THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON'BLE SRI JUSTICE M.SATYANARAYANA MURTHY

TAX REVISION CASE No.282 of 2001 and 8 and 14 of 2002

COMMON ORDER: (per Hon'ble Sri Justice Ramesh Ranganathan)

These Tax Revision Cases are preferred by the assessee against the common order passed by the Sales Tax Appellate Tribunal, Hyderabad ('STAT', for short) in T.A.No.854 of 1997 and batch dated 07.06.2000.

The petitioner was assessed to tax by the assessing authority i.e. Commercial Tax Officer, Lalapet, Guntur. The assessment order of the Commercial Tax Officer was revised by the Deputy Commissioner (CT), Guntur, under Section 20(2) of the Andhra Pradesh General Sales Tax Act, 1957 (for short 'the Act'), on the ground that it was prejudicial to the interests of the revenue. As against the exemption granted from tax by the assessing authority, an additional turnover, representing the first sale of cotton linters, was added, and appropriate tax was imposed thereupon. The revisional authority treated the disputed turnover as cotton waste covered by Entry 69 of the First Schedule to the Act. Aggrieved thereby, the petitioner carried the matter in appeal to the STAT.

While the petitioner contended, before the STAT, that "cotton linters" was "cotton" under Entry 8 of the III Schedule, and could not be treated as "cotton waste" as it continued to be used as inferior cotton for the manufacture of various items, the Revenue contended that "cotton linters" was only cotton waste, and could not be treated as inferior cotton. In the order under revision, the STAT referred to the judgment of the Division Bench of this Court, in Alimchand Topandas Oil Mills v. State of Andhra

<span id="page-0-1"></span><span id="page-0-0"></span>Pradesh^[1], and the order of the STAT in T.G.Lakshmayaa Sethi v. State of Andhra Pradesh^[2]. The STAT also referred to the definition of cotton as given in Oxford Advanced Learners Dictionary as a "soft white fibrous substance around the seeds of a tropical plant, used for making thread, cloth, thread spun from cotton yarn", and concluded that "cotton linters" could not be treated as cotton, as none of the certificates produced by the assessee showed that the said product was used in the manufacture of any type of cloth of any variety; and it should be treated as cotton waste. The STAT also negatived the contention that "cotton linters" would fall within the ambit of Entry 8 of the Third Schedule to the Act, and should be treated among "all kinds of cotton", holding that the waste fibre could not be treated as any kind of cotton.

Before us Sri K.Raji Reddy, Learned Counsel for the petitioner, would submit that if, by form and nature, the subject goods are cotton, then it must be treated as falling under Entry 8 of the Third Schedule; it is wholly immaterial whether or not "cotton waste" is put to use in the textile industry; and in the absence of any legislative guidance as to what the words "cotton waste" mean, its ambit should be restricted only to floor sweepings in a powder form; the user test is wholly inconclusive; and the question, which arose for consideration before the Division Bench in Alimchand Topandas Oil Mills¹, was whether "cotton linters" was "cotton waste" or "general goods", and not whether "cotton linters" fell within "all kinds of cotton" in Entry 8 of the Third Schedule to the Act. Learned counsel would rely on Mukesh Kumar Aggarwal v. State of Madhya Pradesh^[3]; and an order of this Court, in the case of the petitioner

Sri P.Balaji Varma, Learned Special Standing Counsel for Commercial Taxes, would submit that the order of the STAT is a well considered and a reasoned order; the STAT has given cogent reasons for its conclusion that "cotton linters" is cotton waste; and no question of law arises therefrom necessitating exercise of the revisional jurisdiction by this Court. Learned counsel would rely on State of Andhra Pradesh v.

<span id="page-1-0"></span>themselves, in W.P.No.14375 of 1999 dated 13.07.1999.

<span id="page-1-1"></span>J.Pharma Chandulal Baradari^[4].

