2017 (12) TMI 1013 - HC - VAT and Sales Tax

Court rules 100% VSF hank yarn taxable at 5% under TNVAT Act. Exemption only for cotton hank yarn.

The court upheld the first respondent's clarification that 100% VSF hank yarn is taxable at 5% under Entry No.3(a) of Part B of the TNVAT Act. It ... Jurisdiction - interpretation of statute - Section 48-A of the TNVAT Act - case of petitioners is that, under Section 48 -A of the TNVAT Act, the first respondent has no power to interpret Entry in the schedules to the Act, and is entitled only to clarify regarding the rate of tax - Held that: - when an application is made by the dealer, requesting for clarification as to the rate of tax on the commodity dealt with by him, essentially, the first respondent has to examine what is the type of commodity, under which, Entry it would fall and then, proceed to determine the rate of tax of that particular commodity. Therefore, while issuing such clarification, the first respondent is empowered to clarify any point, concerning the rate of tax, and therefore, to state that the first respondent has no power to interpret the Entry in the schedule to the Act, is not tenable. Classification of goods - yarn - case of petitioners is that all types of yarn, that are packed in hank form are taxable at 5% and the statute does not make a further distinction regarding what is the type of hank yarn, that should be exempted but the exemption shall enure to hank yarn of all kind - Held that: - the Hank Yarn Packing Notification issued by the Government of India pertains to yarn made out of the cotton. Hence, the term ''hank yarn'' used in the Budget Speech shall be referable to only cotton yarn packed in hank form. The intent of the Central Government as well as the State Government is to protect the handloom Industries. Both the Central and the State Governments were concerned about the plight of the poor hand loom weavers, and their family members, and they need to be provided with adequate quantity of yarn in hank form, so that, they can earn their livelihood by operating the hand loom - to state that Entry 44 of Part-B of the fourth schedule to the TNVAT Act should be interpreted to mean any type of yarn, packed in hank form, is a plea, which would be unacceptable, and not the intention of the Government to grant exemption. Admittedly, the Government inserted hank yarn in Sl.No.44 only during 2006-07, and as rightly pointed out by the learned Special Government Pleader, this being an exemption clause, strict interpretation has to be given to such exemption clause, and there is no room for any liberal interpretation with regard to such exemption. What is required to be taken note of, is the plain terms, based on which, exemption was conceived and granted, and if this is examined, it is clear that the exemption was to reach particular section of weavers, viz. Handloom weavers. Likewise, the Hank Yarn Packing Notification issued by the Ministry of Textiles, Government of India, 17.04.2003, is to protect the handloom weavers, and under the said statutory notification, the term 'Yarn' has been defined only as cotton yarn. To interpret that Entry 44 to mean to include all types of yarn packed in hank form is incorrect way of interpreting the exemption provision. Petition dismissed - decided against petitioner. Issues Involved:1. Taxability of 100% viscose staple fiber (VSF) hank yarn.2. Authority of the first respondent under Section 48-A of the TNVAT Act.3. Interpretation of 'hank yarn' under Entry 44 of Part-B of the fourth schedule to the TNVAT Act.4. Applicability of previous judgments and clarifications.5. Prospective effect of clarifications issued under Section 48-A.Issue-wise Detailed Analysis:1. Taxability of 100% VSF Hank Yarn:The petitioners, who are manufacturers of staple fiber hank yarn, challenged the clarification dated 29.06.2017, which stated that 100% VSF hank yarn is taxable at 5% under Entry No.3(a) of Part B of the first schedule to the TNVAT Act. The petitioners argued that all categories of yarn in hank form should be exempt from VAT under Entry 44 of Part-B of the fourth schedule.2. Authority of the First Respondent under Section 48-A of the TNVAT Act:The petitioners contended that the first respondent has no power to interpret an entry in the schedules to the Act and is only authorized to clarify the rate of tax. However, the court held that the first respondent is empowered to clarify any point concerning the rate of tax, which includes examining the type of commodity and determining its tax rate. Therefore, the first respondent's interpretation of the entry in the schedule was deemed within their authority.3. Interpretation of 'Hank Yarn' under Entry 44 of Part-B of the Fourth Schedule to the TNVAT Act:The court examined the intent behind the exemption granted to hank yarn, which was to benefit the handloom industry and weavers. The budget speech and the Hank Yarn Packing Notification issued by the Ministry of Textiles, Government of India, indicated that the exemption was intended for cotton hank yarn used by handloom weavers. The court concluded that the term 'hank yarn' in Entry 44 should be interpreted strictly to mean cotton hank yarn, not including VSF hank yarn.4. Applicability of Previous Judgments and Clarifications:The petitioners referred to a previous decision by the Tamil Nadu Sales Tax Appellate Tribunal (STAT) in the case of M/s. Mass Textiles, which held that polyester hank yarn was taxable at a reduced rate. However, the court noted that the first respondent's clarification was binding on all dealers and officers under the TNVAT Act, and the decision in the case of M/s. Mass Textiles did not act as a fetter on the first respondent's authority. The court also dismissed the argument that the first respondent lacked jurisdiction to issue the clarification.5. Prospective Effect of Clarifications Issued under Section 48-A:The petitioners argued that the clarification should have only prospective effect. The court held that the clarification was not a typical case of reopening past assessments but was intended to correct a wrong interpretation of the exemption. Therefore, the clarification could be applied to past transactions to recover the appropriate rate of tax.Conclusion:The court dismissed the writ petitions, upholding the first respondent's clarification that 100% VSF hank yarn is taxable at 5%. The court emphasized that the exemption under Entry 44 of Part-B of the fourth schedule to the TNVAT Act applies strictly to cotton hank yarn used by handloom weavers, and the first respondent's authority to interpret the entry was valid. The petitioners were granted liberty to file objections to revision notices, which would be addressed by the respective Assessing Officers.