1983 (1) TMI 245 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether different commercial goods manufactured out of raw material-cotton fabrics-are included in entry No. 15 of Schedule A to the Bombay Sales Tax Act, 1959.
2. Whether handbags, beddings, and tarpaulins manufactured by the petitioners fall under entry No. 15 of Schedule A and are exempt from tax under the Act.
3. Interpretation of the term "cotton fabrics" as defined in the First Schedule to the Central Excises and Salt Act, 1944.
4. Application of the definitions of "manufacture" and "resale" under section 2 of the Bombay Sales Tax Act, 1959.

Detailed Analysis:

1. Inclusion of Different Commercial Goods in Entry No. 15 of Schedule A:
The core issue was whether the different commercial goods manufactured from cotton fabrics, such as handbags, beddings, and tarpaulins, were included in entry No. 15 of Schedule A of the Bombay Sales Tax Act, 1959. The petitioners, a partnership firm, argued that these goods should be classified as "cotton fabrics" and thus be exempt from tax. The Commissioner of Sales Tax had previously determined that chair covers were exempt but not handbags, beddings, or tarpaulins, which were taxable under the residuary entry, entry No. 22 in Schedule E. The Maharashtra Sales Tax Tribunal upheld this decision.

2. Classification of Handbags, Beddings, and Tarpaulins:
The petitioners contended that their manufactured goods should be exempt under entry No. 15 of Schedule A. Padhye, J., believed that the definition of "cotton fabrics" was not exhaustive and that the essential characteristics of cotton fabric remained, regardless of the commercial use. Conversely, Mohta, J., argued that the manufacturing process transformed the cotton fabric into new commercial commodities, which were not covered under entry No. 15 and were taxable under entry No. 22 in Schedule E. The High Court's Chief Justice agreed with Mohta, J., concluding that handbags and beddings were not included in entry No. 15 and were taxable under the residuary entry.

3. Interpretation of "Cotton Fabrics":
The definition of "cotton fabrics" from the First Schedule to the Central Excises and Salt Act, 1944, was pivotal. The original definition included various items but was amended in 1980 with retrospective effect from 1st March, 1955. The amended definition specified cotton fabrics subjected to processes like bleaching, dyeing, and waterproofing. The High Court found that the petitioners' manufactured goods did not fall under the amended definition of "cotton fabrics," thus not qualifying for tax exemption under entry No. 15.

4. Definitions of "Manufacture" and "Resale":
The High Court examined the definitions of "manufacture" and "resale" under section 2 of the Bombay Sales Tax Act, 1959. The term "manufacture" included producing, making, altering, and processing goods, while "resale" referred to selling purchased goods in the same form or without significant alteration. The Court held that the petitioners' activities resulted in commercially different commodities from the original cotton fabrics, thus constituting manufacture rather than resale. Consequently, the goods did not qualify for tax exemption under the resale provisions.

Conclusion:
The High Court concluded that handbags and beddings manufactured by the petitioners were not covered by entry No. 15 in Schedule A and were taxable under entry No. 22 in Schedule E. However, tarpaulins were considered cotton fabrics under the amended definition and were exempt from tax. The impugned orders of the Commissioner of Sales Tax and the Maharashtra Sales Tax Tribunal were set aside for tarpaulins, but upheld for other articles. The rule issued in the petition was made absolute to this extent, with no order as to costs.