1976 (3) TMI 220 - HC - VAT and Sales Tax

Issues Involved:
1. Whether cotton bandings and cotton ropes are considered "textiles" under item 4 of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959.
2. Whether cotton bandings and cotton ropes fall under the category of "cotton yarn" under item 3 of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, and are thus liable to tax at a single point on the first sale in the State.

Issue-Wise Detailed Analysis:

1. Classification of Cotton Bandings and Cotton Ropes as "Textiles"

The assessees, dealers in cotton bandings and cotton ropes, claimed that their turnover relating to these items should be exempt from tax under item 4 of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959, which exempts "all varieties of textiles." The assessing officer initially agreed, considering these items as textiles, and exempted the turnover. However, the Deputy Commissioner of Commercial Taxes, upon review, disagreed, stating that these items do not qualify as textiles and assessed them to multi-point sales tax. The Tribunal upheld this view, stating that the goods sold are neither textiles nor cotton fabrics.

The court examined the definition of "textiles" and considered various precedents. It was noted that the term "textiles" generally refers to materials produced by weaving, knitting, or braiding. The court referred to several cases, including:
- State of Madras v. T.T. Gopalier: Held that "braided cords" are textiles.
- Government of Madras v. Madurai Braided Cord and Tape Producers Co-operative Industrial Society: Held that "braided cord" comes within the description of cotton fabrics.
- Deputy Commissioner of Commercial Taxes, Madurai Division, Madurai v. Madurai Printing Tape Factory: Held that "tape" produced by pasting cotton threads together is not textile as it lacks weaving.

The court also considered the definition provided in "The Mercury Dictionary of Textile Terms," which includes products manufactured from fibers through twisting, interlacing, banding, or looping.

However, the court concluded that merely twisting yarn into a rope does not make it a textile. The term "textiles" should be understood in its popular sense, as commonly understood in ordinary parlance, and not in a technical sense. The court held that cotton bandings and cotton ropes sold by the assessees are not textiles within the meaning of item 4 of the Third Schedule.

2. Classification of Cotton Bandings and Cotton Ropes as "Cotton Yarn"

The assessees alternatively contended that these items should fall under item 3 of the Second Schedule, which pertains to "cotton yarn," and are thus liable to tax at a single point on the first sale in the State. This contention was raised for the first time before the court and was permitted for consideration.

The court examined whether the items sold still retain the character of cotton yarn. In Madura Mills Company Limited v. Government of Madras, it was held that "cord" is cotton yarn as it consists of spun thread. The court noted that yarn does not lose its character merely by being twisted into a stronger thread. However, the usability of the yarn for making textiles determines its character as yarn.

The court decided that the Tribunal needs to determine whether the items sold by the assessees still retain the character of yarn and whether they are commercially different from the yarn purchased by the assessees. This determination is crucial to decide if the sale is a first sale or a second sale, impacting the tax liability.

Conclusion

The court remanded the case to the Tribunal to:
1. Determine if the cotton bandings and cotton ropes sold by the assessees retain the character of cotton yarn.
2. Decide if these items are commercially different from the yarn purchased by the assessees, affecting whether the sale is a first or second sale.

The revenue was awarded costs for the revision petitions, and the case was ordered accordingly.

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