1978 (3) TMI 188 - HC - VAT and Sales Tax

Kerala High Court: Dyed Cotton Yarn Not Taxable

The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Versus O. Sadasivan

The High Court of Kerala upheld the Sales Tax Appellate Tribunal's decision that dyed cotton yarn did not undergo a transformation attracting sales tax ... - Issues involved: The issues involved in this case are the applicability of sales tax on dyed yarn, the interpretation of relevant provisions of the Sales Tax Act, and the determination of whether the process of dyeing and coloring transforms the nature of the commodity for sales tax purposes.Summary:The High Court of Kerala addressed tax revision cases concerning the applicability of sales tax on dyed yarn. The Deputy Commissioner of Sales Tax had ordered that the exemption from sales tax on dyed yarn was unjustified and the turnover must be accounted for tax purposes. However, the Sales Tax Appellate Tribunal overturned this decision, stating that dyed cotton yarn remained the same commodity and did not undergo a transformation attracting sales tax. The Tribunal allowed the appeals of the assessees, leading to revisions by the Government Pleader on behalf of the revenue.Interpretation of Relevant Provisions:The Court analyzed Section 5 of the Sales Tax Act, which is the charging section, and Entry 4(ii) of the Second Schedule which pertains to cotton yarn. The Court concluded that despite dyeing and coloring, cotton yarn retained its original nature and did not undergo a transformation that would make it separately taxable for sales tax purposes. This interpretation was supported by judicial precedents such as Nagpur Yarn and Dyes Merchants Association v. State of Bombay and Kailash Nath v. State of U.P., emphasizing that the commodity remains the same even after dyeing.Judicial Precedents and Exemption Interpretation:Referring to the Supreme Court decision in Kailash Nath v. State of U.P., the Court highlighted that the transformation of cloth through printing and dyeing did not alter its essential nature for tax exemption purposes. The Court emphasized that the exported product remained the same as the one sold, with only variations in appearance due to printing and processing. Based on these legal principles and precedents, the Sales Tax Appellate Tribunal's decision was deemed correct, leading to the dismissal of the tax revision cases without costs.In conclusion, the High Court of Kerala upheld the Sales Tax Appellate Tribunal's decision, ruling that dyed cotton yarn did not attract separate sales tax liability as it retained its original nature. The judgment was based on the interpretation of relevant provisions of the Sales Tax Act and supported by judicial precedents emphasizing the continuity of the commodity despite dyeing processes.