2020 (2) TMI 370 - HC - VAT and Sales Tax

Court rules all Hank yarn types, incl. VSF & PF, exempt under Entry 44, Tamil Nadu VAT Act. Commissioner's Clarifications quashed.

The Court held that all types of yarn in Hank form, including VSF and PF Hank Yarn, are entitled to exemption under Entry 44 of the Fourth Schedule of the ... Exemption from VAT or not - Hank Yarn - exemption under Entry 44 of Part B of the Fourth Schedule to the Act - Tamil Nadu Value Added Tax Act, 2006 - taxability under Entry 3(a) of Part B of the First Schedule to the Act, 2006 - HELD THAT:- The intention, if any, of the State could have been very well expressed in clear terms of the Entry 44 itself. Nothing prevented the State from writing Entry 44 as 'Cotton Hank Yarn' or 'Hank yarn sold to Handloom Industries'. We cannot import external aids of interpretation where the plain meaning of the terms of the statute, namely the exemption Entry, is clear itself - The external aids for interpretation can be employed only if there is any ambiguity or confusion, but such external aids of interpretation cannot be applied to create a confusion or ambiguity unnecessarily. The sale of cotton hank yarn is also equally exempted, but merely because the Assessee does not manufacture and sell cotton hank yarn, he cannot be deprived of the exemption on the other yarns sold in hank form, so long as Entry 44, in its present form, stands for interpretation by Courts. The Hank Yarn of others types of Yarns like Silk for Handloom Kancheepuram and Banarasi Silk Sarees, Khadi Slik, Linen fabric are also used by Handloom Industry. Therefore, we do not appreciate why exemption should be restricted only to Cotton Hank Yarn, as contended by Revenue. Entry 44 never meant a harm to be caused to other type of yarns sold in Hank form, by denying exemption to them. In the light of the said Budget Speech of the year 2006-2007 also, there is nothing specifically mentioned to state that there was any intention to restrict the exemption of Hank yarn only to the cotton hank yarn and not others. Cotton hank yarn as well as other types of yarn in hank form are equally entitled to exemption under Entry 44 and therefore, Handloom Industry stood encouraged by said exemption. Was there any intention of State to harm Powerloom Industry by denying exemption to other types of Yarn sold in Hank form. The answer is an emphatic 'No'. Merely because Cotton hank yarn is the chief raw material for Handloom Industry or merely because powerloom industry can have an overarch over the Handloom Industry in the textile sector, we cannot deny the exemption to the supply of raw material namely VSF and PF Hank yarn to powerloom industry in the face of the plain language of the plain words 'Hank Yarn' employed in Entry 44 of the Fourth Schedule to the Act - the alleged Clarifications issued by the Commissioner of Department on 14.02.2013 and 29.06.2017, on a review application too, were clearly incorrect and unsustainable in law and the same deserve to be quashed. We, accordingly, quash the both of these Clarifications. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether Hank Yarn is exempted from Value Added Tax (VAT) under the Tamil Nadu Value Added Tax Act, 2006.2. Interpretation of the term 'Hank Yarn' in Entry 44 of Part B of the Fourth Schedule to the Act.3. Whether the exemption applies to all types of yarn in Hank form or only to Cotton Hank Yarn.4. Validity of the Clarifications issued by the Commissioner under Section 48-A of the Act.Detailed Analysis:1. VAT Exemption for Hank Yarn:The primary issue is whether Hank Yarn is exempt from VAT under the Tamil Nadu Value Added Tax Act, 2006. The Assessee, engaged in the manufacture of Viscose Staple Fibre (VSF) Hank Yarn, claimed exemption under Entry 44 of Part B of the Fourth Schedule, arguing that the term 'Hank Yarn' did not specify any particular type of yarn and thus should include all types of yarn in Hank form.2. Interpretation of 'Hank Yarn':The term 'Hank Yarn' refers to yarn packed in a round reel form, making it commercially portable and identifiable in the trade. It is distinct from Cone Yarn, which is wrapped around a cone and primarily used by the powerloom sector. The dispute arose because Entry 44 in the Fourth Schedule exempts 'Hank Yarn' without specifying the type of yarn, while Entry 3(a) in the First Schedule imposes a tax on all types of yarn except those specified in the Fourth Schedule.3. Scope of Exemption:The Assessee argued that the exemption should apply to all types of yarn in Hank form, not just Cotton Hank Yarn. The Revenue contended that the exemption was intended only for Cotton Hank Yarn to promote the handloom industry, which predominantly uses Cotton Hank Yarn. The Revenue relied on the Budget Speech of the Finance Minister to support this interpretation.4. Validity of Commissioner's Clarifications:The Commissioner issued Clarifications stating that only Cotton Hank Yarn is exempt, based on the supposed intention of the Legislature inferred from the Budget Speech. The Assessee challenged these Clarifications, arguing that the plain meaning of Entry 44 should prevail, and external aids of interpretation like the Budget Speech should not be invoked in the absence of ambiguity.Court's Findings:The Court found no ambiguity in the term 'Hank Yarn' in Entry 44. It held that if the Legislature intended to restrict the exemption to Cotton Hank Yarn, it would have explicitly stated so. The Court emphasized that external aids of interpretation should only be used if there is ambiguity, which was not the case here. The plain language of the statute should be followed.The Court also noted that the Budget Speech did not specifically mention Cotton Hank Yarn, and thus could not be used to limit the exemption. The Court rejected the Revenue's argument that the exemption should be restricted to Cotton Hank Yarn to support the handloom industry, stating that such an interpretation was not supported by the statutory language.Conclusion:The Court quashed the Clarifications issued by the Commissioner and set aside the judgment of the learned Single Judge. It held that all types of yarn in Hank form, including VSF and PF Hank Yarn, are entitled to exemption under Entry 44 of the Fourth Schedule. The authorities were directed to conclude the assessments of the Assessee accordingly, allowing the exemption.