1981 (9) TMI 248 - HC - VAT and Sales Tax

Issues Involved:
1. Classification of tarpaulins under the Gujarat Sales Tax Act, 1969.
2. Applicability of entry 18(a) of Schedule II, Part A, and entry 13 of Schedule III to the Gujarat Sales Tax Act, 1969.
3. Definition and scope of "cotton fabrics" under entry 37 of Schedule I to the Gujarat Sales Tax Act, 1969.
4. Retrospective application of amended definitions in the Excise Act.
5. Principles of referential legislation and interpretation.
6. Application of the user's test in determining the classification of goods.

Detailed Analysis:

1. Classification of Tarpaulins under the Gujarat Sales Tax Act, 1969:
The primary issue was whether tarpaulins should be classified as "cotton fabrics" under entry 37 of Schedule I, thus exempt from sales tax, or under entry 18(a) of Schedule II, Part A, or entry 13 of Schedule III, making them taxable. The Tribunal initially ruled that tarpaulins were not "cotton fabrics" but fell under the residuary entry 13 of Schedule III. This decision was based on the Tribunal's finding that tarpaulins were not impregnated or coated with preparations of cellulose derivatives or other artificial plastic materials as defined in item 19 of the First Schedule to the Central Excises and Salt Act, 1944.

2. Applicability of Entry 18(a) of Schedule II, Part A, and Entry 13 of Schedule III:
The Tribunal rejected the assessee's alternative contention that tarpaulins should be taxed under entry 18(a) of Schedule II, Part A, as articles prepared from textile fabrics. The Tribunal held that waterproof cloth used to make tarpaulins had a different use and could not be classified as textile fabrics in commercial parlance. The Tribunal relied on decisions from the Madras High Court in State of Tamil Nadu v. East India Rubber Works and M. Jeewajee & Co. v. State of Tamil Nadu to support its view.

3. Definition and Scope of "Cotton Fabrics" under Entry 37 of Schedule I:
The court examined whether tarpaulins could be classified as "cotton fabrics" under entry 37 of Schedule I, which exempts such goods from sales tax. The definition of "cotton fabrics" in item 19 of the First Schedule to the Excise Act was critical. The court noted that the definition included fabrics impregnated or coated with preparations of cellulose derivatives or other artificial plastic materials. The court also considered the retrospective amendment to the definition of "cotton fabrics" by the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980, which included processes like waterproofing.

4. Retrospective Application of Amended Definitions in the Excise Act:
The court referred to the principle established by the Supreme Court in M.K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and Mfg. Co. Ltd., which held that an amended provision with retrospective effect must be treated as if it was always part of the statute. The court applied this principle to the amended definition of "cotton fabrics" in the Excise Act, concluding that the definition, as amended retrospectively from 1st March 1955, must be read into entry 37 of Schedule I to the Gujarat Act.

5. Principles of Referential Legislation and Interpretation:
The court discussed the principles of referential legislation, distinguishing between specific and general references. It cited Bajya v. Smt. Gopikabai, which held that where a statute incorporates the law on a subject generally, subsequent amendments to the incorporated law are included. The court concluded that entry 37 of Schedule I to the Gujarat Act, being referential legislation, must include the amended definition of "cotton fabrics" from the Excise Act.

6. Application of the User's Test in Determining the Classification of Goods:
The court addressed the Tribunal's application of the user's test, which considers the commercial use and recognition of the goods. The court referred to Supreme Court decisions in cases like Porritts and Spencer (Asia) Ltd. v. State of Haryana and Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, which held that the use of goods does not determine their classification as textiles. The court concluded that the Tribunal erred in applying the user's test to classify tarpaulins.

Conclusion:
The court held that tarpaulins should be classified as "cotton fabrics" under entry 37 of Schedule I to the Gujarat Sales Tax Act, 1969, and are therefore exempt from sales tax. The Tribunal's decision to classify tarpaulins under entry 13 of Schedule III was incorrect. The court emphasized the retrospective application of the amended definition of "cotton fabrics" in the Excise Act and rejected the application of the user's test for classification. The references were answered in favor of the assessee, and the State Government was directed to pay the costs of the reference.

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