In Mukesh Kumar Aggarwal³, Supreme Court held that, in a taxing statute, words which are not technical expressions or words of art, but are words of everyday use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance i.e. "that sense which people conversant with the subject matter

with which the statute is dealing, would attribute to it"; such words must be understood in their 'popular sense'; the particular terms used by the legislature, in the denomination of articles, should be understood according to the common, commercial understanding of those terms used, and not in their scientific and technical sense, "for the legislature does not suppose our merchants to be naturalists or geologists or botonists"; the 'user-test' is logical, but is inconclusive; and the particular use, to which an article can be applied in the hands of a special consumer, is immaterial.

In W.P.No.14375 of 1999, the petitioner herein had invoked the jurisdiction of this Court seeking stay of collection of the disputed tax, pending disposal of their appeal before the STAT. When the judgment, in Alimchand Topandas Oil Mills¹, was brought to their notice, the Division Bench held that the dispute was whether "cotton linters" was the same as "cotton", or whether it should be classified as "cotton waste" under Entry 69 of the First Schedule; as the decision in Alimchand Topandas Oil Mills¹, was directly not in point, it could not be said that there was no prima facie case in favour of the petitioner; moreover, for the earlier year, stay was granted subject to the condition of payment of 50% of the disputed tax; in that background, wholesale rejection of the Stay application was arbitrary warranting interference under Article 226 of the Constitution of India; and it was just and proper to direct that, pending disposal of the appeal, there shall be stay subject to the condition of payment of 50% of the disputed tax within a period of four weeks from the date of the order.

The question whether "cotton linters" was cotton waste or "cotton" was not examined in W.P.No.14375 of 1999. The Division Bench, having noted that the substantive appeal was pending before the STAT, considered it appropriate to grant stay on condition of payment of 50% of the disputed tax, pending disposal of the appeal by the STAT. Though it was of the view that the decision in Alimchand Topandas Oil Mills¹ was directly not in point, the Division Bench in W.P.No.14375 of 1999 did not examine whether or not "cotton linters" was "cotton waste". Reliance placed on the said judgment by Sri K.Raji Reddy, Learned Counsel for the petitioner, is misplaced.

Entry 8 of the Third Schedule to the Act relates to "cotton", that is to say, "all kinds of cotton (indigenous or imported) in all its unmanufactured State, whether ginned or unginned, baled, pressed or otherwise but not including cotton waste". Entry 69 of the First Schedule to the Act relates to cotton waste. From a reading of Entry 8 of the Third Schedule, it is evident that, while all kinds of cotton fall within its ambit, "cotton waste" does not. If "cotton linters" are "cotton", and not "cotton waste", they would fall under Entry 8 of the Third Schedule. If, on the other hand, "cotton linters" are "cotton waste", they would then fall within the ambit of Entry 69 of the First Schedule to the Act.

In Alimchand Topandas Oil Mills¹, the question which fell for consideration before a Division Bench of this Court was whether the commodity in question i.e. "cotton linters" was "cotton waste" or not. The Division Bench held that, in the process of ginning of cotton, the fibres that stick on to the seeds were separated; fibre so removed was sought to be taxed, treating it as cotton lint, which is neither cotton nor cotton waste; Entry 8 speaks only of cotton, and the commodity "cotton waste" is not defined in item 69 of the First Schedule; whatever comes out as waste, after ginning of raw cotton, would be "cotton waste" within the meaning of Entry 8 of the Third Schedule; the Department of Chemical Technology, University of Bombay, had certified that the sample of cotton fibres, produced by the petitioner therein, was "cotton waste" with a staple length much below the optimum required for direct spinning into yarn on any machine; the main use for this type of "cotton waste" was in the manufacture of rayons after chemically processing the fibres, dissolving it in a suitable solvent, and then regenerating it into rayon filaments; the sample sent to the Cotton Specialist, Cotton Research Station, Nandyal had elicited an opinion that it was some kind of waste which could be put to other uses after due processing; the meaning given in the Standard Work on "Cotton" by Brown (published by McGraw Hill Book Company, New York and London, at page 538) was that "Cotton waste" from spinning mills consists principally of short fibres that have been rejected by machines in the process of combing and carding; and also floor sweepings, odds and ends from weaving, and various scraps"; in the

