Bishambhar Dayal, C.J.
1. This judgment shall also govern the disposal of Miscellaneous Civil Case. No. 14 of 1968 (Girdharilal Nannelal, Burhanpur v. The Commissioner of Sales Tax, Madhya Pradesh). These are two references under Section 44 of the Madhya Pradesh General Sales Tax Act, 1958. Some questions have been referred to us by the Board of Revenue in both these cases. The assessee in both these cases is a firm 'M/s. Girdharilal Nannelal' of Burhanpur, which deals in cotton and cotton seeds. Two periods are involved in these references. The first period is from Diwali of 1950 to Diwali of 1951 and the second period is from Diwali of 1951 to Diwali of 1952. Since some questions of fact and law are common between the two periods, both these cases were dealt with by the Board of Revenue together and referred by a common order making a common reference. The questions that have been referred to this court are as follows:--
(1) (a) Whether on the facts and the circumstances of the case, it was legal to treat Rs. 10,000 an item of cash credit standing in the name of the wife of one of the partners of the assessee-firm, as the profit or income out of concealed sales?
(b) If the answer to (a) above is in the affirmative, was the enhancement of the gross turnover by Rs. 1,00,000 on the basis that the said Rs. 10,000 represented ten per cent. of the profit excessive or arbitrary?
(2) Whether on the facts and circumstances of the case, the assessee was entitled to the deduction claimed in respect of Rs. 11,72,020-14-3 being the value of sale of raw cotton to Yelmele Cotton Co. on the basis that ginning and pressing of raw cotton is not a manufacturing process and, therefore, the declarations of resale given by the Yelmele Co. were valid?
(3) Whether or not the assessee was entitled to be allowed its claim of exemption on account of export sales in a sum of Rs. 2,54,742-14-6 representing the value of cotton sold to Prakash Cotton Mills, Bombay, without being required to produce a certificate from the purchaser certifying 'that the delivery was for the purpose of consumption in the State of delivery '?
(4) Whether the transaction of Rs. 1,48,564-4-6 in the first period representing the value of cotton sold to the Swadeshi Cotton Mills, Kanpur, and Rs. 1,20,748 representing the value of cotton sold to the Swadeshi Cotton Mills and Rs. 1,00,475-13-0 representing the value of cotton sold to Keshavram Cotton Mills, Calcutta, in the second period, through adhatias, are intra-State sales giving rise to a taxable event in the hands of the assessee?
We shall now deal with these questions one by one briefly stating the relevant facts, and shall answer them.
2. The first question, which is in two parts, relates to a sum of Rs. 10,000 which was found credited to the account of the wife of one of the partners Kanji Devsi in the first period mentioned above. The case of the assessee with regard to this amount was that Shri Kanji Devsi had paid a sum of Rs. 10,000 to his wife in the year 1941 in order to induce her to agree to her marriage with him, and this amount remained in her possession and was deposited by her in the business during the first period now in question. This explanation was not accepted by any of the taxing authorities mainly on the ground that there was no proof of such payment except the bare statement of the partner. This partner had a personal account in the books of account and even in that account no withdrawal of such a sum was shown in the year 1941 when it was alleged to have been given to his wife. Having rejected the explanation given by the assessee, the taxing authorities assumed that this amount represented profit arising out of some concealed sales relating to this business. This inference was challenged by the learned counsel appearing for the assessee and his contention was that merely on account of some amount having been shown as credited in the account books, it was not reasonable to infer that it reflected profit arising out of concealed sales. According to him, income could have been derived in many other ways and the principle applied by the income-tax department was not applicable to such an inference being drawn in the case of sales tax. After giving careful thought to the matter, we are unable to agree with the learned counsel. When a sum of money is shown in the accounts of a particular business and no reasonable explanation has been given by the assessee to show how the amount was received, it is reasonable to infer that the amount reflected profit of that business which means necessarily out of sales not shown in the account books. The first part of this question, therefore, must be answered in the affirmative.
3. Since the average profit shown is on the basis of sales which are reflected in the account books, a profit of about ten per cent. has been calculated. It is, therefore, reasonable further to infer that this profit of Rs. 10,000 arose out of sales which were to the extent of Rs. 1,00,000, and, consequently, that inference drawn by the department that sales to the extent of Rs. 1,00,000 were not reflected in the account books was correct. The result, therefore, is that the second part of the question must also be answered against the assessee.
