2013 (6) TMI 482 - HC - VAT and Sales Tax

Works contract - dyes and chemicals which are used for washing of cloth - liability of tax on the goods which are consumed or used and the goods which are used and consumed - transfer of property in goods - textile processing - colouring, printing, bleaching, washing and dyeing of the gray cloth. In the case of Arviva Industries (I) Ltd.(2007 (1) TMI 6 - SUPREME COURT OF INDIA) Hon ble the Supreme Court has held that circulars issued by the Central Board of Excise & Customs are binding upon the department and similar view has been taken in the case of Kurian Abraham (P) Ltd. (2008 (2) TMI 289 - SUPREME COURT) wherein the Hon ble Supreme Court had held that the circular issued by the Board of Revenue under the Kerala General Sales Tax Act is binding on the department. It is amply clear that the State Government had decided the representation made by the Northern India Textile Processors Association and had come to the conclusion that dyes and chemical used in the bleaching, colouring and dyeing etc. on gray cloth are consumed in the process and not transferred. In our considered opinion, the said finding is binding upon the assessing authorities as the representation made by the Northern India Textile Processors Association was also decided by the said order. - Decided in favor of assessee.

Issues Involved:
1. Quashing of orders imposing trade tax.
2. Issuance of declaration forms for import.
3. Binding nature of State Government decisions on assessing authorities.
4. Consumption vs. transfer of dyes and chemicals in textile processing.
5. Availability of alternative remedy by way of appeal.

Detailed Analysis:

1. Quashing of Orders Imposing Trade Tax:
The petitioners sought to quash the orders dated 29.9.2007, 31.3.2008, 11.12.2008, and 18.12.2008, passed by the Assistant Commissioner, Trade Tax, imposing trade tax on dyes and chemicals used in the processing of gray cloth. The Court noted that the State Government had already decided on 7.10.2005 that no trade tax was payable on such activities. The orders imposing trade tax were found unjustified and were quashed.

2. Issuance of Declaration Forms for Import:
One of the writ petitions requested a mandamus directing the Deputy Commissioner to issue requisite Form 38 for import declarations. The judgment did not specifically address this issue, focusing instead on the broader issue of tax liability on dyes and chemicals.

3. Binding Nature of State Government Decisions on Assessing Authorities:
The Court held that the decision taken by the State Government on 7.10.2005, which clarified that no tax was payable on the activities of job work involving dyes and chemicals, was binding on the assessing authorities. The Court cited several precedents, including *M/s Kichha Sugar Company Ltd.* and *Paper Products Ltd.*, to support the binding nature of such government decisions and circulars on tax authorities.

4. Consumption vs. Transfer of Dyes and Chemicals in Textile Processing:
The core issue was whether dyes and chemicals used in textile processing were consumed or transferred to the gray cloth. The State Government had concluded that these materials were consumed and lost their existence in the process, thus not liable for trade tax. The Court upheld this view, rejecting the respondents' argument that these materials were transferred and constituted a sale.

5. Availability of Alternative Remedy by Way of Appeal:
The respondents argued that the petitioners should have availed the alternative remedy of appeal. However, the Court, referencing its earlier order dated 06.12.2007, declined to relegate the petitioners to the alternative remedy, noting that the issue involved a pure question of law on admitted facts, which warranted direct judicial intervention.

Conclusion:
The Court allowed all the writ petitions, quashing the impugned orders imposing trade tax on the dyes and chemicals used in textile processing. The decision of the State Government on 7.10.2005 was held binding on the assessing authorities, and the Court emphasized that the materials in question were consumed in the process, not transferred, thus not subject to trade tax. The petitions were successful, and the orders were quashed, with each party bearing its own costs.

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