1975 (1) TMI 65 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exemption from payment of sales tax on stitched bed-sheets, bed-spreads, towels, and napkins.
2. Definition and interpretation of "cotton fabrics" under entry No. 19 of the Central Excises and Salt Act, 1944.
3. Errors in the assessment and appellate orders by the Commercial Tax Officer and the Assistant Commissioner.

Issue-wise Detailed Analysis:

1. Exemption from Payment of Sales Tax:
The petitioner-company, a manufacturer of textile goods, challenged the assessment order dated 8th June 1966, and the appellate order dated 19th March 1968, which disallowed their claim for exemption from sales tax on stitched bed-sheets, bed-spreads, towels, and napkins. The Commercial Tax Officer and the Assistant Commissioner held that these items were not "cotton fabrics" and thus not eligible for exemption under section 5(2)(a)(vi) of the Bengal Finance (Sales Tax) Act, 1941, read with rule 3(28) of the Bengal Sales Tax Rules. The petitioner contended that these items were indeed "cotton fabrics" as defined under entry No. 19 of the First Schedule of the Central Excises and Salt Act, 1944, and thus exempt from sales tax.

2. Definition and Interpretation of "Cotton Fabrics":
The court examined the definition of "cotton fabrics" under entry No. 19 of the First Schedule of the Central Excises and Salt Act, 1944, which includes "all varieties of fabrics manufactured either wholly or partly from cotton," specifically mentioning items like dhoties, sarees, chadars, bed-sheets, and bed-spreads. The court noted that the term "includes" is used to enlarge the meaning of "cotton fabrics" to cover all such articles that fit the ordinary, popular, and natural sense of the term. The court concluded that the bed-sheets, bed-spreads, towels, and napkins, even after being cut and stitched, remained "cotton fabrics" as they did not undergo a change in their essential nature or character.

3. Errors in the Assessment and Appellate Orders:
The court found that both the Commercial Tax Officer and the Assistant Commissioner committed errors apparent on the face of records by not applying the correct legal tests. The Commercial Tax Officer did not record a finding on whether the value of cotton fabrics increased due to cutting and stitching. The Assistant Commissioner erroneously concluded that the bed-sheets, bed-spreads, towels, and napkins changed their character and value and could no longer be treated as "cotton fabrics." The court clarified that unless cutting and stitching alter the essential nature of the cotton fabrics, these processes are part of the manufacturing process and do not disqualify the items from being considered "cotton fabrics."

Conclusion:
The court ruled in favor of the petitioner, stating that the stitched bed-sheets, bed-spreads, towels, and napkins continued to be "cotton fabrics" and were thus exempt from sales tax under rule 3(28) of the Bengal Sales Tax Rules. The impugned assessment and appellate orders were quashed, and a writ of mandamus was issued to prevent the respondents from making any sales tax assessment on these items for the relevant period. The respondents were allowed to make fresh assessments in accordance with the law for any taxable goods. The operation of the order was stayed for six weeks, and there was no order as to costs.