2003 (9) TMI 727 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of paper cones and tubes as textile machinery spares or packing materials.
2. Applicable tax rate on the sale of paper cones and tubes to spinning mills.
3. Reconsideration of previous tribunal decisions and clarifications.

Issue-wise Detailed Analysis:

1. Classification of Paper Cones and Tubes:
The petitioner argued that paper cones and tubes used by textile mills for winding yarn should be classified as packing materials, eligible for a concessional tax rate of three percent under section 3(3) of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). The respondent contended that these items should be classified as textile machinery spares taxable at four percent under section 3(2) of the TNGST Act, as per entry 76, Part B of the First Schedule to the TNGST Act.

2. Applicable Tax Rate:
The petitioner referred to various clarifications and notifications, including a notification issued on October 7, 1988, which reduced the tax on textile machinery spares from eight percent to four percent. However, the petitioner claimed that subsequent clarifications had treated paper cones as packing materials eligible for a three percent tax rate. The respondent, relying on a clarification issued on January 10, 2002, maintained that paper cones were taxable at four percent as textile machinery spares.

3. Reconsideration of Previous Tribunal Decisions and Clarifications:
The Tribunal had previously decided in T.C. (A) No. 18 of 1996 that paper cones and tubes should be treated as textile machinery spares eligible for a concessional levy of four percent. This decision was based on the notification dated October 7, 1988. The Supreme Court dismissed the State's appeal against this decision on August 4, 1997. The petitioner argued that the Tribunal's decision required reconsideration, as the paper cones and tubes were used for winding yarn, not as components or accessories of textile machinery.

Tribunal's Findings:

1. Definition and Usage:
The Tribunal examined the dictionary definitions of "part" and "accessory" and concluded that paper cones and tubes used for winding yarn are neither components nor attachments of textile machinery. Therefore, they do not qualify as parts or accessories of textile machinery.

2. Packing Material Argument:
The Tribunal rejected the petitioner's argument that paper cones and tubes are packing materials. It reasoned that packing involves wrapping or tying items for carrying, whereas yarn is wound on paper cones for sale, not packed with them.

3. Applicable Tax Rate:
The Tribunal referred to section 3(3) of the TNGST Act, which provides a concessional tax rate of three percent for goods used in connection with manufacturing inside the State. It concluded that paper cones and tubes sold to spinning mills for winding yarn are used in connection with manufacturing and are eligible for the three percent concessional tax rate.

Conclusion:
The Tribunal set aside the impugned orders levying a four percent tax on the sale of paper cones and tubes to spinning mills and remitted the matter back to the assessing authority for reassessment. The Tribunal held that paper cones and tubes should be classified as "any goods" used in connection with manufacturing inside the State, entitling them to a three percent concessional tax rate under section 3(3) of the TNGST Act.

Final Order:
Both original petitions were disposed of, and the stay petitions were rendered moot. The Tribunal ordered that its decision be observed and executed by all concerned parties.