2016 (9) TMI 1083 - HC - VAT and Sales Tax

Appellant's Coated Fabric Qualifies as Textile, Exempt from Taxation

The court held that the product manufactured by the appellant, coated fabric also known as leather cloth/rexin, falls under the term 'textile' and ... Characterisation of goods as 'textile' in common parlance - statutory interpretation giving effect to punctuation - applicability of condition 'additional excise duty in lieu of sales tax' to parts of a composite entry - construction of exemption entries in a tax scheduleCharacterisation of goods as 'textile' in common parlance - construction of exemption entries in a tax schedule - Coated fabric/rexin (PVC/PU coated cotton fabric) manufactured by the appellant falls within the term 'textile' and therefore within the scope of Entry 51 of Schedule B. - HELD THAT: - Applying the principle in Porritts & Spencer and subsequent authorities, the court emphasised that the concept of 'textile' is not static and must be understood by reference to modern materials and processes and common commercial parlance. The Tribunal's narrated manufacturing process shows a textile base (cotton fabric) on which PVC/PU is coated or laminated; authorities treating coated fabrics and similar manufactured goods as textiles were held to be persuasive. On that basis the coated fabric/rexin produced by the appellant was held to be a 'textile' within the meaning of the Schedule entries. [Paras 35]Coated fabric/rexin is a 'textile' and falls within Entry 51.Statutory interpretation giving effect to punctuation - applicability of condition 'additional excise duty in lieu of sales tax' to parts of a composite entry - construction of exemption entries in a tax schedule - The colon in Entry 54 creates a break between its first and second parts so that the condition requiring that additional excise duty (AED) be levied applies only to the second part; the first part (leather cloth and inferior or imitation leather cloth ordinarily used in book binding) is not subject to the AED condition and is therefore exempt as stated. - HELD THAT: - The court compared the earlier three-column notification (where exceptions/conditions were separate) with the substituted two-column Schedule and examined the language and punctuation of Entry 54. Authorities were cited for the proposition that careful punctuation in statutes is significant and must be given effect. The presence of the conjunctive 'and' before the colon and the sequence of words after it supported a reading that the clause after the colon is a distinct unit governed by the AED condition. The Tribunal's contrary reliance on absence of earlier argument was rejected because there is no estoppel against a statute; the court concluded that the AED condition does not apply to the first part of Entry 54 and therefore the appellant is entitled to the exemption insofar as leather cloth is concerned. [Paras 36, 40, 44, 45]The colon separates Entry 54 into two parts; the AED condition applies only to the second part and not to the leather cloth mentioned in the first part, entitling the appellant to exemption under that part.Final Conclusion: The appeals are allowed: the coated fabric/rexin manufactured by the appellant is a 'textile' and Entry 54 must be read with effect to its punctuation - the AED requirement applies only to the second part of Entry 54 and not to the leather cloth in the first part; accordingly the appellant is entitled to the exemption as held. Issues Involved:1. Whether the product being manufactured by the applicant, which is technically known as “Coated Fabric” and in common parlance known as leather cloth/“Rexin” falling under Central Excise Tariff Heading 5903, is covered under Entry 51 of Schedule B appended to the Haryana Value Added Tax Act, 2003Rs.2. If the goods manufactured by the appellant fall in Entry 54 of Schedule 'B' of the Act, whether the condition of leviability of additional excise duty in lieu of sales tax is applicable thereonRs.3. If a particular good falls in two different entries, whether it is open for the dealer to invoke any of the entries, which is more beneficialRs.Detailed Analysis:Issue 1: Classification of the ProductThe appellant, a private limited company, sought clarification on whether its product, leather cloth/rexin, falls under Entry 51 of Schedule B of the Haryana Value Added Tax Act, 2003. The Financial Commissioner opined that the product falls under Entry 54, not Entry 51, thus making it liable for taxation. The Tribunal upheld this view by a majority decision. The minority view, however, supported the appellant's stance that the product falls under Entry 51 and is thus exempt from tax.The court examined the manufacturing process and various definitions and judgments to determine whether the product qualifies as a textile. The manufacturing process involves coating cotton textile with PVC/PU, which retains its textile character. The court referred to several judgments, including M/s Porritts & Spencer (Asia) Ltd. v. State of Haryana and Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, which supported the view that products like coated fabric and rayon tyre cord fabric are considered textiles.The court concluded that the product being manufactured by the appellant, namely coated fabric also known as leather cloth/rexin, falls under the term 'textile' and thus qualifies under Entry 51 of Schedule B, making it exempt from taxation.Issue 2: Applicability of Additional Excise Duty ConditionThe court analyzed Entry 54 of Schedule 'B' to determine whether the condition of leviability of additional excise duty in lieu of sales tax applies to the appellant's product. The entry is divided into two parts by a colon. The court considered the effect of the punctuation mark and concluded that the condition of additional excise duty applies only to the second part of the entry, not the first part, which includes leather cloth.The court referred to the previous format of the entry and various definitions and judgments to support its interpretation. It emphasized that punctuation marks in statutes should be given their true meaning and cannot be treated as otiose. The court concluded that the condition of additional excise duty does not apply to leather cloth, and thus the appellant's product is exempt from taxation under Entry 54.Issue 3: Choice of Entry for Tax ExemptionGiven the conclusions on the first two issues, the court found it unnecessary to address the third issue regarding the dealer's choice of entry for tax exemption. The principle that a special entry excludes a general one might have been considered if the first two issues were not resolved in favor of the appellant.ConclusionThe court answered the first two questions in favor of the appellant, concluding that the product qualifies as a textile under Entry 51 and is exempt from taxation under Entry 54 without the condition of additional excise duty. The third question was not addressed due to the resolution of the first two issues. The appeals were disposed of accordingly.