1988 (4) TMI 408 - HC - VAT and Sales Tax

Court deems tarpaulin & P.V.C. rexine as 'cotton textiles' exempt from sales tax

The court ruled that both tarpaulin and P.V.C. rexine cloth are considered 'cotton textiles' under the amended tariff item of the Excise Act. ... Meaning of 'cotton textiles' / 'cotton fabrics' - referential legislation and incorporation of amended definitions - retrospective operation of amendatory provision in tariff item - user test - declared goods in inter-State tradeMeaning of 'cotton textiles' / 'cotton fabrics' - referential legislation and incorporation of amended definitions - retrospective operation of amendatory provision in tariff item - user test - Tarpaulin and P.V.C. rexine cloth fall within the meaning of 'cotton textiles' (as equated to 'cotton fabrics') and are therefore exempt under entry 8A of the Fifth Schedule to the K.S.T. Act. - HELD THAT: - The Court held that the meaning of 'cotton textiles' in entry 8A of the K.S.T. Act must be ascertained by reference to the definition of 'cotton fabrics' in tariff item No. 19 of the Excise Act and that the amended definition (as effected by the Finance Act, 1969 and the Central Excises amendment of 1980 with retrospective effect) is applicable. Relying on the principle governing referential legislation, the Court accepted the reasoning of the Gujarat High Court that where a State exemption provision deliberately adopts the Excise Act definition, the incorporated provision must be read with subsequent amendments in the incorporated enactment when the schemes are supplemental and interconnected; otherwise the exemption scheme would be rendered unworkable. Consequently the retrospective, enlarged definition in item No. 19-which expressly covers fabrics subjected to processes including water-proofing and fabrics having coatings like those in P.V.C. rexine-applies to the K.S.T. entry. The Court rejected the applicability of the user test adopted by some High Courts for these cases because those decisions did not consider the effect of the amended tariff definition. The prior treatment of the goods for excise purposes was a relevant factual inquiry in earlier cases remitted for that purpose, but in the present proceedings the legislative incorporation and retrospective amendment determined the legal meaning. On these grounds the authorities' findings that the unamended definition governed were held incorrect and the clarificatory order and impugned assessments were quashed. [Paras 8, 9, 10, 11, 12]Writ petitions and sales tax revision petitions allowed; impugned clarification and orders quashed and it is declared that tarpaulin and P.V.C. rexine cloth are cotton fabrics entitled to exemption under entry 8A of the Fifth Schedule to the K.S.T. Act.Final Conclusion: The Court allowed the petitions, holding that by virtue of the referential incorporation and the retrospective amendment to tariff item No. 19 of the Excise Act, tarpaulin and P.V.C. rexine cloth fall within 'cotton textiles'/'cotton fabrics' and thus enjoy exemption under entry 8A of the Fifth Schedule to the K.S.T. Act; the impugned clarification and assessments are quashed. Issues Involved:1. Whether tarpaulin cloth comes within the meaning of 'cotton textiles'.2. Whether P.V.C. rexine cloth comes within the meaning of 'cotton textiles'.Issue-wise Detailed Analysis:1. Whether Tarpaulin Cloth Comes Within the Meaning of 'Cotton Textiles':The court addressed conflicting rulings from various High Courts regarding whether tarpaulin is considered 'cotton textiles.' The Bombay, Gujarat High Courts, and the Supreme Court in different contexts have held that 'cotton textiles' include tarpaulin and other water-proofing cloth. However, the Madras, Madhya Pradesh, and Punjab & Haryana High Courts have taken a contrary view, adopting the 'user test.' The court noted that the meaning of 'cotton textiles' under the Karnataka Sales Tax Act (K.S.T. Act) should align with the definition of 'cotton fabrics' under tariff item No. 19 of the Central Excises and Salt Act, 1944 (Excise Act), as amended by the Finance Act of 1969 and the Amendment Act of 1980. The court concluded that the amended definition, which includes fabrics subjected to processes like water-proofing, should apply, thereby classifying tarpaulin as 'cotton textiles' exempt from sales tax under entry 8A of the Fifth Schedule to the K.S.T. Act.2. Whether P.V.C. Rexine Cloth Comes Within the Meaning of 'Cotton Textiles':The court reviewed previous decisions, including a Division Bench decision of this Court holding that P.V.C. rexine cloth is not exigible to sales tax under the K.S.T. Act. The court referred to the legislative history and amendments to the Excise Act, noting that the definition of 'cotton fabrics' was broadened to include fabrics impregnated, coated, or laminated with preparations of cellulose derivatives or other artificial plastic materials. The court emphasized that the amended definition should be applied retrospectively, thereby classifying P.V.C. rexine cloth as 'cotton textiles' exempt from sales tax under entry 8A of the Fifth Schedule to the K.S.T. Act.Comprehensive Analysis:The court examined the legislative history and the purpose behind the amendments to the Excise Act and the K.S.T. Act. The amendments aimed to provide a comprehensive and broad definition of 'cotton fabrics' to ensure consistency in the imposition of excise duty and sales tax on such important commodities. The court highlighted the integrated scheme evolved in connection with goods of special importance in inter-State trade or commerce, emphasizing the need to avoid inconsistency or repugnancy between the Excise Act and the K.S.T. Act.The court also discussed the principle of referential legislation, where subsequent amendments to the previous Act should be considered part of the subsequent Act if the Acts are supplemental to each other. The court cited the Supreme Court's decision in State of Madhya Pradesh v. M.V. Narasimhan, which held that amendments to a previous Act should apply to the subsequent Act if the Acts are supplemental or in pari materia.In conclusion, the court held that both tarpaulin and P.V.C. rexine cloth fall within the definition of 'cotton textiles' under the amended tariff item No. 19 of the Excise Act, thereby exempting them from sales tax under entry 8A of the Fifth Schedule to the K.S.T. Act. The court quashed the impugned clarification and orders, allowing the petitions.Judgment:The court allowed the writ petitions and sales tax revision petitions, quashing the impugned clarification and orders. It declared that tarpaulin and P.V.C. rexine cloth are 'cotton textiles' exempt from sales tax under entry 8A of the Fifth Schedule to the K.S.T. Act.