1980 (9) TMI 241 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether sewing thread is exigible to tax at the general rate of 5% or at the rate prescribed in serial No. 3 of the schedule of taxable goods.
2. Whether sewing thread is considered cotton yarn for tax purposes.
3. The applicability of the Commissioner's circular and the principle of estoppel in tax assessment.

Summary:

Issue 1: Tax Rate for Sewing Thread

The Member, Sales Tax Tribunal, Orissa, referred the question of whether sewing thread is taxable at the general rate of 5% or at the rate prescribed in serial No. 3 of the schedule of taxable goods. The relevant assessment period is 1970-71. Initially, the tax was demanded at 3% for sewing thread. However, upon reassessment u/s 12(8) of the Act, the tax rate was revised to 5% by applying the residuary rate. The Assistant Commissioner annulled this reassessment, relying on a circular that equated cotton yarn with sewing thread. The Tribunal, however, held that cotton yarn and sewing thread are distinct commodities and thus, sewing thread was taxable at the residuary rate of 5%.

Issue 2: Classification of Sewing Thread as Cotton Yarn

The main question was whether sewing thread is cotton yarn and thus taxable at 2%. The Tribunal relied on the Allahabad High Court's decision in Mohta Trading Co. v. Commissioner of Sales Tax, which held that cotton yarn and sewing thread are distinct commodities with different uses. The court examined definitions from various sources and concluded that "yarn" and "sewing thread" are distinct in ordinary parlance and commercial usage. However, the court disagreed with the Allahabad High Court's view that sewing thread loses its identity as cotton yarn, noting that thread can be unrolled back into yarn.

Issue 3: Applicability of Commissioner's Circular and Estoppel

The assessee argued that the Commissioner's circular, which equated sewing thread with cotton yarn, should bind the tax authorities based on the principle of estoppel. The court acknowledged the equity in this argument but emphasized that within the four corners of a taxing statute, equity has no place. The court ultimately decided the case based on the substantive issue of whether sewing thread is cotton yarn.

Conclusion:

The court concluded that sewing thread retains its identity as cotton yarn and is thus taxable at 2% as declared goods under the Orissa Sales Tax Act. The assessee is entitled to costs of the reference, and the assessment u/s 12(4) adopting the rate of 3% should not be interfered with.

Reference answered accordingly.