2005 (4) TMI 560 - HC - VAT and Sales Tax

Processed nylon yarn retains classification as yarn under U.P. Trade Tax Act, chemical processing not altering fundamental nature

The High Court upheld the Tribunal's decision that the processed nylon yarn retained its classification as yarn under the U. P. Trade Tax Act, 1948. The ... - Issues:1. Interpretation of the classification of nylon yarn for tax purposes under the U. P. Trade Tax Act, 1948.2. Determination of whether the chemical processing of nylon yarn changes its classification as yarn.3. Application of legal precedents regarding the classification of different types of yarn post-processing.Analysis:1. The case involved a dispute over the tax classification of nylon yarn under the U. P. Trade Tax Act, 1948. The dealer claimed that the nylon yarn, after processing, remained yarn and should be taxed at two per cent under the entry of 'all kinds of yarn' in a specific notification.2. The Deputy Commissioner (Executive) disagreed and levied tax at 10 per cent, considering the processed nylon yarn as a special kind of yarn used in shoemaking, thus classifying it as shoe material. The Tribunal, however, held that the chemical processing only strengthened the yarn, maintaining its classification as yarn.3. The judgment referred to legal precedents to support the classification of yarn post-processing. It cited cases where twisting, dyeing, or coloration of yarn did not change its essential nature as yarn. The court emphasized that for an article to be classified as yarn, it must be a spun strand primarily intended for use in weaving, knitting, or rope-making.Conclusion:The High Court upheld the Tribunal's decision, ruling that the processed nylon yarn retained its classification as yarn and should be taxed at two per cent under the specific notification. The judgment reinforced the principle that processing yarn through chemical or physical means does not necessarily alter its fundamental nature as yarn. Consequently, the revision was dismissed, affirming the classification of nylon yarn for tax purposes under the U. P. Trade Tax Act, 1948.