2015 (4) TMI 966 - HC - VAT and Sales Tax

Classification of goods - levy of VAT @ 4% or taxable @ 12.5% in terms of Section 4(1)(e) - Held that - The expression Handicrafts , not specially defined for purposes of DVAT Act, cannot take a meaning other than the one explained by the interpretation given to it in the context of another fiscal statute viz. the Central Excise Act. The tests to be applied, for present purposes, must thus be the same as were evolved in the case of Louis Shoppe (1995 (3) TMI 108 - SUPREME COURT OF INDIA). - no hesitation in concluding that a product in order to qualify as Handicrafts for the purposes of application of entry no.128 of the third schedule to DVAT, must have been made predominantly by hand and it would be inconsequential if some part of the process involves use of some machinery. Needless to add, such product must be one graced with artistic visual appeal resultant upon substantial (not a mere pretence) ornamentation or in-lay or some similar work adding to it elements of artistic improvement. Expression Handicrafts used in entry no.128 of the third schedule to DVAT Act must be construed in its plain lexical sense, without any colour being added by extraneous factors. - The fact that Baldi items are imported from Italy seems to have been considered by both authorities, the Commissioner and the Tribunal, as a factor which clinches the issue. There is nothing in the DVAT Act, or the Rules framed therein or, for that matter, any other instruction, notification etc. to require that a commodity in order to be accepted as Handicrafts must be one indigenously made or, to put it conversely, must not be one imported into India. We have concluded earlier that the expression Handicrafts has to be construed in the sense it is commonly understood. Since the legislative entry does not qualify it by any other pre-requisites, the restrictive interpretation put on it by the authorities below (based on the fact that it is imported from Italy) cannot be approved. The revenue did not refute, either before the Tribunal or before this Court, the claim that the Baldi items, in which the appellant deals, are predominantly made by hand. There is no dispute that they are items graced with visual appeal, on account of ornamentation or inlay work carried out skilfully by expert artisans. For these reasons, they do qualify as Handicrafts on the twin tests laid down in the case of Louis Shoppe (1995 (3) TMI 108 - SUPREME COURT OF INDIA) which hold good for the purpose of entry no.128 of the third schedule to DVAT Act. - if the facts cover the case under a specific provision, the residuary clause would not apply. Since, in our judgment, entry no.128 of the third schedule governs the commodity in question, there is no question of invoking the residual category specified under Section 4(1)(e). - goods sold under the brand name of Baldi , as described above, fall in the category of Handicrafts within the meaning of the expression used in entry no.128 of the third schedule of DVAT Act and, therefore, chargeable to VAT at the rate applicable to the said third schedule. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of "Baldi" items as "Handicrafts" under Entry 128 of Schedule III of the DVAT Act.
2. Applicability of VAT rate @ 4% versus 12.5% for "Baldi" items.
3. Interpretation of "Handicrafts" in the context of DVAT Act.

Issue-wise Detailed Analysis:

1. Classification of "Baldi" items as "Handicrafts" under Entry 128 of Schedule III of the DVAT Act:

The appellant, a registered dealer under the DVAT Act, engaged in the sale of stained glass products and other decorative items under the brand name "Baldi," claimed these items as "Handicrafts" under Entry 128 of Schedule III of the DVAT Act, thereby attracting a VAT rate of 4%. The manufacturing process of "Baldi" items involved substantial manual labor by skilled artisans, creating unique, decorative items with no two pieces resembling each other. The Commissioner, however, rejected this classification, arguing that "Baldi" items, imported from Italy, did not fulfill the criteria for "Handicrafts" as they were not produced in India and were considered luxury items rather than traditional handicrafts.

2. Applicability of VAT rate @ 4% versus 12.5% for "Baldi" items:

The appellant sought a determination on whether "Baldi" items should be taxed at 4% as "Handicrafts" or at 12.5% as unclassified items. The Commissioner and the Tribunal both upheld the view that "Baldi" items did not qualify as "Handicrafts" and thus were taxable at 12.5%. The Tribunal emphasized that the term "Handicrafts" in common parlance in India did not encompass luxury items imported from Italy, which were marketed as "The Luxury Style of Living."

3. Interpretation of "Handicrafts" in the context of DVAT Act:

The word "Handicrafts" is not specifically defined in the DVAT Act. The court referred to dictionary meanings and previous judicial interpretations, including the Supreme Court's tests in the case of Collector of Central Excise v. Louis Shoppe, which defined "Handicrafts" as items predominantly made by hand and graced with visual appeal through substantial ornamentation. The court found that the restrictive interpretation by the Commissioner and Tribunal, which excluded imported items and considered the high price and luxury status of "Baldi" items, was erroneous. The court held that the legislative entry "Handicrafts" should be construed in its plain lexical sense without restrictive qualifications.

Judgment:

The court concluded that "Baldi" items, being predominantly made by hand and possessing artistic visual appeal, qualify as "Handicrafts" under Entry 128 of Schedule III of the DVAT Act. Consequently, they are subject to a VAT rate of 4%, not 12.5%. The court set aside the orders of the Commissioner and the Tribunal, ruling in favor of the appellant and against the revenue. The appeal was allowed, with each party bearing its own costs.