2013 (10) TMI 487 - HC - VAT and Sales Tax

Exemption from sales tax as terry towels/cotton terry knitted towels fall under the Third Schedule to the TNGST Act - The claim made by the assessee was rejected by the Assessing Officer on the ground that terry towel cloths were folded over and stitched on both sides and it was only a stitched article liable to tax Held that - Reliance has been placed on the decision of the Hon ble Supreme Court reported in the case of Commissioner of Central Excise, Chennai-II Commionerate v. Tarpaulin International 2010 (8) TMI 2 - SUPREME COURT - Mere stitching on both edges would not make the goods in question as falling under the First Schedule for taxation - Department had already accepted the case of the assessee during 2007 for the assessment years 1992-93 and 1995-96. The Revenue does not dispute the fact that what was sold herein is the same goods, for which, the assessee was entitled the benefit of exemption for the assessment years 1992-93 and 1995-96 - Stitching on edges would not make any difference to deny exemption under the said Entry Decided in favor of Assessee.

Summary

Issues:
1. Classification of terry towels for sales tax purposes under specific entries of the TNGST Act.
2. Exemption eligibility of terry towels under the Third Schedule to the TNGST Act.
3. Interpretation of stitched articles made of cloth under the First Schedule of the TNGST Act.

Analysis:
1. The petitioner, a manufacturer of terry towels, cotton yarn, and cotton waste, contested the assessment of sales tax on terry towels by the Assessing Officer under Entry 23 of Part B of the First Schedule to the TNGST Act. The Appellate Assistant Commissioner ruled in favor of the petitioner, stating that terry towels were exempted from sales tax as they were akin to knitted fabric. However, the Sales Tax Appellate Tribunal overturned this decision, deeming stitched terry towels taxable under Entry 23 of Part B of the First Schedule. The petitioner challenged this decision in the High Court, arguing that the stitching did not alter the nature of the goods.

2. The petitioner relied on past assessments and a Supreme Court decision to support their claim for exemption of terry towels under the Third Schedule to the TNGST Act. The High Court agreed with the petitioner, emphasizing that the stitching did not transform the product into a new taxable entity. The court noted that the Revenue had previously accepted the petitioner's exemption claim for similar goods in earlier assessment years, reinforcing the petitioner's entitlement to exemption for terry towels.

3. The High Court analyzed the relevant entries in the TNGST Act, highlighting the distinction between terry toweling fabrics under the Third Schedule and stitched articles made of cloth under the First Schedule. By referencing specific tariff entries and legal precedents, the court concluded that the petitioner's terry towels fell under the Third Schedule and were therefore exempt from sales tax. The court set aside the Sales Tax Appellate Tribunal's decision, ruling in favor of the petitioner and allowing the Tax Case Revision without costs.