1991 (3) TMI 367 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of "bookbinding cloth" as "cotton fabric" under entry 37 of the Gujarat Sales Tax Act.
2. Impact of dyeing, starching, and calendering processes on the classification of "cotton fabric."
3. Applicability of section 2(f) of the Central Excises and Salt Act, 1944, to the processes involved.
4. Eligibility of "bookbinding cloth" for exemption under item 67 of the Government Notification issued under section 49 of the Gujarat Sales Tax Act.

Detailed Analysis:

1. Classification of "bookbinding cloth" as "cotton fabric" under entry 37 of the Gujarat Sales Tax Act:
The applicant-mill, a manufacturer of "bookbinding cloth," argued that their product should be classified as "cotton fabric" under entry 37 in Schedule I to the Gujarat Sales Tax Act, 1969. The Deputy Commissioner of Sales Tax, however, rejected this classification, determining that the product fell under the residuary entry 13 in Schedule III and was thus taxable. The Tribunal upheld this decision, stating that the processes of dyeing, starching, and calendering transformed the original cotton fabric into a distinct commercial commodity, thereby disqualifying it from being classified as "cotton fabric."

2. Impact of dyeing, starching, and calendering processes on the classification of "cotton fabric":
The court examined whether the processes applied to the cotton fabric-dyeing, starching, and calendering-altered its classification. The Tribunal had previously held that these processes resulted in a new commercial commodity. However, the court found this approach incorrect, emphasizing that the definition of "cotton fabric" in item 19 of the First Schedule to the Central Excises and Salt Act, 1944, includes fabrics subjected to such processes. The court concluded that these processes are merely incidental or ancillary and do not change the basic characteristic of cotton fabric.

3. Applicability of section 2(f) of the Central Excises and Salt Act, 1944, to the processes involved:
The court referred to the amended definition of "cotton fabric" under item 19 of the First Schedule to the Central Excises and Salt Act, 1944, which includes fabrics subjected to processes like bleaching, dyeing, and calendering. The amendment clarified that these processes fall within the definition of "manufacture" under section 2(f) of the Central Excises and Salt Act. Consequently, the court held that the "bookbinding cloth" remains classified as "cotton fabric" even after undergoing these processes.

4. Eligibility of "bookbinding cloth" for exemption under item 67 of the Government Notification issued under section 49 of the Gujarat Sales Tax Act:
The applicant also sought exemption under item 67 of the Government Notification, which includes sales or purchases of dyed, bleached, or printed cotton fabrics. The Tribunal had ruled that starching and calendering were not covered under item 67. However, the court found it unnecessary to decide on this issue, given its finding that "bookbinding cloth" falls within the definition of "cotton fabric" under item 19 of the First Schedule to the Central Excises and Salt Act, 1944.

Conclusion:
The court answered all four questions in the negative, ruling against the department and in favor of the applicant. It concluded that "bookbinding cloth" qualifies as "cotton fabric" under the relevant legislative definitions, and the processes of dyeing, starching, and calendering do not alter this classification. Therefore, "bookbinding cloth" is exempt from tax under entry 37 of the Gujarat Sales Tax Act.