1981 (5) TMI 114 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of woollen mufflers made from woollen cloth.
2. Classification of woollen mufflers as woollen goods or hosiery.
3. Applicability of specific notifications under the U.P. Sales Tax Act.

Issue-wise Detailed Analysis:

1. Taxability of woollen mufflers made from woollen cloth:
The core issue was whether mufflers made from woven woollen cloth should be treated as woollen goods or handloom cloth for tax purposes. The assessee, a wholesale dealer, argued that these mufflers were exempt from tax as they were made from handloom cloth. The assessing authority disagreed, treating the mufflers as woollen goods, thereby subject to tax. The appellate authority partly accepted the assessee's contention, distinguishing between machine-knitted mufflers (treated as hosiery and taxable) and those made from woven cloth (treated as cloth and exempt from tax).

2. Classification of woollen mufflers as woollen goods or hosiery:
The controversy centered on whether woven woollen mufflers should be classified as handloom cloth (exempt from tax) or woollen goods (taxable). The court examined previous decisions, including the distinction between hosiery and woollen goods. In Verma Hosiery Stores, machine-knitted mufflers were classified as hosiery. However, the present case involved woven mufflers, which the court determined were not hosiery products as hosiery generally refers to knitted articles. Therefore, woven mufflers should not be classified as hosiery.

3. Applicability of specific notifications under the U.P. Sales Tax Act:
The court analyzed various notifications issued under the U.P. Sales Tax Act to determine the correct tax treatment for woollen mufflers. Notifications under section 4 of the Act exempted certain goods from tax, while subsequent notifications under section 3-A made woollen goods taxable. The relevant notification for the assessment year 1971-72 classified "woollen goods" to include knitting wool and readymade garments made out of woollen cloth but excluded hosiery. The court concluded that woven woollen mufflers, purchased by the assessee and not subjected to further processing, should be treated as cloth and thus exempt from tax under the relevant notifications.

Conclusion:
The court answered the first question affirmatively, stating that sales of woven woollen handloom scarfs (mufflers) purchased by the assessee were exempt from tax as they fell under the category of woollen cloth. The second question, regarding the taxability of woollen mufflers as hosiery, was deemed unnecessary to resolve given the court's findings. The parties were directed to bear their own costs, and a copy of the judgment was sent to the Sales Tax Tribunal as required by law.