1981 (7) TMI 215 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether embroidered cotton sarees are cotton fabrics falling within entry 7 in the Third Schedule to the Kerala General Sales Tax Act, 1963.

Issue-wise Detailed Analysis:

1. Whether embroidered cotton sarees are cotton fabrics falling within entry 7 in the Third Schedule to the Kerala General Sales Tax Act, 1963.

Assessment Period and Tribunal's Findings:
The assessments relate to the years 1974-75 and 1975-76. The Tribunal found that the assessee had sold both embroidery sarees purchased as such and sarees that were embroidered by him. The Tribunal held that the embroidered saree sold by the assessee is a different commodity and does not fall under entry 7 in the Third Schedule to the Act. The Third Schedule enumerates goods exempt from tax under section 9 of the Act. It was undisputed that, but for the embroidery, the sarees are cotton fabrics falling under entry 7 in the Third Schedule to the Act.

Relevant Legal Provisions and Definitions:
Entry 7 in the Third Schedule to the Act reads:
"7. Cotton fabrics, woollen fabrics and rayon or artificial silk fabrics as defined in items Nos. 19, 21 and 22 respectively of the First Schedule to the Central Excises and Salt Act, 1944."

This Court in Ateesee (Agro-Industrial Trading Corporation) v. State of Kerala [1978] 41 S.T.C. 1 held:
"The concept of 'cotton fabrics' in the Central Excises and Salt Act seems to be integrally linked with the provisions of the General Sales Tax Act, and we do not think that we would be justified in regarding the latter Act as unaffected by the growing concept of the term 'cotton fabrics' in the Central Excises and Salt Act. We feel too, that unless the extended definition of the Central Excises and Salt Act is imported into the Sales Tax Act, the latter Act would become unworkable and ineffectual."

Definition in Central Excises and Salt Act, 1944:
The relevant portion of item 19 in the First Schedule to the Central Excises and Salt Act, 1944, is as follows:
"19. Cotton fabrics- 'Cotton fabrics' means all varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadders, bed-sheets, bedspreads, counter-panes, table-cloths, embroidery in the piece, in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials but does not include any such fabric if it contains (i) 40 per cent or more by weight of wool; (ii) 40 per cent or more by weight of silk; (iii) 60 per cent or more by weight of rayon or artificial silk; or (iv) 50 per cent or more by weight of jute (including Bimlipatam jute or mesta fibre)."

Analysis of the Definition:
The definition of "cotton fabrics" in item 19 is not an "inclusive definition" but a "definition by exclusion," meaning it excludes those fabrics enumerated under the caption "but does not include any such fabric if it contains-". The expression "cotton fabrics" is used in item 19 in its popular sense and excludes from its ambit such of the cotton fabrics as are specifically enumerated therein. The inclusive clause in the definition states that "cotton fabrics" includes "dhoties, sarees, chadders, bed-sheets, bed-spreads, counter-panes, table-cloths, embroidery in the piece, in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials."

Retention of Identity as Woven Material:
To attract the definition in item 19, the woven material must retain its identity as a woven material. For example, a shirt, frock, or any garment made by cutting and stitching cotton fabric loses its identity as a woven material. The question is whether a cotton saree, which retains its identity as a woven material, loses its identity as such by embroidering it.

Court's Conclusion:
The definition itself proceeds on the basis that a cotton saree will not lose its identity as a cotton fabric merely by embroidering it. The inclusive clause in the definition says that "cotton fabrics" includes "embroidery in the piece" also. Therefore, embroidered cotton sarees are "cotton fabrics" provided the rest of the definition in item 19 is satisfied. The revenue had no case that the rest of the definition was not satisfied in the cases at hand. Thus, the court held that the embroidered cotton sarees are cotton fabrics falling within entry 7 in the Third Schedule to the Act.

Relevant Case Law:
In Delhi Cloth and General Mills Co. Ltd. v. Commercial Tax Officer [1975] 36 S.T.C. 575, the Calcutta High Court held that cutting and stitching of the two ends are accessory to and part of the process of manufacturing bed-sheets, bed-spreads, etc., which are enumerated in the inclusive clause. The court observed that the inclusive clause in the definition is exhaustive and such of the things as are enumerated in that clause alone have been roped in within the meaning of the term "cotton fabrics."

Final Judgment:
The court set aside the Tribunal's order to the extent it held that embroidered cotton sarees are not cotton fabrics falling within entry 7 in the Third Schedule to the Act, and held that they come under the said entry. The revisions were allowed to that extent, but without any order as to costs.

Leave to Appeal:
The learned Government Pleader asked for leave to appeal. The court declined the leave, stating that this is not a fit case of general importance that needs to be decided by the Supreme Court or that this involves any substantial question of law that needs to be decided by that court.

Conclusion:
Petitions allowed.