1991 (1) TMI 404 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of cotton yarn blended with staple fibre under section 14(ii-b) of the Central Sales Tax Act, 1956.
2. Impact of the introduction of entry 18A in the First Schedule to the Tamil Nadu General Sales Tax Act by Tamil Nadu Act 28 of 1980.
3. Validity of reopening of assessments and fresh assessments based on the classification of blended cotton yarn.
4. Applicability of restrictions and conditions under section 15 of the Central Sales Tax Act to blended cotton yarn.

Detailed Analysis:

1. Classification of Cotton Yarn Blended with Staple Fibre:

The primary issue was whether cotton yarn blended with staple fibre in small percentages (up to 16 2/3%) still qualifies as "cotton yarn" under section 14(ii-b) of the Central Sales Tax Act, 1956. The court noted that "cotton yarn" is not defined in the Central Act or the State Act. However, under the Cotton Textiles (Control) Orders of 1948 and 1986, "yarn" includes any type of yarn manufactured either wholly from cotton or partly from any other material where cotton is predominant by weight. The court referenced a previous judgment (T.C. No. 47 of 1974) which held that cotton yarn blended with up to 40% staple fibre still qualifies as "cotton yarn." The court agreed with this precedent, holding that cotton yarn blended with up to 16 2/3% staple fibre remains "cotton yarn" under section 14(ii-b) of the Central Sales Tax Act.

2. Impact of Entry 18A in the First Schedule to the Tamil Nadu General Sales Tax Act:

The introduction of entry 18A categorized blended cotton yarn as non-declared goods. The court held that this classification by the State Government cannot override the Central Act's classification. The court emphasized that any change in the classification of declared goods must be made by the Parliament through an appropriate amendment to section 14 of the Central Sales Tax Act. Thus, the State's attempt to classify blended cotton yarn as non-declared goods under entry 18A was invalid.

3. Validity of Reopening of Assessments:

The court addressed the reopening of assessments based on the classification of blended cotton yarn. The court referenced the Government's communication, which clarified that blended cotton yarn should be assessed as cotton yarn at 3% single point up to December 4, 1979, and as blended yarn (again 3% single point) from December 5, 1979, under entry 18A. The court held that reopening assessments based on the incorrect classification of blended cotton yarn as non-declared goods was invalid. The assessments must be made considering blended cotton yarn as declared goods.

4. Applicability of Restrictions and Conditions under Section 15 of the Central Sales Tax Act:

The court held that since blended cotton yarn up to 16 2/3% staple fibre qualifies as "cotton yarn" under section 14(ii-b) of the Central Sales Tax Act, it is subject to the restrictions and conditions under section 15 of the Central Sales Tax Act. This includes the restrictions on the power of the State to levy tax on such declared goods.

Conclusion:

The court concluded that cotton yarn blended with staple fibre up to 16 2/3% remains "cotton yarn" under section 14(ii-b) of the Central Sales Tax Act and is thus declared goods. Consequently, the restrictions and conditions under section 15 of the Central Sales Tax Act apply, and the State cannot unilaterally classify such yarn as non-declared goods under entry 18A. The reopening of assessments based on the incorrect classification was invalid, and fresh assessments must consider blended cotton yarn as declared goods. The petitions were allowed, and the reopening of assessments was ordered to be in line with this judgment.