2009 (5) TMI 878 - HC - VAT and Sales Tax

Whether on a true and correct interpretation of entry No. 14 of Schedule B appended to the State Act, could it be held that labels are textiles and covered under the said entry? Held that - Left with no doubt that labels have to be regarded as textiles. It has remained undisputed on the facts that the names of the companies for which the labels are prepared are woven, which is the process used for weaving any other textile. It does not involve any printing by any external aid. Therefore, in the facts and circumstances of the case labels have to be regarded as textile and covered by entry 14 of Schedule B to the Act. The question posed hereinabove is decided in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Interpretation of Entry No. 14 of Schedule B under the Haryana General Sales Tax Act, 1973.
2. Determination of whether "labels" are considered textiles and thus tax-free under the said entry.

Issue-wise Detailed Analysis:

1. Interpretation of Entry No. 14 of Schedule B under the Haryana General Sales Tax Act, 1973:
The primary legal question referred to the court was whether "labels" could be classified as "textiles" under Entry No. 14 of Schedule B of the Haryana General Sales Tax Act, 1973. The court examined various judgments to interpret the term "textiles" accurately. The interpretation required understanding the term "textiles" in its popular sense, meaning "that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it."

2. Determination of whether "labels" are considered textiles and thus tax-free under the said entry:
The facts of the case revealed that the assessee was engaged in manufacturing and trading labels made from different types of yarns, sold in rolls to garment manufacturers. The Excise and Taxation Officer initially allowed the sale of labels as tax-free under Entry 14 of Schedule B. However, the revisional authority later held that the sale of labels was taxable, creating an additional tax demand. The Haryana Tax Tribunal, upon appeal, had a split decision, leading to a larger Bench's involvement. The majority judgment favored the assessee, declaring labels as tax-free under Schedule B.

The State contended that labels could not be classified as textiles because they are known differently in commercial circles and common parlance. They argued that labels have a distinct commercial identity from fabrics or textiles. The State's counsel relied on judgments from the Andhra Pradesh High Court, emphasizing the common parlance test for interpreting entries in tax schedules.

Conversely, the respondent-assessee argued that labels, sold in full rolls without cutting, are textiles as they are woven from yarns, fulfilling the definition of textiles. The counsel cited various dictionary definitions and judicial precedents to support this claim. They emphasized that any woven fabric, regardless of its use, should be considered a textile.

The court reviewed several Supreme Court judgments and other high court decisions to resolve the controversy. In cases like Porritts & Spencer (Asia) Ltd. v. State of Haryana and Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, the Supreme Court had held that textiles include any woven fabric, irrespective of the material or weaving technique used. The court also referred to other judgments that supported the broad interpretation of textiles, including fabrics used for industrial purposes.

The court concluded that "labels" must be regarded as textiles. It was undisputed that the labels were woven, not printed, thus fitting the definition of textiles. The court decided in favor of the assessee, stating that labels are covered under Entry 14 of Schedule B to the Act, making them tax-free. The reference was dismissed, and parties were left to bear their own costs.