R.N. Misra, J.
1. The Member, Sales Tax Tribunal, Orissa, has stated this case under Section 24(1) of the Orissa Sales Tax Act and the following question has been referred for the opinion of the court:
Whether, on the facts and in the circumstances of the case, the Member, Sales Tax Tribunal, is correct in holding that sewing thread is exigible to tax at the general rate of 5 per cent and not according to the rate prescribed in serial No. 3 of the schedule of taxable goods ?
2. The relevant assessment period is 1970-71. The assessee, a registered dealer, carries on business in sewing thread along with certain other goods. For the year, the assessment was completed under Section 12(4) of the Act. On a sale transaction of Rs. 28,542.32 of sewing thread, tax was demanded at 3 per cent according to serial No. 3 of the schedule of taxable goods. The assessing officer discovered these facts subsequently and initiated a proceeding under Section 12(8) of the Act and after hearing the assessee reassessed by demanding tax at 5 per cent by applying the residuary rate.
The assessee appealed to the Assistant Commissioner. Relying on Circular No. 18641/CT dated 16th December, 1959, issued by the Commissioner of Sales Tax, the appellate authority held that cotton yarn and sewing thread are one and the same commodity. He, therefore, took the view that the sales turnover representing sewing thread was liable to be assessed at the rate prescribed under serial No. 3. Since the assessment had earlier been made by adopting that rate, he annulled the reassessment under Section 12(8) of the Act.
The revenue preferred a second appeal to the Tribunal challenging the first appellate order. Relying on a decision in the case of Mohta Trading Co. v. Commissioner of Sales Tax, U.P., Lucknow [1976] 38 S.T.C. 11, of the Allahabad High Court, the Tribunal held that cotton yarn and sewing thread are two different commodities and, therefore, sewing thread was not exigible to tax at the rate prescribed under serial No. 3. As there was no special rate prescribed for sewing thread- lower or higher than the general rate-the sales turnover of sewing thread was exigible to tax at the residuary rate of 5 per cent. Accordingly the Tribunal restored the order of reassessment. Thereupon, the assessee moved for the reference.
3. Section 5 of the Act at the relevant time prescribed the rate of tax by providing :
(1) The tax payable by a dealer under this Act shall be levied at the rate of five per cent on his taxable turnover:
Provided that the State Government may, from time to time, by notification and subject to such conditions as they may impose, fix a higher rate of tax not exceeding 7 per cent or any lower rate of tax payable under this Act on account of the sale or purchase of any goods or class of goods specified in such notification;
Provided further that the State Government may by notification in respect of any luxury goods fix a higher rate of tax not exceeding 13 per cent;
Provided also...
Provided further that the tax payable in respect of the goods which are declared under Section 14 of the Central Sales Tax Act, 74 of 1956, as goods of special importance in inter-State trade or commerce shall be at a rate not exceeding that specified under Section 15 of the Central Sales Tax Act, 74 of 1956 ;
Provided also...
In exercise of this power, the State Government has notified the rate of tax in respect of named goods either at a higher rate or a lower rate than the general rate of five per cent. Unless there has been a variation of the rate of tax under the notification, the sales turnover was exigible to tax at the relevant time at five per cent thereof.
4. By Notification NO. 33927-CTA-130/57-F dated 30th December, 1957, in exercise of the powers under the first proviso to Sub-section (1) of Section 5 of the Act, the State Government prescribed rates. Item No. 3 in the schedule was cotton yarn which was liable to tax at 2 per cent. From paragraphs 4 and 5 of the appellate order of the Assistant Commissioner it transpires that the sales turnover of sewing thread when treated as cotton yarn is liable to be assessed at 2 per cent, but the appellate authority took the view :
In the circumstances of the case, I am of the opinion that sewing thread should be taxed at the rate of 2 per cent. Since the appellant collected tax on such goods at the rate of 3 per cent and the entire amount of tax collected had been paid to the Government, he is liable to pay the tax as collected.
