1987 (1) TMI 463 - HC - VAT and Sales Tax

Summary

Issues:
1. Exemption of turnover from tax under section 9 of the Kerala General Sales Tax Act, 1963 for woollen carpets sold to Air India.
2. Interpretation of entry 7 of the Third Schedule to the Act regarding exemption for cotton fabrics, woollen fabrics, and rayon or artificial silk fabrics.
3. Determination of whether the processing of woollen carpets changes their identity for tax exemption purposes.
4. Application of legal principles regarding the definition of fabric and textile in relation to woollen carpets.

Analysis:
1. The assessee contended that the turnover from selling woollen carpets to Air India should be exempt from tax under section 9 of the Kerala General Sales Tax Act, 1963. The assessing authority and appellate authorities rejected this claim based on the argument that the carpets, despite containing 60% wool, were altered by a coating of prevulcanised latex mixed with hydraulic alumina, changing their character and disqualifying them from exemption.

2. The relevant entry 7 of the Third Schedule to the Act pertains to exemption for cotton fabrics, woollen fabrics, and rayon or artificial silk fabrics. The Tribunal affirmed the decision that the woollen carpets sold were not simply woollen fabrics, as they underwent additional manufacturing processes such as coating and cutting, making them a different product than what the entry intended to exempt.

3. Despite the processing involving coating and cutting of the woollen carpets, it was established that the carpets maintained their identity as woollen fabric, meeting the criteria of containing at least 40% wool by weight as required by the entry. The Tribunal and lower authorities erred in concluding otherwise, as the carpets functionally remained as woollen carpets even after processing, being sold, understood, and used as such without a change in identity.

4. Legal principles from various judgments, including Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, Sterling Foods v. State of Karnataka, and others, were cited to support the argument that woollen fabric retains its character for tax exemption purposes as long as it meets the required wool content threshold. The Court held that the turnover from selling woollen carpets to Air India should indeed fall within the exemption provided by entry 7 of the Third Schedule to the Act, overturning the decisions of the Tribunal and lower authorities.

In conclusion, the Court allowed the revision petitions, ruling in favor of the assessee and granting exemption for the turnover representing the sale of woollen carpets to Air India for the relevant assessment years.