1964 (8) TMI 53 - HC - VAT and Sales Tax

Summary

Issues:
1. Determination of whether the transaction involving zari work on silk cloth amounts to works contract or sales for assessment.
2. Interpretation of the exemption under item 4 of the Third Schedule to the Madras General Sales Tax Act, 1959, for textiles.
3. Analysis of the applicability of item 19 of the First Schedule to the Madras General Sales Tax Act, 1959, regarding zari sales.

Analysis:
1. The petitioner, a dealer in cloth and zari, claimed exemption for zari work on silk cloth as a works contract, not sales. However, the Appellate Assistant Commissioner and Sales Tax Appellate Tribunal rejected the claim. The Tribunal found that the embroidered pieces were ready-made products with zari work, not works contracts. The Tribunal's specific finding that customers did not supply cloth supported the conclusion that it was a sale of finished embroidery products, not a works contract involving labor on customer-supplied material.

2. The petitioner argued for exemption under item 4 of the Third Schedule to the Madras General Sales Tax Act, 1959, which exempts textiles from assessment. Citing legal precedents, the petitioner contended that the sale involved cloth, not embroidered pieces. However, the Court disagreed, stating that the zari embroidery materially altered the goods sold, making the value of embroidery predominant over the cloth. This distinction was crucial, unlike cases where embroidery did not significantly affect the material's value. Additionally, the use of silk cloth, not cotton, further negated the exemption under item 4.

3. The petitioner invoked item 19 of the First Schedule to the Madras General Sales Tax Act, 1959, which assesses zari at the point of first sale in the State. The argument that subsequent sales should be exempt was dismissed because the sale did not involve zari material alone but zari thread embroidered on silk cloth. Customers paid for the design created with zari on silk cloth, not just zari material. The Court upheld the Tribunal's decision, confirming the sale as not falling under the exemption for zari sales.

In conclusion, the Court dismissed the petition, upholding the Tribunal's decision that the transaction involving zari work on silk cloth constituted a sale of finished embroidery products, not a works contract. The Court also rejected the petitioner's claims for exemption under the relevant provisions of the Madras General Sales Tax Act, emphasizing the material alteration caused by the zari embroidery on the silk cloth.