jafarji Hiptullah Bhoy Gin and Press Factory, Amraoll v.
Shaikh Ismail AIR 1937 Nag. 311. In this case it was held that "when cotton is ginned, it is adapted for use in cotton mills. It is also adapted for sale as ginned cotton. When it is pressed into bales, it is adapted for transport, and also for sale in the shape of cotton bales" (which are manufacturing processes) and we may add that by ginning even its components and constituent get separated and in this way two things, namely, cotton-seed and ginned cotton come out in different shapes, potentialities, use, finish and value etc. Etc. In Loral Government v. Nusar Wanji AIR 1933 Nag. 283 "ginned cotton" was termed as an article "produced". However, what we intend to point out is that each case is to be examined on its own facts and circumstances together with the principles of law applicable thereto for determining as to whether a particular process is of manufacture or production or not and the point--confining ourselves to the facts of the present case-should not be approached solely from the stand point of a "ginner" or the amendment brought about with regard thereto about which, as we have earlier demonstrated. Lot could be said otherwise.
Re : Delinted cotton.
5. Having clarified the legal position on the subject, stage is now ripe to find whether delinting of cotton is a manufacturing process and whether delinted cotton is a goods manufactured or not within the meaning of section 2(11) of the Act. Learned counsel argued firstly that delinting was not a manufacturing or production process inasmuch as even after delinting the delinted cotton still remains a cotton forthe generic kapass and no new goods comes into existence and secondly if at all any new goods comes into existence it is a sort of ginned cotton inasmuch as just as in ginning cotton is separated from cotton-seed similarly in delinting last remains of cotton are separated from cotton seed. He projected his submission by saying that if by ginning is meant a process of separating cotton from cotton-seed, the same being the outcome of delinting it can from a popular point of view also be considered as ginned cotton, though here ginning or separation is brought about by delintors or delinting machines. We are unable to endorse these submissions. No doubt by delinting cotton and cotton-seed are separated but the delinted cotton is not the same generic cotton as the kapass was. As already indicated its uses are different, its value is different, its form and shape is different, its potentialities characteristics and finish also undergo a change and as such it is neither generic kapass nor ginned cotton but is a separate goods manufactured.
A)1 this shows that the plea raised in the firstly above has no merit. As regards the point in secondly above that delinted cotton is also a sort of ginned cotton this again is not correct. Ginning is by ginning machine and delinting is by delintors or delinting machines which are worked after applying certain mechanism on the cotton-seed which has come out after ginning but still contains some lining of cotton over it. The cotton so separated by deliniting gets a new name, a new shape, new finish different from that as the ginned cotton had, and due to its own peculiarities is suitable for uses additional to those which are peculiar to ginned cotton. It is a specific saleable commodity on its own merits. Learned counsel was trying to raise the argument contained in the secondly for the purpose of taking benefit of those notifications which were issued under section 7 of the Act whereby the Central Government had exempted ginned cotton from Sales Tax. Since the delinted cotton is not ginned cotton obviously the petitioner cannot take benefit of those notifications and the learned Tribunal, on the facts and in the circumstances of the present case, was justified in holding so.
Re: Blowing cotton into fine fibre cotton and inferior fibre-cotton.
6. Taking up the "cotton waste" learned counsel in this respect also raised the same point as was advanced by him in firstly above with regard to delinted cotton and submitted that this too was the same thing as the generic kapass. Enough has already been said earlier regarding the generic kapass and its difference from other types or qualities of cotton, and we need not repeat the same here over again and suffice it to say that generic kapass and cotton separated fibre wise by blowing are not one and the same thing. The process of blowing employed is definitely a manufacturing process which results in separating inferior-fibre-cotton from the superior --fibre- cotton. This is a process of breaking into two different components contained in the cotton. The inferior-fibre-cotton then becomes a goods by itself, fit for distinct uses which may be exclusive or in addition to those to which fine-fibre-cotton can be put. It becomes a marketable commodity in its own right, under a different name. It has value and is recognised independently by all concerned for its own potentialities. The assessee calls it a "waste cotton" but it is to be noticed that the word "waste" is a misnomer and is not used here in the sense that it is of no use at all, but is used simply in comparison with fine-fibre-cotton because, qua the uses to which fine-fibre- cotton can be put (i.e. Cloth or fine cloth) the inferior-fibre-cotton is a waste and cannot be utilised for that purpose though otherwise it is not altogether a waste and nor is it a refuses of no value. It has definite uses for its own potentialities. It can be utilised for the manufacture and production of durries and carpets etc. By converting it into what is called inferior yarn. In other words fine-fibre- cotton is utilised for fine yarn and cloth, whereas inferior-fibre-cotton is utilised for inferior yarn and is meant for durrles and carpets etc. To say, therefore, that by blowing inferior-fibre-cotton has not come into being or that a goods by that name has not been manufactured is not correct. At this stage learned counsel gave an example of a chicken and submitted that chicken in a frying pan was chicken just as it would be after it is killed and dressed and removal of its feathers and entrails will make no difference. To say with respect, the argument though quite interesting, is not apt and if it is to be seriously attended to, then can we ask whether the feathers and entrails if sold in open market could still be called a chicken? Obviously not. Though they have been taken out of the chicken but they are articles of their own description having different names. Different uses and different characteristics and potentialities. One may call them as waste but merely calling them 0 so cannot detract anything from their entity, potentialities and market value. Similarly in the instant case that which is called by the assessee as "waste cotton" is not legally waste in the sense of refuse. It is a cotton containing inferior-fibre. It has its own finish, use and market value. It is a good by itself and has come into existence by a process of machinery which can definitely be called a process of manufacture or production.
