2007 (8) TMI 689 - HC - VAT and Sales Tax

Whether the metallic yarn produced and sold by the assessee during the period in question, namely, 1986-87 to 1988-89, is taxable at the rate of 1.5 per cent as all kinds of man-made yarn whether synthetic or non-synthetic, cellulosic or non-cellulosic, blended or not and waste thereof , or is taxable at the rate of three per cent as badla under notification dated June 19, 1967? Held that - The metallic yarn produced by the assessee squarely falls within the definition of man-made yarn and is therefore, taxable at the rate of 1.5 per cent only under the relevant notifications. Consequently, these revision petitions are allowed and the order of the Tax Board dated July 16, 2001 is set aside and it is held that during the relevant period the assessee was liable to pay sales tax at the rate of 1.5 per cent only on sale of metallic yarn as man-made yarn under the applicable rate notifications and not at three per cent as badla , under the notification dated June 19, 1967. Revision petitions are allowed

Issues Involved
1. Taxability of metallic yarn as "man-made yarn" or "badla."
2. Applicable tax rate for metallic yarn during the period 1986-87 to 1988-89.
3. Interpretation of relevant notifications and definitions.
4. Estoppel against the assessee's contention regarding the classification of metallic yarn.

Detailed Analysis

1. Taxability of Metallic Yarn as "Man-Made Yarn" or "Badla"
The primary issue in this case was whether metallic yarn produced and sold by the assessee should be taxed as "man-made yarn" at 1.5% or as "badla" at 3% under the notification dated June 19, 1967. The court examined the definitions and characteristics of metallic yarn through various authoritative sources, including the Encyclopedia Britannica and "Essentials of Textiles" by Marjory L. Joseph. The court concluded that metallic yarn, being a product of a complex manufacturing process involving plastic and metal, fits within the definition of "man-made yarn."

2. Applicable Tax Rate for Metallic Yarn During the Period 1986-87 to 1988-89
The court scrutinized the relevant tax notifications and previous judgments to determine the applicable tax rate. The notification dated June 19, 1967, specified a 3% tax rate for items like "gota, gota-kinari, salma, sitara, and badla." However, another notification exempted these items from sales tax from March 6, 1991. The court noted that the original assessment did not impose additional tax over 1.5%, which the assessee had already charged and paid. The reassessment by the tax authority, which imposed a 3% tax, was challenged and ultimately overturned by the court.

3. Interpretation of Relevant Notifications and Definitions
The court referred to various authoritative texts and previous judicial rulings to interpret the definitions of "man-made yarn" and "badla." The Supreme Court's judgment in Superintendent of Central Excise, Surat v. VacMet Corpn. (P) Ltd. and the Allahabad High Court's ruling in State v. Memorex Company were instrumental in establishing that metallic yarn falls under the category of "man-made yarn." The court emphasized that the burden of proof was on the Revenue to establish that the commodity was exclusively "badla," which they failed to do.

4. Estoppel Against the Assessee's Contention Regarding the Classification of Metallic Yarn
The Revenue argued that the assessee was estopped from claiming the commodity as "man-made yarn" because it was initially registered as "badla." The court rejected this argument, stating that there is no estoppel against the law. The assessee is entitled to argue that the commodity falls under a different tax category. The court further noted that the principle of interpretation favors the assessee when two views are possible.

Conclusion
The court allowed the revision petitions, setting aside the Tax Board's order dated July 16, 2001. It held that the metallic yarn produced and sold by the assessee during the relevant period was taxable at the rate of 1.5% as "man-made yarn" and not at 3% as "badla." The court emphasized that the principle of resolving tax ambiguity in favor of the assessee applied in this case. The revision petitions were allowed with no order as to costs.

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