1973 (7) TMI 92 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the waterproof cloth dealt with by the assessees falls under item 4 of the Third Schedule of the Madras General Sales Tax Act, 1959.
2. Applicability of clarifications issued by the Board of Revenue and Government Orders on the taxability of waterproof cloth.

Detailed Analysis:

1. Whether the waterproof cloth dealt with by the assessees falls under item 4 of the Third Schedule of the Madras General Sales Tax Act, 1959:

The primary issue is whether the waterproof cloth qualifies as "textiles" under item 4 of the Third Schedule. The court noted that item 4 of Schedule III includes "All varieties of textiles (other than durries, carpets, druggets and pure silk cloth) made wholly or partly of cotton, staple fibre, rayon, artificial silk or wool including handkerchiefs, towels, napkins, dusters, cotton velvets and velveteen, tapes, niwars and laces and hosiery cloth in lengths."

The court emphasized that the essence of textiles lies in the basic process of spinning and weaving. The court referred to previous judgments, such as State of Madras v. T.T. Gopalier and Government of Madras v. M.B.C. & T.P.C. Industrial Society, which broadly interpreted "textile" to mean products obtained by weaving. However, the court distinguished these cases by noting that the superimposition of rubber or P.V.C. solution on the base cloth creates a different article of commerce, such as rexine, P.V.C. cloth, and rubberised or waterproof cloth.

The court rejected the assessees' argument that the process of applying rubber or P.V.C. solution is analogous to starching, dyeing, or mercedising, which do not alter the character of the cloth. The court held that the application of rubber or P.V.C. solution converts the cloth into a different commercial product, intended for a different use, and thus cannot be considered "textiles" within the meaning of item 4 of Schedule III.

2. Applicability of clarifications issued by the Board of Revenue and Government Orders on the taxability of waterproof cloth:

The court noted that the Board of Revenue had issued multiple clarifications regarding the taxability of waterproof cloth. Initially, the Board clarified that waterproof cloth made from base cloth was exempt from sales tax. However, later clarifications and government orders indicated that assessments should be made in accordance with the law, not based on the Board's instructions.

The court observed that the Deputy Commissioner of Commercial Taxes had revised the assessing authority's order, denying the exemption on the grounds that the clarifications could only be applied from 2nd April 1960, and the assessment year in question was prior to that date. The Tribunal, however, held that the clarifications should apply from the commencement of the Act.

The court concluded that the various clarifications issued by the Board of Revenue and the Government Orders could not alter the interpretation of item 4 of Schedule III. The court emphasized that the proper test is to determine whether the base cloth, after the application of rubber or P.V.C. solution, continues to be cloth or becomes a different product intended for a different use. Applying this test, the court held that the processed articles are not textiles and thus not exempt from tax.

Conclusion:

The court held that the waterproof cloth dealt with by the assessees does not fall under item 4 of the Third Schedule of the Madras General Sales Tax Act, 1959, and is not exempt from tax. The court set aside the decision of the Tribunal and allowed the tax case with costs. The petition was allowed.