1978 (11) TMI 147 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Whether airguns are covered by the notifications regarding arms and ammunitions.
2. Whether the saris sold by the assessee are exempt from sales tax under entries 40 and 37 of Schedule I to the Gujarat Sales Tax Act, 1969.

Issue 1: Airguns as Arms and Ammunitions

The Revising Authority, Gorakhpur, referred the question of whether airguns fall under the notifications regarding arms and ammunitions. The court considered the nature of airguns, noting that they use compressed air to propel lead pellets, which can inflict bodily injuries. Although not typically lethal, airguns are still capable of causing harm. The court referred to a previous case, Commissioner of Sales Tax, U.P. v. Madan Sons, Dehradun, which defined "arms" as weapons capable of inflicting bodily injuries. Based on this interpretation, the court upheld the revising authority's decision, affirming that airguns are covered by the notifications regarding arms and ammunitions. The revision was dismissed with no order as to costs.

Issue 2: Exemption of Saris from Sales Tax

The opponent, a registered dealer under the Gujarat Sales Tax Act, 1969, sold two saris and sought to determine the applicable tax rate. The assessee argued that the saris should be exempt from sales tax as they fell within entries 40 and 37 of Schedule I to the Act, corresponding to rayon or artificial silk fabric and cotton fabric, respectively. The Deputy Commissioner of Sales Tax disagreed, stating that the basic materials should constitute between 40% and 60% of the fabric's total weight. The Gujarat Sales Tax Tribunal, however, allowed the appeal, holding that the saris were partly made from the specified materials and thus fell within the exempted entries.

The court examined whether the Tribunal was justified in setting aside the Deputy Commissioner's order. The Assistant Government Pleader argued that the Tribunal had erred in its interpretation, emphasizing that exemption clauses in fiscal statutes should be construed strictly. The court noted that entries 37 and 40 of Schedule I to the Gujarat Sales Tax Act, 1969, incorporate definitions from the Central Excises and Salt Act, 1944. The court emphasized the need to read the definitions in their entirety, including both the inclusive and exclusive parts, to avoid absurd results.

The court concluded that the term "partly" in the definitions should be understood in the context of the exclusion clauses, which specify minimum percentages for other materials mixed with the basic fabric. For instance, cotton fabrics must not contain 40% or more by weight of wool or silk, or 60% or more by weight of rayon or artificial silk. Similarly, rayon or artificial silk fabrics must not contain less than 60% rayon or artificial silk if mixed with cotton. The court held that the Tribunal had erred by not considering these exclusion clauses and by failing to interpret the term "partly" correctly.

Upon reviewing the reports from the Silk and Art-silk Manufacturers Research Association, the court found that the first sari contained only 37% viscose rayon, and the second sari contained only 17.80% cotton. Therefore, neither sari met the required percentages to qualify for exemption under the relevant entries. Consequently, the court answered the reference in the negative, in favor of the revenue, and against the assessee. The assessee was ordered to pay the costs of the reference to the Commissioner of Sales Tax, Gujarat.

Reference answered in the negative.