7. Here it is pertinent to focus attention on the definition of word "goods" as contained in section 2(6) of the Act wherein it is written that "goods" means all kind of movable property other than actionable claims, money, stocks, shares and securities." Also keep in view the definition of "partly manufactured goods" as contained in section 2(11) of the Act wherein it is written that "partly manufactured goods" means only goods which are to be incorporated into and form a constituent or component part of an article which is subject to tax". These definitions should be read with the general scheme of the Act as contained in sections 3, 4, and 7 which were highlighted by the Supreme Court in Messrs Noorani Cotton Corporation v. The Sales Tax Officer `A' Ward Lyallpur PLD1965SC161 with reference to manufactured and partly manufactured goods. Their Lordships observed as follows :- "It will be proper to explain here the scheme of the Act. As the various provisions of the Act show the intention was to levy only one tax on manufactured or produced goods which are offered for sale to the consumer. A process of manufacture may involve different stages or goods manufactured by one person may be purchased by another not for the purpose of consumption, but for being incorporated into another article on which sales tax is to be paid. A stage of manufacture or the manufacture of goods which are to be incorporated in another article is not liable to Sales Tax. To explain the point -we may take as an illustration the very case with which we are dealing. Cotton- seed Is at first extracted from cotton. This is ca., manufacturing process and if this cotton seed is sold to the consumer Sales Tax will have to be paid on the manufacture of cotton seed. However, the manufacturer may use this cotton-seed himself for the production of cotton-seed oil. In its turn the cotton-seed oil which is again a, manufactured article may be sold to one who manufactures vegetable ghee for the purpose of being incorporated in the vegetable ghee. In a case where the cotton-seed oil manufactured , by a person from cotton-seed extracted by himself from cotton goes into the veget--able ghee the intention of the law is that sales tax may be paid only on the manufacture of vegetable ghee and should not be paid either on the production of cotton-seed or on the production of cotton seed oil which productions becomes in such a case only steps in the manufacture of vegetable ghee. Now what is the device adopted for ensuring that Sales Tax is paid only at one stage in spite of that but is contained in the charging section making all manufactured goods. When they go to the purchaser liable to the payment of the tax? The device adopted, as will appear from section 4 is, that the sale of "partly manufactured goods" to a manufacturer is not liable to the charge of tax. It may be clarified here that the Sales Tax Act does not recognise a manufacturer who has not obtained a licence under it for manufacture. The provision in section 4 is that the sale by a licensed manufacturer to another licensed manufacturer of partly manufactured goods is not liable to the incidence of tax. The definition of "partly manufactured goods" is that they are goods which are to be incorporated into another article. So these provisions are a sufficient, guarantee that the tax will be paid only with respect to the last stage of manufacture of goods. However, there is one difficulty which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales tax? In that case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore in the definition of "partly manufactured goods". A limita- -tion has been introduced that the article into which the goods ace to be incorporated should be one which is liable to the payment of Sales Tax. If it is not liable to payment of tax then the goods' which are incorporated into it are also manufactured goods on which Sales Tax has to be paid.
One further difficulty would still remain. What is to happen if a person himself manufactures goods and then incorporates them into another article There is no sale of the first manufactured goods because the person producing them is only using them for manufacture of other goods. Tax is payable only when there is a sale. In a case where the article that is ultimately produced is liable to the payment of Sales Tax there would be apparently no need of a provision relating to goods that are to be incorporated in the last article. But suppose that the last article is not liable to the payment of Sales Tax. Unless a special provision was made that person would not be paying any tax on the production of the first article too. This situation is met by the general provision in the last part of section 3(6) that the keeping of goods by. The manufacturer for his own use would be regarded as a sale. As a --matter of fact this last proposition has been contested by the appellant.