The original assessment has not been disputed and, therefore, even if the assessee ultimately succeeds in its stand that the rate of tax is 2 per cent, the original demand would not be reopened and it would not become entitled to refund of the excess of one per cent collected and deposited towards sales tax.
5. The main question for consideration in the premises indicated is whether sewing thread is cotton yarn and, therefore, the rate of tax would be 2 per cent as stipulated. In support of the assessee's stand on this score, the petitioner's counsel relied upon the circular letter of the Commissioner of Sales Tax where he had expressed the view that sewing thread was cotton yarn and, therefore, exigible to tax at 2 per cent. The assessee's counsel contended that under the scheme of the Act, the Commissioner was the pivot of administering the statute and under Sub-section (3) of Section 3, others including the assessing officer were appointed to assist the Commissioner. Under Section 3-A of the Act, the Commissioner has superintending power. The Commissioner has all the powers conferred under the Act to administer and under Section 17 thereof, he is authorised to delegate his powers and duties under the Act to persons appointed under Section 3 to assist him. Relying on these provisions of the statute, and under the general law of estoppel, the assessee's counsel strongly contended before us that once the Commissioner in clear terms stated that sewing thread was cotton yarn, the officers subordinate to him were bound by his view and, while administering the Act, the subordinates of the Commissioner exercising his delegated authority were not entitled to withdraw from the representation to the prejudice of the assessees and impose a tax higher than what had been collected from the purchasers. It is further stated that if such a representation had not been made, since sales tax was an incidence which could be passed on to the consumer, the assessee would certainly have collected tax as payable under the Act. He had acted to his prejudice by confining the collection of tax to the rate indicated. There is certainly a lot of equity in this submission. We are reminded of the oft-quoted proposition that within the four corners of a taxing statute, equity has no place. We, however, do not propose to examine this matter finally as in our view on the other score where this question directly centres around, the assessee must succeed in its submission.
6. The question before the Allahabad High Court in Mohta Trading Co. v. Commissioner of Sales Tax [1976] 38 S.T.C. 11 was whether cotton sewing thread on cops and cones was entirely different from cotton yarn. The Division Bench indicated:
Undoubtedly, cotton sewing thread is made of cotton yarn. But these are two well-known and distinct commodities available for sale. In the commercial world these are two distinct and separate commodities. These two items have different user. Cotton yarn cannot be used for the purposes of sewing as cotton thread nor can cotton sewing thread be used as cotton yarn. While cotton sewing thread is used particularly for the purposes of sewing or stitching or securing together two objects, to wit, sewing a button on a coat, cotton yarn cannot be used for the same purpose. Similarly, cotton yarn is used for weaving or knitting cloth but cotton sewing thread would not be used for the said purpose. It would thus be seen that the two items are distinct and separate entities in the commercial world and further these two items have distinct and separate user although the cotton sewing thread basically emanates from cotton yarn after going through a process. The principal question, therefore, to be decided in this reference is what are the tests to be applied to find out whether the 'cotton sewing thread on cops and cones' is a part and parcel of the commodity known as 'cotton yarn on cops and cones'.
The Division Bench of the Allahabad High Court thereafter referred to certain Supreme Court decisions and precedents of their own court and ultimately observed:
A consideration of all these decisions leads us to conclude that two principles have to be borne in mind while deciding the question whether cotton sewing thread was cotton yarn. Firstly, whether the things are not two different things in ordinary parlance. Secondly, whether the identity of the goods is retained even in its changed form or shape. It has also to be borne in mind that the exemption clause has to be construed strictly. Applying these principles it would be seen that cotton yarn and cotton sewing thread are two distinct and well-known commodities. They are separate things in ordinary parlance. It cannot be said that they are the same thing. Even their user is distinct and separate. Thus in the commercial world when one asks for cotton yarn one would not be given cotton sewing thread or vice versa. It is, therefore, evident that cotton yarn and cotton sewing thread are two distinct and separate items in ordinary parlance. On the question whether cotton sewing thread it-retained its characteristic of its being cotton yarn the question has to be answered in the negative. The cotton sewing thread, although it comes out of the basic raw material, viz., cotton yarn, but is a distinct product and of a particular thickness and strength. Although the cotton sewing thread is made out of cotton yarn, it cannot be re-converted into cotton yarn if not used as a cotton sewing thread. Further although cotton yarn is twisted to produce cotton sewing thread, but there is a distinct process to do so and the end result is entirely a distinct and separate product. It has no bearing or relationship to cotton yarn as is known in common parlance.
