1984 (4) TMI 275 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether cutting and stitching of umbrella cloth to make umbrella covers results in a different commodity exempt from tax?
2. Whether orders of assessing authority taxing the turnover as escaped turnover are in conformity with the Act?

Analysis:
The case involved five connected references under section 15(1) of the Rajasthan Sales Tax Act, 1954, where the Board of Revenue referred questions of law regarding the taxability of umbrella covers made from umbrella cloth. The main contention was whether the process of cutting and stitching umbrella cloth to make umbrella covers resulted in a different commodity exempt from tax or if it still fell under the category of textile fabrics eligible for exemption.

The assessing authority initially taxed the turnover as escaped turnover, arguing that the umbrella covers were a different commodity from textile fabrics. On appeal, the Deputy Commissioner upheld this decision, stating that the characteristics of umbrella cloth were lost after cutting and stitching. However, revisions were filed, and the Board opined that umbrella covers were exempt from sales tax as they fell within the definition of textile fabrics.

The court analyzed various precedents to determine the definition of "manufacture" and whether the process of cutting and stitching resulted in a different commercial commodity. It was established that for an activity to amount to manufacture, it must result in a different commercial article. The court emphasized that the finished product, in this case, umbrella covers, was only used for a specific purpose and had commercial value distinct from umbrella cloth.

Ultimately, the court held that after the cutting and stitching of umbrella cloth to make umbrella covers, a different commodity (umbrella cover) emerged, ceasing to be classified as textile fabrics eligible for exemption from tax. Consequently, the first question was answered in favor of the department. As a result, the assessing authority's decision to tax the escaped turnover under section 12 of the Act was deemed justified, leading to an affirmative answer to the second question as well.

In conclusion, the court ruled in favor of the department, stating that the umbrella covers constituted a different commodity after the cutting and stitching process, making them ineligible for exemption from tax. No costs were awarded, and further action was directed in accordance with section 15(5) of the Act.