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2010 (4) TMI 854 - HC - VAT and Sales TaxLevy of Sales Tax (VAT) on Fabric - Classification of Hook and Loop Tape Fasteners called as Velcro Fastener - what is a Narrow Fabric and Hook and Loop Tape Fasteners - TNGST Act, 1959 - held that - In the present case, it is not the stand of the State that they are taxing the specified commodity, i.e. Hook and Loop Tape Fasteners. It is the clarification issued by the Commissioner of Commercial Tax (COCT) bringing it under a different head in order to levy tax without relying upon the nature of goods and the entry under which it has been made under ADE Act, 1957. the Commissioner never gave any notice to the dealers and it is his own decision based on ipse dixit. Once it is not a commodity under 58.07, but once it is squarely covered under 58.06 subject to the Excise Act and ADE Act, 1957, this court is empowered to direct the respondents to statutorily grant exemption provided under Section 8 of the TNGST Act. If the State wants to levy even that particular commodity, it is well open to them to declare it as liable for tax, but cannot include it under some other wrong entry and then to levy tax only for the purpose of maximising the State s Revenue. The clarification issued by the COCT does violence to the language found in the relevant entry. - Decided in favor of assessee.
Issues Involved:
1. Classification of "Hook and Loop Tape Fasteners" (Velcro Fasteners) under the TNGST Act. 2. Applicability of tax exemption under Section 8 of the TNGST Act. 3. Validity of the impugned clarification issued by the Commissioner of Commercial Tax (COCT). 4. Jurisdiction and procedural correctness of the COCT's order. 5. The interplay between the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act) and the TNGST Act. Detailed Analysis: 1. Classification of "Hook and Loop Tape Fasteners" (Velcro Fasteners) under the TNGST Act: The primary issue was whether "Hook and Loop Tape Fasteners" (Velcro Fasteners) should be classified under excise chapter heading No. 58.06 or 58.07. The COCT classified it under 58.07, which includes "Labels, badges and similar articles of textile materials," making it taxable at 12% under the residuary entry 40, Part D, First Schedule to the TNGST Act, 1959. The petitioners argued that it should fall under 58.06, which pertains to "Narrow Woven Fabric," and thus be exempt from tax under the TNGST Act. 2. Applicability of Tax Exemption under Section 8 of the TNGST Act: Section 8 of the TNGST Act provides for exemption from tax for goods specified in the Third Schedule. The petitioners contended that "Hook and Loop Tape Fasteners" fall under the description of narrow woven fabrics as per heading 58.06, and thus should be exempt under Section 8. They supported their claim with various documents, including technical reports and classification lists approved by Central Excise authorities. 3. Validity of the Impugned Clarification Issued by the COCT: The COCT's clarification, dated 18-4-2006, was challenged for being arbitrary and non-speaking. The court noted that the COCT did not provide adequate reasoning or consider all relevant materials submitted by the petitioners. The COCT's decision to classify the product under 58.07 was found to be without proper justification and contrary to earlier departmental clarifications and practices. 4. Jurisdiction and Procedural Correctness of the COCT's Order: The court emphasized the necessity for the COCT to issue a speaking order with clear reasoning. The COCT's order was criticized for being based on ipse dixit and not providing the petitioners an opportunity to present their case adequately. The court found that the COCT's classification was an attempt to levy tax improperly by reclassifying the product under a different entry. 5. The Interplay between the ADE Act and the TNGST Act: The court examined the relationship between the ADE Act and the TNGST Act, noting that goods subject to additional excise duty under the ADE Act are generally exempt from state sales tax under the TNGST Act. The court cited various judgments to support the principle that if a product is classified under a specific entry in the ADE Act, it should not be reclassified under a different entry for the purpose of levying state tax. Conclusion: The court set aside the COCT's clarification and declared that "Hook and Loop Tape Fasteners" fall under entry 58.06 and are exempt from tax under Section 8 of the TNGST Act. Consequently, the assessment and appellate orders based on the COCT's clarification were also set aside and remitted for fresh disposal in light of the court's judgment. All writ petitions were allowed, and no costs were imposed.
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