2006 (8) TMI 534 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of tax liability on nylon fishing net fabric under different entries of the Kerala General Sales Tax Act, 1963.
2. Applicability of exemption under entry 7 of the Third Schedule to the KGST Act.
3. Consideration of Government orders and clarifications in determining tax liability.
4. Impact of judicial decisions and Supreme Court rulings on tax exemptions.
5. Validity of Government clarifications and their binding effect on courts and tribunals.

Analysis:
The High Court of Kerala addressed the issue of tax liability concerning nylon fishing net fabric under various entries of the Kerala General Sales Tax Act, 1963. The court considered whether the fabric should be assessed under entry 129 of the First Schedule or under entry 89 post-April 1, 1992, or if it qualified for exemption under entry 7 of the Third Schedule, later renumbered as entry 11. The Sales Tax Appellate Tribunal's conflicting decisions prompted the tax revisions filed by both the State and the assessees. The court examined a Government order clarifying that nylon fishing net fabric sold in length falls under entry 7 of the Third Schedule, making it eligible for exemption from tax. Despite this, assessing officers levied tax due to previous court decisions deeming the relevant section invalid.

The court noted a Supreme Court ruling in a similar case involving tarpaulin made of cotton fabric, where exemption was granted despite being taxable initially. Drawing parallels, the court determined that nylon net fabrics made of nylon yarn qualified as man-made fabrics under the Central Excise Tariff Act, thus eligible for exemption under the Third Schedule. The Government's clarification, issued based on exemption requests, was considered valid, and the court emphasized that it was unnecessary to rely on it due to the fabric's clear eligibility for exemption.

Additionally, the court discussed the Government's intention to grant exemption, especially evident from actions post-January 1, 2000, under the VAT Act. The court criticized the unfairness of assessing tax on nylon fishing net fabric sales, considering the ultimate burden on fishermen. Ultimately, the court upheld the Tribunals' orders in favor of the assessees, reversing those against them. The judgment clarified the entitlement of nylon fishing net or net fabric sold by the assessees to exemption under entry 7, later renumbered as entry 11 of the Third Schedule. The tax revision cases and sales tax revisions were disposed of accordingly.