process of separating seeds from fibres, the waste product was taken out; the fact that waste cotton could be put to use to several purposes, including as raw material in rayon manufacturing after due processing, was not a ground for holding that it was neither cotton nor cotton waste, but some other product, which is exigible to tax under Section 5(1) of the Act; and cotton and cotton waste had distinct meanings.

While it is no doubt true that, before the Division Bench in Alimchand Topandas Oil Mills¹, the revenue had contended that the subject goods were neither cotton nor cotton waste, but was "cotton linters" exigible to tax as general goods, the assessee therein had contended that the goods were "cotton waste". Whether "cotton linters" were "cotton of all kinds", which falls under Entry 8 of the III Schedule, or "cotton waste", which falls within Entry 69 of the I Schedule, they could not be classified as general goods. The assessee did not contend that "cotton linters" was "cotton", and had only contended that it was "cotton waste", and not general goods. The Division Bench examined the meaning of "cotton waste" and, after referring to the opinion of several experts and standard texts on the subject, came to the conclusion that "cotton waste" was whatever came out as waste after ginning of raw cotton, and would include rejection by machines in the process of combing and carding; and also floor sweepings, odds and ends from weaving, and various scraps.

The legislature has, in its wisdom, treated "cotton waste" as distinct from "all kinds of cotton" and, as such, both are mutually exclusive. "Cotton waste" cannot, therefore, be held to fall within the ambit of "all kinds of cotton" in Entry 8 of the III Schedule. The Division bench, in Alimohand Topandas Oil Mills¹, held that "cotton linters" were "cotton waste". Once the subject goods are held to be "cotton waste", it automatically stands excluded from Entry 8 of the Third Schedule. As there is a separate entry for "cotton waste" in "Entry 69 of the First Schedule", the subject goods are liable to tax thereunder. While the user test is not conclusive and the terms used by the legislature, in the denomination of articles, should be understood according to its common commercial usage, "cotton linters", which are residue arising from the rejection by machines in the process of

combing and carding, is understood, even by the trade, only as "cotton waste". While floor sweepings in a powder form would undoubtedly be waste, even odds and ends of weaving, various scraps and cotton residue, as a result of rejection by machines during the process of combing and carding, are also "cotton waste". We must express our inability to agree with the submission that it is floor sweepings in powder form, which has no value, which would alone constitute "cotton waste". The very fact that the legislature has prescribed a separate entry for "cotton waste" (Entry 69 of the First Schedule) shows that they were aware that "cotton waste" could also be sold at a price, requiring it to be subject to tax at the prescribed rate.

The order of the STAT, relying on the judgment of the Division Bench of this Court in Alimchand Topandas Oil Mills¹, is a well considered and reasoned order. The STAT is also the final court of fact, and the jurisdiction which this Court exercises, under Section 22 of the Act, is only on a question of law. As the question whether or not "cotton linters" is "cotton waste" has already been decided by the Division Bench of this Court in Alimchand Topandas Oil Mills¹, no question of law arises for this Court to exercise its jurisdiction under Section 22 of the Act.

The Tax Revision Cases are, accordingly, dismissed. Miscellaneous petitions pending, if any, shall also stand dismissed. There shall be no order as to costs.

RAMESH RANGANATHAN, J

M.SATYANARAYANA MURTHY,J

Date:06.11.2014 usd <span id="page-6-0"></span>[1] 37 STC 603

<span id="page-6-1"></span>[2] 3 APSTJ 242

<span id="page-6-2"></span>[3] 1988(68) STC 324

<span id="page-6-3"></span>[4] 1989(8) APSTJ 134