Das Gupta, C.J.
1. This is a reference under section 16(1) of the Mysore Sales Tax Act, 1948. The assessee is a manufacturer of ready-made garments in Bangalore. It is not disputed that his sales extend all over India and a large part of his sales are to dealers outside the Mysore State and for consumption outside the said State. The assessee was assessed for the accounting year 1949-50. The order of assessment was made on 22nd March, 1952. In the statement of case sent to this Court in this reference it is stated that originally the assessment order was passed on 22nd March, 1952, estimating the turnover at Rs. 8,00,000 and assessing to a tax of Rs. 12,500 at 3 pies in the rupee. It is further stated in the said statement that in making that assessment the officer concerned did not notice certain statement in which the turnover of the year 1949 had been declared by the petitioner dealer at Rs. 14,57,880-5-4 and also did not notice that the previous Sales Tax Officer had checked the accounts and found a turnover in the petitioner's books of Rs. 14,57,880-5-4 for the year 1949-50 but no orders were passed by him. In the order subsequently passed by the Sales Tax Officer under rule 35(1) of the rules made under the Mysore Sales Tax Act, 1948, the validity of which is in question in this reference, it is stated that the said statement was enclosed to the assessee's letter dated 12th July, 1950, and this letter with the statement of turnover was mixed up with the assessment record of 1950-51 and escaped his notice. The Sales Tax Officer, however, made the said assessment according to his best judgment under section 12(2)(b) of the Sales Tax Act. It is not disputed that the return of the turnover for the year 1949-50 had not been filed by the assessee in the prescribed form. The Sales Tax Officer proceeded on the basis that no return was submitted by the dealer and he made his order of assessment according to his best judgment as already mentioned. It is said that subsequent thereto it came to the notice of the Sales Tax Officer that there was on the record a statement filed by the assessee according to which the turnover of the assessee for that year was Rs. 14,57,880-5-4. The Sales Tax Officer having come to know of that fact started proceedings under rule 34 of the rules framed under the Mysore Sales Tax Act. The said rule inter alia provides that if for any reason the whole or any port of the turnover of business of a dealer or license has escaped assessment to the tax in any year, the assessing authority or licensing authority, as the case may be, may, at any time within the year or the two years next succeeding that to which the tax or licence fee relates, assess the tax payable on the turnover which has escaped assessment. The Sales Tax Officer in the said proceedings revised his previous order and passed a new order of assessment on 23rd July, 1952, on the basis of an enhanced turnover of Rs. 14,57,880-5-4 and served a revised demand notice on the assessee. The said order, however, was cancelled by the Deputy Commissioner of Sales Tax who by his order dated 6th October, 1952, directed the Sales Tax Officer to take action under rule 35 of the Mysore Sales Tax Rules and pass suitable orders. Thereafter the Sales Tax Office started proceedings under rule 35 of the said rules and on 28th October, 1952, made the final order of assessment on the basis of a total turnover of Rs. 14,57,880-5-4. Against that order the assessee preferred an appeal to the Assistant Commissioner. On 31st January, 1953, that appeal was dismissed. Thereafter a review petition was filed before the Commissioner of Sales Tax which was also dismissed. Thereafter on 4th December, 1953, the assessee applied to the Commissioner of Sales Tax under section 16(1) of the Sales Tax Act for making a reference to this Court. Thereupon the said Commissioner made the present reference to this Court.
2. The questions which have been referred to this Court for decision are as follows :-
'1. (i) Whether in the circumstances of the case the goods sold by the petitioner fall within the category of 'textiles manufactured by mills' for the purpose of levy of sales tax under the Mysore Sales Tax Act, 1948.
(ii) Whether sales tax having been already levied on textiles at one point, it is lawful to levy the tax on the turnover of the petitioner with respect of them.
(iii) Whether if the petitioner's turnover is chargeable to sale tax what part of it is so chargeable having regard to the provisions of section 2(k). Explanation (i), of the Act and the cost of labour involved in the making of the garments.
