1991 (4) TMI 387 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of entry in Gujarat Sales Tax Act regarding classification of yarn for taxation purposes.

Analysis:
The Gujarat Sales Tax Tribunal referred a question of law regarding the classification of two types of yarn sold by the applicant under the Gujarat Sales Tax Act. The Deputy Commissioner of Sales Tax determined that the yarn sold was not "cotton yarn" but fell under a different category, leading to a higher tax rate. The Tribunal upheld this decision, prompting the applicant to seek clarification through a reference under section 69 of the Act.

The key issue revolved around whether the yarn sold by the applicant qualified as "cotton yarn" under entry 2 of Schedule II, Part A of the Act. The applicant argued that since the cotton component in the yarn ranged from 80% to 85%, it should be considered as cotton yarn. The applicant relied on a decision by the Andhra Pradesh High Court regarding a similar matter, emphasizing the predominant component test when no specific entry exists for blended yarn.

The Court analyzed the relevant provisions of the Act and the absence of a specific entry for mixed or blended yarn. Considering the predominant component of 80% to 85% cotton in the yarn, the Court concluded that the sale should be classified as the sale of cotton yarn. The Court highlighted the legislative intent behind the tax rates for different types of yarn and the lack of a distinct category for mixed or blended yarn, leading to the application of the predominance test.

Ultimately, the Court answered the question in the negative, ruling in favor of the applicant and against the department. No costs were awarded in the judgment, and the reference was resolved in favor of the assessee.