1990 (6) TMI 203 - HC - VAT and Sales Tax

Summary

Issues:
Classification of sewing thread as "cotton yarn" for taxation purposes.

Analysis:
The tax case involved the classification of sewing thread as "cotton yarn" for taxation. The respondent/assessee was assessed on turnovers of second sales of cotton yarn and first sales of thread. The appellate authority concluded that sewing thread is taxable at multipoint. However, on further appeal, the Tribunal held that sewing thread falls within the expression "cotton yarn" and is not a different commodity. The Tribunal ordered that second sales of cotton yarn be exempt and the first sales of thread be assessed at 3 per cent as first sales of cotton yarn.

The State filed a tax revision case against the Tribunal's decision. The State relied on decisions from the Kerala and Allahabad High Courts, arguing that sewing thread does not fall within the scope of "cotton yarn." On the other hand, the assessee's counsel cited decisions from the Madras High Court and other High Courts, contending that sewing thread remains "cotton yarn" and should be taxed as declared goods at a single point.

The High Court analyzed the various decisions cited by both parties. It disagreed with the Kerala High Court's interpretation and adopted the reasoning of the Madras High Court decisions. The Court found that sewing thread does not cease to be "cotton yarn" and should be taxed only as declared goods at a single point. The Court also referenced decisions from the Orissa High Court and the Calcutta High Court, which supported the view that sewing thread is not a separate commodity from cotton yarn.

Based on the binding decisions of the Madras High Court, the Court concluded that sewing thread retains its identity and character as cotton yarn, even when sold for use as sewing thread. Therefore, sewing thread is considered the same commodity as cotton yarn, and the Court upheld the Tribunal's decision. As a result, the tax revision case was dismissed, with no order as to costs.