2. (i) Whether out of the total turnover of Rs. 14,57,880-5-4 an amount of Rs. 4,85,099-1-4 which represents turnover relating to sale of goods which has taken place outside the State within the meaning of Article 286(1) of the Constitution of India between the period 26th January, 1950, to 31st March, 1950, is chargeable to sales tax; and
(ii) Whether the President's C.O. No. 7 Sales Tax Continuance Order, 1950, dated 26th January, 1950, under Article 286(2) enables the Government to continue to levy the sales tax until 31st March, 1951, notwithstanding that such levy offends Article 286(1) of the Constitution and as such is void. 3. Whether in the circumstances of this case as set out in para 2 of this statement it was lawful and competent for the assessing authority to have revised the assessment dated 22nd March, 1952, made on the petitioner and whether rule 35 of the Mysore Sales Tax Rules, 1948, can be invoked for that purpose.'
3. I shall take up the last of the said questions first. It was contended before us on behalf of the assessee that in the circumstances of this case, to which I have referred, the Sales Tax Officer had no jurisdiction and could not proceed under rule 35 of the rules framed under the Mysore Sales Tax Act. The said rule inter alia provides that an assessing, appellate or revising authority may, at any time within two years from the date of any order passed by him, rectify any mistake apparent from the record. The learned Advocate for the assessee contended that the assessing authority can proceed under this rule if there is a mistake apparent from the record. In this case, he urged, there was no mistake and the mistake, if any, was not apparent from the record. The learned Advocate for the assessee further contended that the first assessment made by the officer concerned was according to his best judgment and the said assessment was made under section 12(2)(b) of the Sales Tax Act on the basis that no return had been submitted by the dealer. The learned Advocate urged that where the officer concerned makes an order of assessment according to his best judgment then there is no scope for the application of rule 35 of the said rules to the said order of assessment. In other words, it was contended by him that in a case where there is a best judgment assessment under section 12 of the Sales Tax Act, rule 35 has no application. The learned Advocate for the assessee also contended before us that even if we hold that rule 35 is applicable to a case where there is a best judgment assessment, in view of the fact that there was no mistake and even if there was a mistake, it was not apparent from the record, there can be no question of applying the said rule to the case. On these contentions the learned Advocate for the assessee asked us to hold that the assessment made by the authority concerned was without jurisdiction and should be quashed.
4. The first question, therefore, which we have to determine, in order to decide this point, is whether or not rule 35 can be applied to a case where there is a best judgment assessment. This question no doubt requires careful consideration, but in view of the fact that our decision on the order two grounds urged by the learned Advocate for the assessee sufficiently disposes of this particular point, it would not be necessary for us to decide this question in this reference. We have come to the conclusion that even if rule 35 can be applied to a case where there has been a best judgment assessment, the order passed by the assessing authority in this case could not be made under the said rule. It appears from the final order passed by the Sales Tax Officer himself on 28th October, 1952, that in making the said final order the said officer not only looked into materials which were already existing on the record but also examined new materials which were not on the record. For instance, it is stated by him in his said order that he examined the accounts for the year 1950-51 and also the accounts for the year 1949-50. The accounts for the year 1950-51 were not on the record of the previous assessment. They are, therefore, new materials which the assessing authority took into consideration in making the new order of assessment. This, in my opinion, the assessing authority was not permitted to do under rule 35 of the said rules. He is entitled under the said rule to rectify a mistake which may be found out from the record itself, that is to say, from the materials which are already on the record. He cannot under rule 35 take into consideration new materials and then come to a conclusion that there has been a mistake and proceed to rectify the said mistake.
5. In a case reported in Arvind N. Mafatlal v. Income-tax Officer, North Satara ( 32 I.T.R. 350), their Lordships of the Bombay High Court in dealing with this point observed that all proceedings which constitute evidence on which the assessment order is passed must be regarded as record for the purposes of section 35. In this case, the materials which the officer concerned examined and took into consideration were not the basis on which the previous assessment order was passed, nor were in the record of the said assessment. That being so, I am of the opinion that it cannot be said that the officer concerned rectified a mistake which was apparent from the record.
