1999 (12) TMI 842 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Exemption claim on the turnover of second sales of cotton sewing thread.
2. Determination of whether dyed and spooled cotton yarn constitutes a new commercial product distinct from cotton yarn.
3. Applicability of single point tax on cotton sewing thread under the Tamil Nadu General Sales Tax Act, 1959.
4. Interpretation of legislative entries related to cotton yarn and cotton sewing thread.

Detailed Analysis:

1. Exemption Claim on the Turnover of Second Sales of Cotton Sewing Thread:
The respondent claimed exemption on a turnover of Rs. 21,14,641.98, arguing that the goods sold were second sales of cotton sewing thread. The assessing authority disallowed this claim, asserting that the goods sold were commercially different from cotton yarn, subjecting them to a 3% single point tax. The Appellate Assistant Commissioner upheld this view, stating that the respondent converted cotton yarn into sewing thread, a commercially different product, and sold it under a registered brand name.

2. Determination of Whether Dyed and Spooled Cotton Yarn Constitutes a New Commercial Product:
The Appellate Tribunal initially found that the dyed and spooled yarn did not constitute a new product but remained dyed yarn sold in small spools. However, the Tribunal's decision was challenged by the Revenue, arguing that the identity of cotton yarn is lost when it is converted into sewing thread. The Tribunal referred to several decisions, including Madura Mills Company Limited v. Government of Madras [1970] 25 STC 407, which held that dyed yarn remains cotton yarn. The Tribunal concluded that the commodity sold retained its original identity as cotton yarn and was eligible for exemption as second sales.

3. Applicability of Single Point Tax on Cotton Sewing Thread:
The Revenue contended that the State Legislature specifically brought cotton sewing thread under the First Schedule to the Act, effective from July 25, 1977. The Appellate Tribunal's decision was challenged for not considering this legislative change. The Tribunal's reliance on previous judgments was deemed insufficient as they did not address the specific legislative entry for cotton sewing thread. The Tribunal's decision was ultimately found erroneous in law, and the levy of single point tax on cotton sewing thread was upheld.

4. Interpretation of Legislative Entries Related to Cotton Yarn and Cotton Sewing Thread:
The judgment reviewed various decisions to determine whether cotton sewing thread and cotton yarn are the same commodity. The Tribunal initially relied on decisions that treated dyed yarn as cotton yarn. However, the judgment highlighted that the Legislature classified cotton sewing thread as a separate item in entry 141 of the First Schedule to the Act, distinguishing it from cotton yarn in entry 3 of the Second Schedule. The Supreme Court's decision in Vasantham Foundry v. Union of India [1995] 99 STC 87 (SC) supported the view that processed dyed cotton yarn marketed as cotton sewing thread is a distinct product and not declared goods. Consequently, the levy of single point tax on cotton sewing thread was deemed appropriate, and the orders of the Appellate Tribunal were set aside.

Conclusion:
The Tribunal concluded that the processed dyed cotton yarn sold as cotton sewing thread is a commercially different product from cotton yarn. The legislative entry for cotton sewing thread justified the levy of single point tax, and the respondent's claim for exemption as second sales of cotton yarn was disallowed. The orders of the Appellate Tribunal were set aside, and the assessing authority's decision was restored. The tax revision cases were allowed, and the Tribunal's order was to be observed and executed by all concerned.