Back
1976 Supreme(Mad) 154
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE V RAMASWAMY & THE HONOURABLE MR. JUSTICE V SETHURAMAN
M. Muthusavari Pillaid and Sons - Appellant
Versus
State of Tamil Nadu - Respondent
Case No : Tax Case Nos. 465 & 466 of 1974
Decided On : 11 March 1976
The term 'textiles' in item 4 of the Third Schedule to the Tamil Nadu General Sales-tax Act, 1959 should be interpreted according to its ordinary or popular sense, and not in its technical sense. The essence of textiles is the spinning of cotton or other fibre and weaving such yarn so as to produce a definite patterned article or commodity.
Headnote:
TAXATION - SALES TAX - EXEMPTION - TEXTILES - COTTON BANDINGS AND COTTON ROPES - WHETHER EXEMPT UNDER ITEM 4 OF THE THIRD SCHEDULE TO THE TAMIL NADU GENERAL SALES-TAX ACT, 1959 - INTERPRETATION OF THE TERM 'TEXTILES' - WHETHER COTTON BANDINGS AND COTTON ROPES ARE COTTON YARN UNDER ITEM 3 OF THE SECOND SCHEDULE - WHETHER THE SALE BY THE ASSESSEE IS A FIRST SALE OR A SECOND SALE.
Fact of the Case:
The assessee, a dealer in cotton bandings and cotton ropes, claimed exemption under item 4 of the Third Schedule to the Tamil Nadu General Sales-tax Act, 1959 (the Act) and under section 9(2) read with section 8-A of the Central Sales Tax Act for the turnover relating to the sale of these items. The AO allowed the exemption, but the Dy. CIT held that the cotton bandings and cotton ropes were not textiles within the meaning of item 4 and were therefore assessable to sales tax at multi-point. The Tribunal upheld the Dy. CIT's decision.
Finding of the Court:
The court held that the cotton bandings and cotton ropes sold by the assessee were not textiles within the meaning of item 4 of the Third Schedule to the Act. The court also held that the articles sold by the assessee did not retain the character of yarn and were not capable of being used for the manufacture of any textile falling under item 4 of the Third Schedule. Therefore, the sale by the assessee was not a first sale and was liable to be taxed at multi-point.
Issues: 1. Whether cotton bandings and cotton ropes are textiles within the meaning of item 4 of the Third Schedule to the Tamil Nadu General Sales-tax Act, 1959? 2. Whether cotton bandings and cotton ropes are cotton yarn under item 3 of the Second Schedule to the Tamil Nadu General Sales-tax Act, 1959? 3. Whether the sale by the assessee is a first sale or a second sale?
Ratio Decidendi: 1. The court held that the term 'textiles' in item 4 of the Third Schedule to the Act should be interpreted according to its ordinary or popular sense, and not in its technical sense. The court also held that the essence of textiles is the spinning of cotton or other fibre and weaving such yarn so as to produce a definite patterned article or commodity. 2. The court held that a bunch of spun thread could come within the definition of cotton yarn if it is capable of being used for the manufacture of textiles under item 4 of the Third Schedule. However, in the present case, the court held that the articles sold by the assessee did not retain the character of yarn and were not capable of being used for the manufacture of any textile falling under item 4 of the Third Schedule. 3. The court held that the sale by the assessee was not a first sale because the articles sold by the assessee were not commercially different from the articles purchased by them.
Final Decision: The court remanded the case to the Tribunal to determine whether the articles sold by the assessee still retained the character of yarn and whether they were commercially different from the articles purchased by them, in order to determine whether the sale by the assessee was a first sale or a second sale.
V. RAMASWAMI, J.
In these two tax cases a common question of law is raised, though one case is in respect of the assessment under the Tamil Nadu General Sales-tax, 1959, and the other under the Central ST Act,
2. The assessees are dealers in cotton bandings and cotton ropes. In the assessment proceedings the assessees claimed a certain turnover relating to bandings and ropes as exempt under s. 8 r/w Item 4 of the Third Schedule insofar as the assessment under the Tamil Nadu General ST Act, 1959 (hereinafter referred to as the Act) is concerned, and under s. 9(2) r/w s. 8-A of the Central ST Act so far as the assessment under the Central ST Act is concerned. The AO held that the bandings and ropes sold by the assesses are textiles within the meaning of item 4 of the Third Schedule to the Act and that, therefore, the turnover relating to the same is entitled to exemption. Accordingly the said turnover was deleted from the gross turnover under both the assessments.
3. The Dy. Commr. of Commercial Taxes, Coimbatore, initiated proceedings under s. 32 of the Act in the view that the cotton bandings and cotton ropes sold by the assessee would not come within the meaning of 'textiles' under Item 4 of the Third Schedule. After bearing the objections of the assessees and relying on the decision in K. R. Subbaier vs. State of Madras the Dy. CIT held that these cotton bandings and cotton ropes are not textiles within the meaning of item 4 and that, therefore, they are assessable to sales-tax at multi-point. The assessees preferred appeals to the Tribunal. The Tribunal held that the goods sold by the assessee are neither textiles nor cotton fabrics and that the turnover, therefore, have been rightly assessed to tax under the Act.
4. In these revision petitions the learned counsel for the assessees raised two contentions : His first contention was that the cotton bandings and cotton yarn sold by the assessee are textiles within the meaning of item 4 of the Third Schedule. He alternatively contended that, in any case, it would fall under the category of 'cotton yarn' under item 3 of the Second Schedule which is liable to tax at single point on the first sale in the state and that the turnover relating to sales of these articles are second sales and hence they are not liable to be included in the taxable turnover. This second contention was never raised either before the Dy. CIT or the Tribunal. Of course, there was no need for them to raise the same before the AO as he had succeeded even in his contention that they were textiles. Since the question raised related to the exemption of the same turnover, though under a different provision of law and the facts are also not in dispute, we permitted the learned counsel for the assessee to raise this alternative contention also.
5. Before we consider these questions of law arising in these tax cases, it is necessary to give a description of the article which the assessees were selling. The cotton ropes which they sold a sample of which was produced before us consist of 12 stands of cotton yarn. Four stands each are twisted in one group and the three sets of four strands are again twisted together so as to make it one rope. In other words, three plies of four stands each are twisted and formed into a rope. It is stated that the yarn used in making these ropes is of grades 10 and 15. The cotton bandings which the assessees sold is a twisted three strand banding with is normally used for tying packings by textile mills and other dealers. Even the cotton ropes which were produced before us, we are of the view, are suited for the purpose of fastening or tying. The learned counsel for the assessees states that apart from the cotton bandings and cotton ropes which he produced before us as samples, there might be certain other bandings and ropes which might consist of more plies or more strands. Item 4 of the Third Schedule which exempts textiles, as it stood in the relevant asst. yr. 1971-72, reads