6. It also appears from the said order of the Sales Tax Officer that before making the said order under rule 35 he had to hear and examine the contention of the assessee. In other words, he had to examine the various questions some of which were difficult questions of law raised by the assessee before he made his order under rule 35. For instance, one of the contentions raised by the assessee before him was that out of the total turnover shown by him, Rs. 4,85,920-6-10 relates to goods sent outside the State and that turnover is not liable to sales tax. It was also contended that the turnover of sales within the State during 1949-50 is not liable for sales tax for the reason that the goods sold are textiles on which tax had already been paid. The position, therefore, is that the Sales Tax Officer had to examine and investigate into all the contentions raised by the assessee before he could make an order under the said rule. It has been observed by their Lordships of the Bombay High Court in the case to which I have just now referred that a mistake to be rectified should, however, be a mistake 'patent on the record and not a mistake which may be discovered by a process of elucidation, argument or debate.' One of the debatable points which the Sales Tax Officer had to determine in these proceedings was whether or not the whole of the turnover shown by the assessee for that year, viz., Rs. 14,57,880-5-4, was textiles, and whether a substantial portion of it was immune from tax. That being so, it appears to me to be quite clear that this is neither a case of mistake, nor a case of a mistake apparent from the record. The decision of the Sales Tax Officer, therefore, in my opinion cannot be justified by the provisions of rule 35 of the said rules.
7. There is another reason which has prompted me to come to that conclusion. It appears from the final assessment order of the Sales Tax Officer passed under the said rule that he based his said decision on the materials which he took into consideration at the said proceedings. The position, therefore, is that the previous assessment was a best judgment assessment made under section 12(2)(b) of the Sales Tax Act on the basis that no return had been submitted by the dealer. What, however, the Sales Tax Officer did, purporting to proceed under rule 35 of the said rules, was to re-open the whole assessment and make a new assessment not according to his best judgment but according to the materials which he discovered and which he examined at the hearing the said matter. In other words, he proceeded to make a new assessment on an entirely different basis. This, in my opinion, he was not justified to do under the said rule. All that he is empowered under the said rule is to rectify any mistake which was apparent from the record of the said proceedings and not to re-open the precious proceedings and make a new assessment order on any entirely new basis.
8. On a full consideration of the matter I have come to the conclusion that the answer to the third question must be given in favour of the assessee. The said answer would be that it was not lawful nor competent for the assessing authority to have revised the assessment dated 22nd March, 1952, made on the petitioner and rule 35 of the Mysore Sales Tax Rules, 1948, cannot be invoked for that purpose.
9. I shall now take up question No. 1. There are three sub-questions in the said question and it would be convenient to take up sub-questions (i) and (ii) together and I shall deal with the same. It was urged before us by the learned Advocate for the assessee that the goods on which the tax was levied in this case are 'textiles manufactured by mills' and, therefore, cannot be taxed when sold by his clients to their dealers. He referred us to the provisions of section 3 which inter alia provides as follows :
'In the case of textiles manufactured by mills and power-looms, however, the tax shall be calculated at a single point at the rate of six pies for every rupee on such turnover and levied when sold by a person who is the first dealer in Mysore.'
10. He contended before us that the goods sold by the assessee and on which sales tax was levied in this case are really 'textiles manufactured by the mills' and that being so, the levy can be made only at single point on such turnover and that point should be when the said goods are sold by the first dealer. The first dealer who sold the goods in question in this case would be the mills and when the assessee sells them back again to other dealers, he is not liable to be taxed.
11. In my opinion, this contention cannot be accepted as sound. The goods which are sold by the assessee are ready-made garments. The assessee after he had bought the cloth from the mills had to make garments out of the same by applying some process, e.g., by cutting the said cloth and sometimes by stitching one piece to the other. It cannot be said that the goods, which came into existence after the assessee applied all these processes, are still the textiles manufactured by the mills. They are 'ready-made garments' and not 'textiles manufactured by the mills'. A direct authority on this point can be found in the case of Sharfaji Rao v. Commissioner of Sales Tax ( 4 S.T.C. 6). In that case also the goods in question were ready-made garments. The petitioner in that case was a manufacturer of ready-made clothes and was ordered to pay sales tax upon the turnover of his business in the sale of ready-made clothes under section 3 of the Hyderabad General Sales Tax Act. It was contended on behalf of the petitioner that this order of the Sales Tax Officer was without jurisdiction. One of the contentions of the learned Advocate for the petitioner in that case was that ready-made clothes or garments are exempt from tax as they were made out of exempted articles specified in item 17 of Schedule I read with the Notification of Government No. 75 dated 2nd August, 1950. In dealing with that contention their Lordships observed that 'ex facie it would appear that the legislative intent of the above exemption is only to exempt cloth which costs less than Rs. 3 per yard and it can hardly be said that ready-made garments can be sold per yard or that they can be described as cloth costing less than Rs. 3 per yard'. Their Lordships came to the conclusion that ready-made garments made of cloth did not come within the exemption specified in item 17 of Schedule I of the Hyderabad General Sales Tax Act.