And is one of the points argued by them before the High Court. We are stating the ultimate conclusion and the reasoning will appear shortly".
The aforesaid enunciation of law when applied to the facts and circum--stances of the present case will show that delinted cotton or inferior-fibre--cotton (as explained above) (which is called by the assessee as waste cotton), are definitely goods within the meanings of section 2(6) of the Act. The next point to be noticed is that either they are manufactured goods or partly manufactured goods. If the assessee had utilised them in the produc--tion or manufacture of the end product of which he was the licensee (as for example yarn or cloth)-then they would have obtained the character of partly manufactured goods, provided the end product was taxable. In that eventuality the assessee would not have been liable to p y tax on they goods partly manufactured in dispute. However, as the factual position is, the assessee has not himself utilised them in the manufacture of any licensed-taxable-end-product and has rather sold them away independently. These goods, therefore, on the principles laid down by the Supreme Court in the above-mentioned case are manufactured goods on which the assessee was bound to pay tax.
The above discussion will show that the point whether a goods had been manufactured or not can be seen keeping as well in view the concepts of manufactured or partly manufactured goods as highlighted by the Supreme Court, and if examined from that stand point, even then the net result as regards the liability of the assessee to pay the tax, on the goods in question remains intact.
8. When confronted with all that has been written above, learned counsel for the petitioner referred to State of Bihar v. Chrestain Mica Industries Ltd. AIR 1957 Pat. 184, State of Madhya Predesh v. Deo.
(1955) 6 S T C 30, G. R. Kulkarni v. The State 1954 PTD 718, Muhammad & Ahmad Co. v. C. I. T. (1966)
13 Tax 137, C. S. T. v. Abdul Razzaq Ziaul Qamar PLD 1972 Lah. 773, Union of India v. Delhi Cloth and General Mills AIR 1963 SC (Ind.) 791, Raghbir Chand Somchand v. Excise & Taxation Officer 1960 PTD 538 Tunga Bhadra Industries v. Commercial Tax Officer A I 8.1961 SC (Ind.) 412--, Sales Tax Officer Pilibhlt v. Budh Parkash Jai Parkash (1954) 5 S T C 193, Khaliq Najam Vol. v. Sales Tax Officer 1959 PTD 722, East Taxes Motor Freight Lines v. Frozen Food Express 351 U S 49 and also submitted written arguments to highlight his approach to the points mentioned above. He also referred to the definition of cotton in section 2(b) of the Cotton Transport Act III of 1923, section 2(b) of the Cotton Ginning and Pressing Factories Act XLI of 1925, section 2(2) of the West Punjab Cotton (Control) Act 1V of 1949 and gave illustrative examples of wooden 'Hush doors or steel doors, woollen shawls, manufacture of shoes, manufacture of buttons and referred to certain dictionaries like Blacks Law Dictionary, Bouviers Law Dictionary and the Imperial Dictionary to explain the meanings of the word manufacture. The facts and circumstances of all these cases were different and we would rather like to confine ourselves to the facts of the precise case before us leaving the precedent cases to be attended to at some more appropriate occasion where the subject-matter may be identical.
We, therefore, have no intention to deal with each of these cases and texts independently, because, we feel that the approach made by us is well supported from the judgments of our own Supreme Court cited earlier and the other case-law and references quoted in that respect.
9. As regards the point whether there was enough material before the Tribunal to hold that durries, carpets and cotton wool etc. Can only be .Manufactured out of cotton waste the learned counsel (though promised)---did not assist us with any text on the subject. As enough arguments were .Not addressed to us from both sides, we would hold that on the facts and in the circumstances of the case it is not necessary to answer this question, .Because, the main point regarding tax liabilities of the petitioner can be .Covered by the other questions raised in the references before us. We hold accordingly. The result is that our answer to the two questions (quoted as questions Nos. 1 and 2 in para. 2 of this judgment posed by the petitioner-assessee) will be in the affirmative.
The cross-question posed by .:the department is also answered accordingly and it is held that the Tribunal was right in holding that the cotton waste and delinted cotton did not ..Qualify for exemption from Sales Tax under Item No. 43 of the Notification No. S. R. O. 488 (K/64) dated 22-6- 1964 issued under subsection (1) of .Section 7 of the Sales Tax 1951 in respect of the ginned section.
There shall be no order as to costs.