2016 (11) TMI 168 - HC - VAT and Sales Tax

Taxability - sale of damping cloth - classification of goods - Damping cloth is used in offset machine as a vital component/accessory of the machine or were used in offset printing machine - classifiable under Entry No.49, in Part-DD of the First Schedule up to 26.3.2002 and thereafter, under Entry 21(ix) in Part-D of the first schedule with effect from 27.3.2002 at the rate of 12% for both the periods or as knitted pile fabrics, falling under heading 60-01 of Chapter 60 of the First Schedule to the Central Excise Tariff Act, 1985 and the goods prescribed under heading 60-01 and 60-02 of the Central Excise Tariff Act has been exempted under the TNGST Act in Entry No.10 of Part A of third schedule to the TNGST Act, 1959? - whether damping cloth is textile falling within Item 4 of Third Schedule of the Tamil Nadu General Sales Tax Act - Held that - Held that - reliance placed on the decision of the case of Silver Chem Industries vs. the State of Tamil Nadu 1979 (11) TMI 246 - MADRAS HIGH COURT where the assessee claimed exemption in relation to a turnover relating to sales of damping hose cloth, on the ground that it is textiles. The Appellate Assistant Commissioner allowed the claim and the Board of Revenue examined the order of the Appellate Assistant Commissioner on suo motu revision. The Board held that it was a finished product and it was not called as textile in ordinary or popular sense and was not commonly understood as textile, as a result of which the order of the Appellate Assistant Commissioner stood modified and the turnover was taken to be assessable. The Hon ble Division Bench has held that dumping hose cloth was in no way different from the cloth used for banians and it was only tubular in shape and therefore, held that the Assistant Commissioner rightly exempted the assessee s claim and the Board s order to the contrary cannot be sustained as correct. The decision of the Hon ble Division Bench clearly applies to the facts and circumstances of the case and the clarification issued by the second respondent that the product was classifiable under Entry No.49 is not in consonance with the law laid down by the Hon ble Division Bench of this Court and therefore, calls for interference - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Taxability of sale of damping cloth under the Central Sales Tax Act.
2. Interpretation of the term "textiles" under the Tamil Nadu General Sales Tax Act.

Analysis:
1. The petitioner, a registered dealer under the Central Sales Tax Act, challenged a pre-assessment notice proposing to tax the sale of damping cloth based on a clarification issued by the second respondent. The petitioner argued that damping cloth is not a machinery part but a textile used in offset machines. The second respondent rejected the petitioner's request for reconsideration, leading to the Writ Petition challenging this decision.

2. The issue of whether damping cloth falls under the definition of "textiles" under the Tamil Nadu General Sales Tax Act was examined in light of previous judgments. The Division Bench considered the ordinary or popular sense of the term "textiles" in various cases, including the Deputy Commissioner of Commercial Taxes v. Madurai Printing Tape Factory and State of Tamil Nadu v. East India Rubber Works. The Division Bench also referred to a Supreme Court decision in Porritts & Spencer (Asia) Ltd. v. State of Haryana, which clarified that textiles include woven fabrics. Based on these precedents, the Division Bench concluded that damping hose cloth is akin to cloth used for banians and qualifies as textiles. Therefore, the Board's order against the petitioner's claim was deemed incorrect, and the impugned clarification by the second respondent was quashed.

3. The Writ Petition was allowed, and the petitioner's challenge against the clarification was upheld, emphasizing the need for the clarification to align with the legal interpretation provided by the Division Bench. The judgment highlighted the importance of interpreting terms like "textiles" in their ordinary sense as understood in common parlance, ensuring consistency with established legal principles.

4. The Court's decision provides clarity on the taxability of damping cloth under the Central Sales Tax Act and the interpretation of textiles under the Tamil Nadu General Sales Tax Act, setting a precedent for future cases involving similar issues. The judgment serves as a guide for determining the classification of products like damping cloth and emphasizes the significance of legal interpretations based on established precedents and common understanding of terms in commercial and legal contexts.