12. The view which I am taking in this matter also finds support from a decision of the Calcutta High Court reported in Ishwardas Kapoor & Sons v. Member, Board of Revenue, Bengal ( 1 S.T.C. 153). There the question was whether hand-loom-woven cloth which, after it comes out of the loom, is subjected to needle work performed by hand or machine and thereby has its value increased, can still be regarded as hand-loom-woven cloth. In dealing with that question, Mr. Justice Gentle observed as follows :-
'So far as the first question is concerned, in my opinion, the exception with respect to hand-loom-woven cloth applies only to that cloth simpliciter. If its value is increased, other work being carried out upon it, whether it be by hand or by machinery in the way of embroidery, tapestry or the like, them the cloth or the shawl or whatever it may be, is not as it comes from the hand-loom, is not hand-loom-woven cloth simpliciter, but becomes something more than, that. In my opinion, the provisions of the section and item 16 apply only to hand-loom-woven cloth which is sold in the same state in which it is when finished and removed from the loom. Therefore it follows that the answer to the first question is in the negative'.
13. In my opinion, the reasoning appearing in this passage applies with equal force to the present case. What is meant by 'textile manufactured by mills' is really textiles simpliciter and not textiles upon which work has been done making it ready-made garments. It cannot be said that ready-made garments, although made out of textiles manufactured by mills, are still textile manufactured by mills. In my opinion also, the restriction upon taxation in respect of 'textile manufactured by mills' applies to those textiles simpliciter.
14. In the case of Firm Jaswant Rai Jai Narain v. Sales Tax Officer and Others ( 6 S.T.C. 386) their Lordships of the Allahabad High Court in dealing with the question as to whether the article sold by the applicant in that case can be treated as 'cloth manufactured on hand-looms' within the meaning of the notification mentioned therein, observed as follows :-
'The word 'cloth' is to be distinguished from 'clothes' or garments. Cloth is the fabric or material from which 'clothes' are made as wearing apparel or as other articles of personal use. What is exempted under the notification is 'cloth' and not 'cloths'. What the applicant does is to take hand-loom cloth and either cut it into specific sizes or to have them manufactured into specific sizes, so that the pieces can be used as saris, bed covers, leafs (quilt covers) etc., and then to print them so that they can be readily used for the purpose for which they are meant. It is quite obvious that the articles in which the applicant deals are 'clothes' or garments and not 'cloth' within the meaning of the notification.'
15. These observations, in my opinion, also support the view which I am taking in this matter.
16. The learned Advocate for the assessee, however, referred us to a decision of the Supreme Court in Kailash Nath and Another v. The State of U.P. and Others ( 8 S.T.C. 358). In that case the question arose whether although the colour of the cloth had changed by printing and processing, the cloth exported was the same cloth and whether the petitioners were entitled to the exemption under the notification in question. In dealing with that contention their Lordships no doubt held that the export which had taken place was of such cloth and negatived the contention that the thing exported is not the same. Their Lordships held that by using the word 'such' in the notification what the Legislature has laid down is not that the identical thing should be exported in bulk and quantity or that any change in appearance would be crucial to alter it. In my opinion, the facts of that case are different from the facts of the present case. In that case what was done was only to change the colour of the cloth and it was on a proper interpretation of the notification in question in that case that it was held to be still 'such cloth'. In this case, however, the position is different. The materials bought from the mills had to be changed by cutting and refixing and as a result of such processes a new thing came into existence, i.e., ready-made garments. In such a case it cannot be said that it is still the textiles manufactured by the mills simpliciter. The Supreme Court decision on which the learned Advocate for the assessee relied is no authority for the proposition that when materials purchased from the mills are utilised for the purpose of making ready-made garments, then the ready-made garments so made still remain the textiles manufactured by the mills. In that case their Lordships had no occasion to consider the effect of the present section with which we are concerned. That decision, therefore, in my opinion does not help the assessee.
