1975 (4) TMI 102 - SC - VAT and Sales Tax

Whether the article carpet woollen yam is covered by the term yarn mentioned in item No. 4 of Notification No. ST-907/X dated 31st March, 1956, and item No. 33 of Notification No. ST-1365/X dated 1st April, 1960, taxable at 6 pies and 3 pies per cent respectively or a kind of woollen goods as mentioned at item No. 46 taxable at one anna per rupee according to Notification No. ST-905/X dated 31st March, 1956, or whether it is an unclassified item taxable at 2 per cent? Held that - Appeal dismissed. As woollen carpet kati is neither yarn nor woollen goods falling under the aforesaid notifications issued under section 3-A. It is an unclassified item and its turnover is liable to tax at the rate of 2 per cent under section 3 of the Act. Thus we affirm the answer given by the High Court to the question referred.

Summary

Issues:
Interpretation of the term "yarn" under U.P. Sales Tax Act, 1948 for taxation purposes.

Detailed Analysis:
The case involved a dispute regarding the taxation of "woollen carpet yarn" known as "kati" by M/s. Sarin Textile Mills under the U.P. Sales Tax Act, 1948. The primary question was whether the kati should be taxed as "yarn" at 3% or as "woollen goods" at one anna per rupee, or as an unclassified item at 2% under the relevant notifications. The Sales Tax Officer initially taxed it as yarn, but the Assistant Commissioner (Judicial) and the Judge (Revisions) considered it an unclassified item taxable at 2%.

The High Court held that woollen carpet kati does not qualify as "yarn" as it is unspun fibre not used in weaving. The High Court also rejected the argument that it should be taxed as "woollen goods." The notifications in question defined "yarn" and "woollen goods" for taxation purposes.

The term "yarn" was analyzed based on its ordinary grammatical sense, which requires the fibre to be spun and primarily meant for use in weaving, knitting, or rope-making. The Court examined the process of weaving, emphasizing the interlacing of warp and weft components to create a woven structure.

The Court found that woollen carpet kati, being unspun fibre not used in weaving but manually attached to warp threads, does not qualify as "yarn" or "unspun fibre used in weaving" under the notifications. Additionally, it was determined that kati is only a raw material for woollen goods and should not be taxed at a higher rate intended for finished goods.

Conclusively, the Court held that woollen carpet kati does not fall under the definitions of "yarn" or "woollen goods" in the notifications but is an unclassified item taxable at 2% under section 3 of the Act. The High Court's decision was affirmed, and the appeals were dismissed with costs awarded to the respondent.