1975 (8) TMI 68 - AT - Income Tax

Summary

Issues Involved:
1. Classification of sports goods containing leather under the Tamil Nadu General Sales Tax Act.
2. Determination of whether sports goods can be categorized as leather goods under Entry 116 of the First Schedule.

Detailed Analysis:

1. Classification of Sports Goods Containing Leather:
The appellant, a dealer in sports goods, challenged the classification of certain sports items like cricket balls, footballs, and hockey balls, which contain leather, under Entry 116 of the First Schedule of the Tamil Nadu General Sales Tax Act. This entry pertains to "Leather goods other than footwear" taxed at 7% at the point of first sale in the state.

The assessing authority classified these sports items as leather goods, arguing that they are products of leather. This classification was confirmed by the Assistant Appellate Commissioner (AAC), prompting the appellant to file an appeal.

The appellant contended that sports goods, even if they contain leather, are not considered leather goods in common parlance. He cited various examples and relied on the Supreme Court's decision in Ramavatar Budhaiprasad vs. Assistant Sales Tax Officer, which emphasized the preference for popular sense over technical definitions in tax matters. The appellant argued that sports goods dealers stock a variety of items, many of which do not contain leather, and that the trade and common people do not equate sports goods with leather goods.

2. Determination of Whether Sports Goods Can Be Categorized as Leather Goods:
The State Representative argued that since there is no separate entry for sports goods in the schedules, the question is whether these leather-containing sports items can be classified as anything other than leather goods. He pointed out that the Indian Standards Institution lists leather as a primary requirement for these sports items and cited various authorities to support the intrinsic classification of these items as leather goods.

However, the Tribunal emphasized the importance of common parlance in the classification of goods, citing the Supreme Court's decision in Commissioner of Sales Tax vs. S.N. Brothers. The Tribunal noted that in the absence of a technical definition, the common understanding and commercial sense should prevail.

The Tribunal reviewed materials from Chambers Encyclopaedia, New Encyclopaedia Britannica, and Popular Science, which discussed the use of leather in the manufacture of sports goods but did not classify sports goods themselves as leather goods. The Tribunal found that the Indian Standards Institution's specifications for sports goods and leather goods are distinct, with separate committees for each, indicating that sports goods are not generally considered leather goods.

The Tribunal concluded that while leather is a significant component in items like footballs and cricket balls, these items are not commonly regarded as leather goods. The Tribunal also noted that if the legislature intended to tax sports goods specifically, it would have included a separate entry for them in the schedule. The Tribunal emphasized that any doubt in interpretation should be resolved in favor of the taxpayer, as established by the Madras High Court in S. Kannappa Mudaliar vs. State of Madras.

Conclusion:
The Tribunal allowed the appeal, ruling that sports goods containing leather should not be classified as leather goods under Entry 116. The appellant was entitled to relief on the disputed turnover at a reduced tax rate of 3.5% instead of 7%.

Result:
The appeal was allowed, granting the appellant relief on a turnover of Rs. 5,302.45 at the reduced tax rate of 3.5%.