17. The result is that the answers to these two sub-sections will be against the assessee. The said answers would be (i) that in the circumstances of this case the goods sold by the petitioner do not fall within the category of textiles manufactured by mills for the purpose of levy of sales tax under the Mysore Sales Tax Act, 1948, and (ii) that it is lawful to levy the tax on the turnover of the petitioner with respect to them.
18. I now come to sub-question (iii) of question No. 1. It was contended before us by the learned Advocate for the assessee on the basis of the provisions of section 2(k), Explanation (i), of the Act that the cost of labour involved in making up garments should be excluded. Section 2(k) defines 'turnover' as meaning the aggregate amount for which goods are either bought or sold by a dealer, whether for cash or for deferred payment or other valuable consideration. Explanation (i) of the said clause reads as follows :-
'Subject to such conditions and restrictions, if any, as may be prescribed in this behalf, - (i) the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract.'
19. It was urged before us that the goods in this case are goods sold in relation to a works contract and, therefore, deductions allowable under the said clause should be allowed to the assessee in this case. The first question to be determined in order to adjudicate upon this contention is whether or not the goods in question can be said to have been sold in relation to a works contract. The 'works contract' has been defined as meaning 'any agreement for carrying out for cash or for deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property or the fitting out, improvement or repair of any movable property.' It was urged that the sale in the present case was in relation to a works contract as defined above.
20. I am wholly unable to accept this contention. It appears from the definition of 'works contract' that there must be an agreement for carrying out the matters mentioned therein. In this case there is nothing to show that there was any agreement between the dealer and any other party for the purpose of making ready-made garments. That being so, it is not possible to say that the sale in question was a sale in relation to a works contract. I am also unable to hold that the works in question were for the purpose of either fitting out or improving or repairing of any immovable property. I have, therefore, come to the conclusion that this contention of the learned Advocate for the assessee is not sound.
21. In the result sub-question (iii) of question No. 1 shall be answered against the assessee. The said answer would be that the provisions of section 2(k), Explanation (i), are not applicable to the present case and if the petitioner's turnover is chargeable to sales tax, the whole of it should be chargeable.
22. I now come to the remaining two questions, which are questions 2(i) and 2(ii). They can be dealt with together. On these questions there seems to be no difficulty. The question raised was whether or not in view of the proviso to sub-clause (2) of Article 286 of the Constitution and in view of the order made by the President pursuant thereto, the sales or purchases which have been place outside the State can still be liable for tax. Article 286(1) inter alia provides that no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. Clause (2) of the said article provides that except in so far as Parliament may by law otherwise provide, no law of a State shall impose or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce. The proviso to the said clause (2) lays down that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of the Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951.
23. The view taken by the assessing authority was that by virtue of this proviso and by virtue of the President's order pursuant thereto the sales which have taken place in the present case outside the State are also taxable. The learned Government Pleader frankly conceded before us that he is unable to maintain that view and he stated that the President's order related to clause (2) of Article 286 and it has nothing to do with clause (1) of the said article. That being so, these two sub-questions of question No. 2 should be answered in favour of the assessee. The said answers would be :- 2(i) Out of the total turnover amount which represents the turnover relating to sale of goods which has taken place outside the State within the meaning of Article 286(1) of the Constitution between the period 26th January, 1950, and 31st March, 1950, is not chargeable to sales tax, 2(ii) The President's order C.O. No. 7, Sales Tax Continuance Order, 1950, dated 26th January, 1950, under Article 286(2) does not enable the Government to continue to levy sales tax until 31st March, 1951, notwithstanding that such levy offends Article 286(1) of the Constitution, and such levy is void.
24. This reference is disposed of in the manner indicated above. Having rear to the fact that the assessee has only party succeeded in this reference, he will bear his own costs of this reference. The fee deposited by him will be refunded.
Somnath Iyer, J.
25. I agree.
Civil Petition No. 113 of 1954.
26. The answers to the questions referred to us in this petition will be the same as are given by us in C.P. No. 117 of 1954. The fee deposited by the assessee will be refunded to him.
27. Reference answered accordingly.