On this basis, the Division Bench ultimately concluded against the present proposition of the assessee. The counsel for the petitioner seriously disputes the correctness of the decision and submits that even if the test deduced from a reference of several authorities are accepted, there has been misapplication thereof and the conclusion, therefore, is erroneous.
7. 'Yarn' and 'sewing thread' have no definition under the statute and the counsel have agreed before us that the common parlance meaning should be adopted. 'Yarn' according to the Encyclopaedia Americana means :.any textile before woven into cloth. Cotton yarn is numbered according to the number of hanks contained in a pound of 7,000 grains. Each hank, of skein, measures 840 yards....
'Thread' according to the same book is :.a twist of natural or synthetic fibers, used principally in sewing. In natural threads (cotton, flax, silk, and wool) the twist consists of two or more plies of yarn. A single twisted synthetic yarn (nylon, rayon, acrylic or polyester fiber) has sufficent strength for some purposes, but in many cases two or more singles are twisted together..Modern thread making began with the development in England about 1754 of mechanical spinning methods, and with a revolutionary ring frame invented in Pawtucket, R. I., about 1832. Now the process consists of cleaning natural fibers, loosening and laying them parallel, attenuating them into an even roving, further thinning and twisting this roving into a single yarn, and finally twisting two or more of the single yarns into plied thread. Mercerizing, a process of soaking in caustic soda under high tension, adds luster to cotton thread, makes it stonger and more readily receptive to dyes. Synthetic yarn, a product of a highly complex chemical process, is delivered to the thread manufacturer for final processing into thread.
'Yarn' according to the Shorter Oxford English Dictionary means :
Spun fibre, as of wool,, flax, silk, cotton; now usu., fibre spun and prepared for use in weaving, knitting, etc. In Rope-making, one of the threads composing a strand, or these threads collectively.
'Thread' according to the same dictionary means :
A fine cord composed of the fibres or filaments of flax, cotton, wool, silk, etc. spun to a considerable length ; spec, such a cord composed of two or more yarns, esp. of flax, twisted together ; ....
'Thread' also means :
Each of the lengths of yarn which form the warp and woof of a woven fabric.... A lineal measure of yarn : the length of a coil of the reel, varying in amount according to the material, and also with the locality....
In the Encyclopaedia Britannica, 'thread' is said to be :
tightly twisted ply yarn having a circular cross section, and used in commercial and home sewing machines and for hand sewing. Thread is usually wound on spools, with thread size, or degree of fineness, indicated on the spool end. Cotton thread is compatible with fabrics made from yarn of plant origin, such as cotton and linen, and for rayon, made from cellulose, a plant substance. Silk is suitable for silks and wools, both of animal origin; and nylon and polyester are appropriate for synthetics and for knits having a high degree of stretch.
'Yarn' has also been given the following meaning :
Continuous strand of fibres grouped or twisted together and used to construct textile fabrics. Yarns are made from both natural and man-made fibre, in filament or staple form. Filament is fibre of great length, including the natural fibre silk and the man-made fibres. Most fibres that occur in nature are of fairly short length, or staple, and man-made fibres may be cut into short, uniform lengths to form staple....
