1981 (7) TMI 222 - HC - VAT and Sales Tax

Summary

Issues:
Whether mill-made handkerchiefs sold by the assessee are exempt from sales tax under section 8 of the Tamil Nadu General Sales Tax Act, 1959, read with item 4 of the Third Schedule to the Act.

Analysis:
The judgment of the High Court of Madras, delivered by Justice Balasubrahmanyan, revolved around the interpretation of whether mill-made handkerchiefs qualify for exemption from sales tax under the relevant provisions of the Tamil Nadu General Sales Tax Act, 1959. The crux of the matter was the classification of handkerchiefs as cotton fabrics under item 4 of the Third Schedule to the Act. The Court examined the definition of "cotton fabrics" under item 19 of the First Schedule to the Central Excises and Salt Act, 1944, which includes various fabric products made from cotton or other fibrous substances. The government's contention was based on the argument that handkerchiefs, not woven to size as a fabric in itself but cut to size, should not be considered cotton fabrics for tax exemption purposes.

The Court, after a thorough analysis, concluded that the term "fabric" has a broad scope, encompassing not only handkerchiefs woven as fabrics in their own size but also those made from larger fabric pieces. The critical factor considered was whether the handkerchief is a commercial commodity marketable as such, irrespective of its manufacturing process or size. The Court emphasized that handkerchiefs, even if mill-made and cut from larger fabric pieces, are distinct commercial products separate from the original fabric. The judgment highlighted that the common understanding of a handkerchief as a standalone commodity supports its classification as a fabric eligible for tax exemption under item 4 of the Third Schedule.

Furthermore, the Court expressed surprise at the complexity of the issue brought before it, given the straightforward nature of categorizing handkerchiefs as cotton fabrics. The judgment referenced similar decisions by other High Courts, including the Calcutta, Orissa, and Kerala High Courts, which upheld the exemption of handkerchiefs from sales tax under comparable legal provisions. The Court endorsed the Tribunal's decision that mill-made handkerchiefs qualify for tax exemption, ultimately dismissing the State Government's revision and ordering the department to pay the assessee's costs. The judgment concluded by dismissing the petition, affirming the entitlement of mill-made handkerchiefs to tax exemption under the relevant legislation.