1989 (8) TMI 338 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether cutting of trimmings of compressed woollen felts into different shapes and sizes amounts to manufacture and results in a commercial commodity different from the original felt, making it liable for sales tax?
2. Whether the penalty imposed on the assessee under section 43(1) of the M.P. General Sales Tax Act, 1958, was legal and proper?

Analysis:
The judgment of the Madhya Pradesh High Court addressed two key issues referred by the Board of Revenue. The case involved manufacturers and dealers in compressed woollen felt and felt accessories. The primary contention was whether cutting the trimmings of compressed woollen felts into different shapes and sizes constituted manufacturing a new commercial commodity, distinct from the original felt, thereby making it taxable. The Court referred to the Supreme Court's decision in Filterco v. Commissioner of Sales Tax, emphasizing that only pliable felt could be considered "cloth" for tax purposes. The Court analyzed the process of manufacturing and held that the cuttings of felt did not result in a new product distinct from felt, and therefore, did not cease to be considered "cloth" for tax exemption under the Act.

Regarding the penalty imposed under section 43(1) of the Act, the Court relied on the decision in Dadabhoy's New Chirimiri Ponri Hill Colliery Company Private Ltd. v. Commissioner of Sales Tax, which stated that raising a legal plea of exemption, if facts are fully disclosed, does not render the return false under the Act. The Court concluded that the penalty imposed on the assessee was not justified under the circumstances. Consequently, the Court answered both questions in the negative, ruling that the cutting of felt trimmings did not result in a new commercial commodity and that the penalty imposed was not legal and proper. The parties were directed to bear their own costs in the matter, and the references were answered accordingly.