1986 (2) TMI 58 - SC - VAT and Sales Tax

Whether the Compressed Woollen Felts manufactured in the small-scale industry unit of the appellants can be said to constitute cloth so as to fall within the scope of Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958? Held that - Going by the meaning given in Dictionaries as well as by its generally accepted popular connotation cloth is woven, knitted or felted material which is pliable and is capable of being wrapped, folded or wound around. It need not necessarily be material suitable for making garments because there can be cloth suitable only for industrial purpose ; but nevertheless it must possess the basic feature of pliability. Hard and thick material which cannot be wrapped or wound around cannot be regarded as cloth . We are, therefore, of opinion that the Commissioner was perfectly right in his view that only those varieties of felt manufactured by the appellants which satisfy the test of pliability will constitute cloth so as to fall within the scope of Entry 6 of Schedule I of the Act. There is absolutely no material on the record to show which out of these 26 varieties was sent as specimen to the Commissioner in 1971. In these circumstances the principle of equitable estoppel is not attracted.

Issues Involved:

1. Classification of Compressed Woollen Felts as "cloth" under Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958.
2. Applicability of the principle of equitable estoppel based on the Commissioner's 1971 letter.
3. High Court's summary dismissal of the Writ Petition challenging the Commissioner's order.

Issue-wise Detailed Analysis:

1. Classification of Compressed Woollen Felts as "cloth" under Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958:

The primary issue in this case is whether the Compressed Woollen Felts manufactured by the appellants qualify as "cloth" under Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958, which would exempt them from sales tax. The appellants argued that their product should be classified as "cloth" and thus be eligible for tax exemption. The manufacturing process of the felt involves compressing woollen fibers and subjecting them to heat and moisture, resulting in a non-woven material. The Commissioner of Sales Tax initially exempted the product based on a specimen submitted in 1971. However, in 1982, the Commissioner revised this stance, citing a Supreme Court judgment that non-woven felts are not "woollen fabrics" and thus do not qualify for exemption.

The Supreme Court emphasized that for a product to be classified as "cloth," it must be pliable and capable of being wrapped, folded, or wound around, as understood in common parlance. The Court held that only those varieties of felt that satisfy the test of pliability can be classified as "cloth." The Court agreed with the Commissioner's assessment that only 5 out of 26 samples met this criterion and were thus eligible for tax exemption.

2. Applicability of the principle of equitable estoppel based on the Commissioner's 1971 letter:

The appellants contended that the principle of equitable estoppel should prevent the respondents from changing their stance on the tax exemption, based on the 1971 letter from the Commissioner. The Supreme Court rejected this argument, noting that the 1971 letter only referred to one specimen of felt, and there was no evidence to show which of the 26 varieties was sent as the specimen. Therefore, the principle of equitable estoppel did not apply.

3. High Court's summary dismissal of the Writ Petition challenging the Commissioner's order:

The High Court dismissed the appellants' Writ Petition without examining the merits, stating that the appellants had the option to appeal the Commissioner's order. The Supreme Court criticized this approach, noting that the order passed by the Commissioner under Section 42-B(2) was binding on the assessing authority. The Court highlighted that requiring the appellants to appeal would be futile, given the Commissioner's detailed order. The Supreme Court decided to address the merits of the case directly, rather than remitting it back to the High Court, to provide a final resolution.

Conclusion:

The Supreme Court upheld the Commissioner's order, affirming that only the pliable varieties of felt qualify as "cloth" and are eligible for tax exemption. The Court dismissed the appeal but suggested that the State Government consider waiving the sales tax for the period between 1971 and January 1983, given the appellants' reliance on the earlier exemption letter. The appeal was dismissed with no order as to costs.

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