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.

M/s. Aakavi Spinning Mills (P) Ltd. Versus The Authority for Clarification and Advance Ruling rep. by the Commissioner of Commercial Taxes Ezhilagam, Chepauk Chennai, The Assistant Commissioner (CT)

M/s. Aakavi Spinning Mills (P) Ltd. Versus The Authority for Clarification and Advance Ruling rep. by the Commissioner of Commercial Taxes Ezhilagam, ... 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.