1998 (7) TMI 652 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of narrow woven fabrics.
2. Interpretation of Entry 8A of the Fifth Schedule to the Karnataka Sales Tax Act.
3. Applicability of Section 29(1)(e) and 29(2)(c) of the Karnataka Sales Tax Act.
4. Exemption under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.

Detailed Analysis:

1. Taxability of Narrow Woven Fabrics:
The primary issue is whether narrow woven fabrics, specifically labels, manufactured and sold by the petitioners are exempt from sales tax under Entry 8A of the Fifth Schedule to the Karnataka Sales Tax Act. The petitioners argue that these fabrics fall under the exempted category, while the respondents contend they are taxable. The court examined the definition and scope of narrow woven fabrics as per the Central Excise Tariff Act, 1985, and the Additional Duties of Excise (Goods of Special Importance) Act, 1957. It was concluded that the narrow woven fabrics manufactured by the petitioners are indeed narrow woven fabrics but fall under the exclusion clause of Entry 58.06, thus making them taxable.

2. Interpretation of Entry 8A of the Fifth Schedule to the Karnataka Sales Tax Act:
Entry 8A exempts all varieties of textiles, including cotton, woollen, artificial silk, rayon, nylon, and hosiery cloth, as defined in the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The court noted that the exemption is conditional upon the textile being specified in the First Schedule. The amendment to the Additional Duties of Excise Act by the Finance Act, 1995, introduced specific exclusions, including labels and similar articles of textile materials. The court held that the strip of labels manufactured by the petitioners falls under these exclusions, making them ineligible for the exemption.

3. Applicability of Section 29(1)(e) and 29(2)(c) of the Karnataka Sales Tax Act:
The petitioners argued that the provisions of Section 29(1)(e) and 29(2)(c), which deal with penal actions for non-production of books of account and fraudulent evasion of tax, respectively, are not applicable in their case. The court observed that the non-production of books of account is a factual matter and only proposition notices have been issued, thus not adjudicating this controversy. Regarding Section 29(2)(c), the court held that penalty provisions, being penal in nature, require a guilty mind. Since the petitioners disclosed their turnover and raised a bona fide contention for exemption, the court ruled that the penalty under Section 29(2)(c) could not be invoked.

4. Exemption under the Additional Duties of Excise (Goods of Special Importance) Act, 1957:
The court examined whether the labels manufactured by the petitioners qualify for exemption under the Additional Duties of Excise Act. It was noted that the exemption applies to textiles specified in the First Schedule, and any item excluded from this schedule cannot avail the exemption. The court concluded that the labels fall under the excluded category of Entry 58.07, which includes labels, badges, and similar articles of textile materials, thus making them taxable.

Conclusion:
The writ petitions were disposed of with the following directions:
- The petitioners are liable to pay tax on the sale of strip of labels and are not entitled to exemption under Entry 8A of the Fifth Schedule.
- The dispute regarding Section 29(1)(e) of the Act was not adjudicated.
- No penalty under Section 29(2)(c) is applicable to the petitioners.
- Petitioners may file an appeal within four weeks if there is any dispute regarding turnover or other factual aspects.
- In cases where proposition notices have been issued, objections may be filed within four weeks.
- The assessing authority will examine the matter regarding Section 29(1)(e) and no action under Section 29(2)(c) will be taken in accordance with the notice.

Writ petitions disposed of accordingly.