In yarns' used for weaving, the warp, or lengthwise yarns are usually made stronger, more tightly twisted, smoother, and more even than the filling, or crosswise yarns. Knitting yarns have less twist than weaving yarns. Yarns used for machine knitting may be single or ply types; ply yarns are generally used for hand knitting. Thread, used for sewing, is a tightly twisted ply yarn having a circular cross section.
A single yarn is capable of being used as sewing thread though if the material is cotton, for giving the thread considerable amount of strength, several yarns are rolled together. Between 'yarn' and 'thread', there is not much of a manufacturing process and the identity of the material is not lost. In fact, with a considerable amount of ease, the thread can be unrolled and restored to the earlier position of yarn.
The Government of India in the Ministry of Finance appeared also to have taken the same view as would appear from a communication dated 22nd February, 1960, from the Deputy Secretary to Government of India in the Ministry of Finance (Department of Economic Affairs) addressed to J. & P. Coats (India) Private Limited, Delhi. The text of the letter has been made available to us and it reads thus:
With reference to your letter dated 22nd February, 1960, I am directed to say that the Government of India are advised that cotton sewing thread is covered by the term cotton yarn but not including cotton yarn waste, used in Section 14(ii-b) of the Central Sales Tax Act, 1956. Suitable instructions in this regard have already been issued to all the State Governments.
We agree that the view expressed by the Government of India is not a final one, but we have noticed it as it is in accord with our conclusion which has been independently reached.
The observations of the Division Bench of the Allahabad High Court in the reported decision referred to above that-.On the question whether cotton sewing thread retained its characteristic of its being cotton yarn the question has to be answered in the negative....
and.Although the cotton sewing thread is made out of cotton yarn, it cannot be re-converted into cotton yarn if not used as a cotton sewing thread....
do not, in our view, appear to be correct.
8. We may conveniently refer to a very recent decision of the Supreme Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers [1980] 46 S.T.C. 63 (S.C.). Affirming the decision of the Kerala High Court, this Bench of three learned Judges referred to a series of precedents of the Supreme Court and indicated that where the commodity retains its original identity through the processing stage it cannot be said that a new thing has been manufactured. This principle was applied to the case before their Lordships and the learned Judges held :.Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it. It is contended for the revenue that pineapple slices have a higher price in the market than the original fruit and that implies that the slices constitute a different commercial commodity. The higher price, it seems to us, is occasioned only because of the labour put into making the fruit more readily consumable and because of the can employed to contain it. It is not as if the higher price is claimed because it is a different commercial commodity. It is said that pineapple slices appeal to a different sector of the trade and that when a customer asks for a can of pineapple slices he has in mind something very different from fresh pineapple fruit. Here again, the distinction in the mind of the consumer arises not from any difference in the essential identity of the two, but is derived from the mere form in which the fruit is desired.
These observations go a long way to support the contention of the assessee's counsel. If the ripe pineapple fruit is not transformed into a different commodity when sliced and canned in tins and the identity is retained, there can be no dispute that two or three yarns when rolled into thread and they can be unrolled to their original condition, identity is not lost and the thread continues to belong to the yarn specie even when available to be used for certain specific purposes and no new commodity has come into existence.
9. The Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act (52 of 1952) was repealed by the Central Sales Tax Act (74 of 1956) and cotton yarn is an item of declared goods under Section 14 of the Central Sales Tax Act. At the relevant time, it was exigible to tax at two per cent.
10. Our answer to the Question referred to this Court for opinion, therefore, is that cotton thread sold by the dealer was exigible to tax at 2 per cent as declared goods under the Orissa Sales Tax Act. The assessee is entitled to costs of the reference. Hearing fee is fixed at Rs. 200. The assessment under Section 12(4) of the Act adopting the rate of three per cent having become final, the Tribunal while dealing with this matter under Section 24(5) of the Act should ensure that such assessment is not interfered with.
N.K. Das, J.
11. I agree.