2009 (1) TMI 448 - HC - VAT and Sales Tax

Handkerchief- Classification- the applicant is engaged in the resale of general mercantile including handkerchiefs on whole sale basis. However, the assessment orders were taken up for suo motu action on the ground that deductions regarding sale of handkerchief are not correct and handkerchiefs are not items of textile. Consequent on revisional proceedings additional demand was created vide order dated 14-2-1985 by taxing the handkerchief by treating them as not textile items. Aggrieved against the order dated the applicant approached the Tribunal. The Tribunal vide its order upheld the order of the Revisional Authority. Held that- handkerchief cannot be regarded as readymade garments thus decision is in favour of assessee.

Summary

Issues:
1. Interpretation of whether mill-made handkerchiefs are considered cotton fabric under the Punjab General Sales Tax Act, 1948.
2. Determination of whether handkerchiefs fall under the category of readymade garments.
3. Assessment of whether mill-made handkerchiefs wholly manufactured from cotton and sold without further processing are exempt under the Act.
4. Examination of the Tribunal's justification to exclude handkerchiefs manufactured by Textile Mills under the Act.
5. Analysis of whether the Tribunal's judgment is binding in light of similar judgments from other High Courts.
6. Evaluation of whether handkerchiefs sold by the appellant are the same as those confirmed in a previous case.

Analysis:
1. The case involved a dispute regarding the classification of handkerchiefs under the Punjab General Sales Tax Act, 1948. The Tribunal upheld the argument that handkerchiefs are not textile items but part of readymade garments, leading to additional tax demands against the applicant.

2. The Tribunal relied on a Madras High Court judgment to support its stance that handkerchiefs, once hemmed, lose their textile character. However, the legal issue centered on whether handkerchiefs should be considered textiles under the Act.

3. The High Court analyzed relevant sections of the Act and entries in Schedule 'B' to determine tax-free goods. It compared the case with precedents from different High Courts to interpret the definition of 'cloth' and its application to handkerchiefs.

4. Referencing a Kerala High Court case, the High Court concluded that handkerchiefs, even if hemmed, are manufactured from cotton and should be considered cotton fabric. The Court overturned the Tribunal's decision and ruled in favor of the dealer on questions 1, 3, 4, and 6.

5. The judgment highlighted the importance of considering specific facts and circumstances in determining the classification of goods under tax laws. It emphasized that handkerchiefs, being made wholly of cotton, should not be excluded from tax exemptions applicable to textiles.

6. Ultimately, the High Court set aside the Tribunal's decision, affirming that handkerchiefs do not qualify as readymade garments and should be treated as cotton fabric under the Act. The judgment provided a detailed legal analysis and interpretation to resolve the issues raised in the reference under Section 22(1) of the Act.