1969 (12) TMI 96 - HC - VAT and Sales Tax

Summary

Issues:
Whether twisted yarn qualifies for absolute exemption as 'hand-spun yarn' under a specific notification of the U.P. Sales Tax Act.

Analysis:
The case involved a reference under section 11(1) read with section 11(3) of the U.P. Sales Tax Act regarding the exemption of twisted yarn as 'hand-spun yarn.' The assessee claimed exemption for the turnover of hand-spun yarn based on a notification dated March 31, 1956. The Sales Tax Officer granted partial exemption but refused for the portion representing twisted yarn, considering it as manufactured yarn post twisting. The Additional Revising Authority, however, allowed exemption for twisted yarn, stating that it did not lose its identity as hand-spun yarn even after twisting. The Commissioner challenged this decision, leading to the present reference before the court.

The court analyzed the process of twisting, emphasizing that it does not change the essential nature of yarn. The notification aimed to exempt hand-spun yarn from sales tax, indicating a distinction from mill-spun yarn. The court noted that twisting does not alter the commercial identity of the yarn or its utility. Relying on precedents, the court highlighted that a process, even if termed as manufacturing, does not matter as long as the commodity remains the same commercially. Notably, the court cited Supreme Court cases where chemical changes in products did not alter their fundamental nature, supporting the view that twisting does not transform yarn into a different commodity.

The court dismissed the department's argument that twisting constituted a manufacturing process, clarifying that the critical aspect is whether the product becomes a distinct commodity post-processing. Referring to relevant judgments, the court distinguished cases involving significant changes in commodities, asserting that twisted yarn retains its identity as hand-spun yarn. Ultimately, the court ruled in favor of the assessee, affirming entitlement to exemption for twisted yarn under the notification. The judgment highlighted the importance of assessing whether a process results in a commercially distinct product when determining tax exemptions, emphasizing continuity in the essential nature of the commodity.

In conclusion, the court answered the reference in the affirmative, supporting the assessee's claim for exemption on twisted yarn under the specific notification. The judgment underscored the significance of maintaining the commercial identity of a product despite processing, aligning with precedents where fundamental characteristics of commodities were preserved despite manufacturing processes.