1997 (9) TMI 555 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the assessee's tarpaulins, made from processed canvas, fall under the classification of "cotton fabrics" under entry No. 4 of the Third Schedule to the TNGST Act.

Detailed Analysis:

Issue 1: Classification of Tarpaulins as Cotton Fabrics under Entry No. 4 of the Third Schedule to the TNGST Act

Background:
The assessee marketed tarpaulins made from processed canvas by cutting, stitching, and adding eyelets. The assessee claimed tax exemption for these tarpaulins under entry 4 of the Third Schedule read with section 8 of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). The Deputy Commercial Tax Officer and the Appellate Assistant Commissioner rejected the claim. However, the Tamil Nadu Sales Tax Appellate Tribunal allowed the appeals, leading to the Revenue's present actions.

Key Question:
Whether the assessee's tarpaulins fall under the classification of "cotton fabrics" under entry No. 4 of the Third Schedule to the TNGST Act.

Analysis of Entries:
- Original entry No. 4: "All varieties of textiles (other than durries, carpets, druggets and pure silk cloth) made wholly or partly of cotton, staple fibre, rayon, artificial silk or wool including handkerchiefs, towels, napkins, dusters, cotton velvets and velveteen, tapes, niwars and laces and hosiery cloth in lengths."
- Substituted entry No. 4 (effective from April 1, 1974): "Cotton fabrics, woollen fabrics and rayon or artificial silk fabrics, as defined in items 19, 21 and 22 respectively of the First Schedule to the Central Excises and Salt Act, 1944 (CESA)."

Relevant Case Law:
1. State of Tamil Nadu v. East India Rubber Works [1974] 33 STC 399 (Mad.):
- Waterproof cloths like rexine and PVC cloth are not textiles under the original entry No. 4 of the Third Schedule to the TNGST Act.

2. Jeewajee & Co. v. State of Tamil Nadu [1974] 34 STC 4 (Mad.):
- Processed canvas cloth made into tarpaulins does not fall under item 4 of the Third Schedule to the TNGST Act.

3. Pokardas & Brothers v. State of Gujarat [1982] 51 STC 88 (Guj):
- Tarpaulin came within the definition of "cotton fabrics" under item 19 of the First Schedule to the CESA.

4. Satyavijay Commercial Company v. Commissioner of Sales Tax [1984] 55 STC 186 (Bom):
- Tarpaulin manufactured out of cotton fabrics falls under entry No. 15 of Schedule "A" to the Bombay Sales Tax Act, 1959, and is exempt from tax.

5. Bharat Textiles and Proofing Industries v. State of Karnataka [1988] 71 STC 10 (Kar):
- Tarpaulins and PVC rexine cloths are exempt from sales tax under the Karnataka Sales Tax Act as they fall under the definition of "cotton fabrics" in item 19 of the CESA.

6. State of Andhra Pradesh v. Binny Ltd. [1992] 86 STC 207 (AP):
- Cotton canvas or tarpaulins are cotton fabrics under entry 19 of the CESA and fall within entry 5 of the Fourth Schedule to the Andhra Pradesh General Sales Tax Act.

7. Porritts & Spencer (Asia) Ltd. v. State of Haryana [1978] 42 STC 433 (SC):
- The Supreme Court held that the use of a fabric does not determine its classification as a textile.

Conclusion:
The High Court concluded that the finished product "tarpaulin" sold by the assessee should be classified as "cotton fabrics" under the substituted entry No. 4 of the Third Schedule to the TNGST Act. This classification aligns with item 19 of the First Schedule to the CESA, and thus, tarpaulins are exempt from tax under section 8 of the CST Act. The court emphasized that taxing tarpaulins under the CST Act would defeat the purpose of the Tamil Nadu Act No. 37 of 1974, which aimed to prevent double taxation on items already subject to excise duty.

Final Judgment:
The court dismissed all the revisions filed by the Revenue, affirming that the tarpaulins marketed by the assessee are exempt from tax as "cotton fabrics" under the relevant statutory provisions.