2005 (10) TMI 524 - HC - VAT and Sales Tax

Issues Involved:
1. Whether mill-made and handloom cotton handkerchiefs are exempt from sales tax under entry 8-A of the Fifth Schedule to the Karnataka Sales Tax Act, 1957.
2. The impact of the amendment to entry 8-A of the Fifth Schedule effective from April 1, 1992.
3. Interpretation of relevant entries in the Additional Duties of Excise (Goods of Special Importance) Act, 1957, and the Central Excise Tariff Act.
4. The applicability of entry 12 of the Fourth Schedule to the KST Act.
5. Jurisprudence and precedents related to the classification of handkerchiefs as textiles or fabrics.

Detailed Analysis:

1. Exemption of Mill-Made and Handloom Cotton Handkerchiefs under Entry 8-A of the Fifth Schedule:
The appellant, a registered dealer under the KST Act and CST Act, claimed exemption on sales of mill-made and handloom cotton handkerchiefs under entry 8-A of the Fifth Schedule to the KST Act. This claim was rejected by the assessing authority, which levied tax under entry 7-A of Part "T" of the Second Schedule. The appellant argued that the Sales Tax Department had exempted these handkerchiefs from 1958 to March 31, 1992, based on entry 19 of the Central Excise Act and circular instructions from the Commissioner of Commercial Taxes. The appellant contended that the amendment to entry 8-A did not change the basic character of textiles and that handkerchiefs should still be considered textiles under entry 8-A of the Fifth Schedule and section 14 of the CST Act.

2. Impact of the Amendment to Entry 8-A Effective from April 1, 1992:
The court noted that by Karnataka Act No. 4 of 1992, entry 8-A of the Fifth Schedule was amended to include the words "cloth in lengths as described from time to time in column (2) of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957." This amendment meant that the description of "cloth in lengths" had to be understood as per the Additional Duties of Excise Act, which adopts the Central Excise Tariff Act. The court concluded that the enumerated list in entry 8-A is exhaustive and does not include handkerchiefs, which are categorized under Chapter 62 of the Central Excise Tariff Act as "articles of apparel and clothing accessories."

3. Interpretation of Relevant Entries in the Additional Duties of Excise Act and Central Excise Tariff Act:
The court examined the entries in the Additional Duties of Excise Act and the Central Excise Tariff Act. It found that handkerchiefs fall under Heading No. 62.02 of Chapter 62, which deals with "clothing accessories, not knitted or crocheted." The court emphasized that the Additional Duties of Excise Act does not consider handkerchiefs as cotton fabrics, which are covered under Heading Nos. 50.03 to 60.01. Therefore, handkerchiefs do not fall under entry 8-A of the Fifth Schedule to the KST Act.

4. Applicability of Entry 12 of the Fourth Schedule to the KST Act:
The court considered whether handkerchiefs could be categorized under entry 12 of the Fourth Schedule, which enumerates declared goods under section 14 of the CST Act. The court noted that sub-entry (ii-a) of section 14 of the CST Act includes cotton fabrics under specific headings of the Central Excise Tariff Act, but does not include Chapter 62. Since handkerchiefs are not listed under the relevant headings, they do not qualify for the reduced tax rate under entry 12 of the Fourth Schedule.

5. Jurisprudence and Precedents:
The appellant relied on several judicial precedents, including decisions from the apex court and various High Courts, to argue that handkerchiefs should be considered cotton fabrics and exempt from tax. However, the court found that these decisions were based on different fact situations and statutory provisions. The court specifically noted that the decision in Deputy Commissioner of Sales Tax (Law) v. M. M. Mohammed Abdul Khader was based on the interpretation of item 19 of the First Schedule to the Central Excise Act, which is not applicable to the amended entry 8-A of the Fifth Schedule to the KST Act.

Conclusion:
The court upheld the learned single Judge's conclusion that the sale of mill-made and handloom cotton handkerchiefs is not exempt from sales tax under the amended entry 8-A of the Fifth Schedule to the KST Act. The appeal was rejected, and the parties were directed to bear their own costs.

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