4. The second question relates to sales of raw cotton to Yelmele Cotton Company. Admittedly, this company is doing the business of purchasing raw cotton, ginning and pressing it, and, after packing it into bales, of selling it to different mills. When raw cotton was sold to this company by the assessee, a certificate was originally filed which did not indicate whether the purchase was for consumption or for resale. But later certificates were filed stating that the cotton was for resale. However, at the hearing, the representative of the assessee admitted that according to the assessee as well as the Yelmele Cotton Company, the process of ginning and pressing was not a process of manufacture, and it was on that account that a certificate had been given stating that the cotton was for resale. The taxing authorities having come to the conclusion that the Yelmele Cotton Company had purchased raw cotton for purposes of manufacture and converted it into ginned, pressed and packed cotton capable of being used in mills and thus the company was engaged in a process of manufacture and had purchased the cotton for consumption, they charged the assessee at a rate applicable to sales for consumption.
5. The contention of the learned counsel in this respect is twofold. His first contention is that the process of ginning and pressing is not a process of manufacture. We are unable to agree with this contention. Raw cotton, as it is, cannot be used in the mills for preparing yarn or cloth. In order to make raw cotton marketable, a complicated process through machines is gone through and this process of converting raw cotton into marketable cotton is a process of manufacture. The taxing authorities were right in this conclusion.
The second contention of the learned counsel was that in any case Yelmele Cotton Company having purchased the cotton for resale, even if it misused the cotton and used it for manufacture, the assessee would not be liable. That is a question of fact. Upon the evidence of the representative of the assessee, the taxing authorities have come to the conclusion that the assessee knew it and had sold the cotton for the purposes of manufacture ; and it is not correct that Yelmele Cotton Company had purchased the cotton after making the assessee understand that it was being purchased for resale but had subsequently utilised it for manufacture. Upon the evidence before the taxing authorities, the inference drawn by them was not unreasonable.
Our answer to the second question, therefore, is that the declarations of resale given by Yelmele Cotton Company were not valid.
6. With regard to the third question all that has been referred to us for answer is whether it was necessary for the assessee to produce a certificate from Prakash Cotton Mills, Bombay, to the effect that the delivery was for the purposes of consumption in the State of delivery. In respect of this sale we have obviously to assume that the cotton sold went out of the State of Madhya Pradesh as a direct result of the transaction of sale and was delivered to Prakash Cotton Mills, Bombay--the purchasers. These sales would be covered by the explanation added to article 286(1) of the Constitution as it then stood. For the applicability of the explanation no certificate was needed. It is always a question of fact to be determined in each case whether both the elements required to be proved under the explanation, viz., (1) that the goods went out of the State as a direct result of the contract of sale, and (2) that the goods were actually delivered outside the State for purposes of consumption, did in fact exist. In this case it is clear that the goods were purchased by a cotton mill and were delivered to it outside Madhya Pradesh. The authorities could take notice of the fact that on account of cotton control, mills could only purchase cotton for the purpose of manufacture and were not permitted to resell it. It was, therefore, amply proved that the sale of cotton in favour of Prakash Cotton Mills was fully covered by the explanation to article 286(1) of the Constitution and did not require any certificate as was insisted upon by the taxing authorities.
Our answer to the third question, therefore, is in the affirmative, in favour of the assessee.
7. The last question relates to transactions in both the periods. The question, as has been framed, 'takes it for granted that the cotton was sold by the assessee to different mills outside the State of Madhya Pradesh, and that these sales were effected through local adhatias. The Board of Revenue has mentioned that it has held in the matter of M/s. Basantilal Banarsilal of Khandwa, one of the adhatias through which the transactions were routed was a purchasing agent of the mills and was not liable to sales tax. The Board has also found that cotton in these transactions was booked by the assessee direct in the name of the mills. On these facts, when the assessee sold cotton to mills outside the State so that it went out of this State as a direct result of the transactions and was actually delivered to the mills for consumption in their States, the transactions were fully covered by the explanation to article 286(1) of the Constitution, and the sales were sales in the State in which the mills existed and delivery was given and the transaction was consequently a sale outside the State of Madhya Pradesh. For this purpose mere delivery to railway is not enough. Actual delivery of goods to the mills has to be seen. See Bengal Timber etc.  19 S.T.C. 366 (S.C.) Our answer to the last question, therefore,' is that these transactions were not intra-State sales giving rise to a taxable event in the hands of the assessee.
8. In view of the partial success, we will direct the parties to bear their own costs in these references. Our answers will be communicated to the Board of Revenue.