1980 (5) TMI 31 - SC - VAT / Sales Tax

Rayon tyre cord fabric held as fabrics; sales tax exemption applied until 4 March 1973, assessments quashed

SC held the product to be a woven rayon fabric (tyre cord fabric) and therefore covered by the term 'fabrics' in the relevant schedules. The Court found ... Exemption of the from sales tax - Classification of goods - product described as 'Rayon Tyre Cord Fabric' - Interpretation of Statute - additional excise duty - whether a tyre cord fabric has been understood as a fabric - define fabric - expression 'rayon fabric' in Item 22 - HELD THAT:- We are concerned with the product manufactured and sold by the appellant. It is wholly immaterial that once tyre cord fabric has, in the hands of the tyre manufacturer, undergone the process of rubberising and is embedded in the tyre body the significance of the weft thread is greatly reduced. It may also be that in the more modern process of manufacturing tyres what is used is cabled rayon with hawser twists with the cords assembled in parallel order and rubberised without the intermediate process of weaving on a loom. The material on the record, however, indicates that the product manufactured by the appellant does not fall in that category. It is a woven fabric in which the intermediate process of weaving the weft thread across the warp cord is an integral stage of manufacture. When the purchaser buys the product, it is the entire integrated woven fabric which he buys, it is not merely the tyre cord by itself. If tyre cord was all that he desired, he would purchase that commodity, which is readily available, and not tyre cord fabric. We may also point out that Item 22 of the First Schedule to the Central Excises and Salt Act speaks of 'all varieties of fabrics', language wide enough to include the rayon tyre cord fabric manufactured by the appellant. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 came into force on 24th December, 1957. Sub-section (1) read with sub-section (2) of Section 3 of the Act provide for the levy and collection of an additional excise duty, over and above the excise duty chargeable under the Central Excises and Salt Act, 1944 on certain goods at the rate specified in the Schedule to that Act. Rayon fabrics are mentioned in the Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, and are classified by reference to Item 22 in the First Schedule to the Central Excises and Salt Act. In the present appeals, we are concerned with a claim to exemption from sales tax, and in order to consider the contention of the Revenue that no such exemption was available to the appellant because he had not paid any additional excise duty on rayon tyre cord fabric it is necessary to determine whether indeed the exemption from sales tax was subject to the condition of payment of additional excise duty. The unconditional exemption from sales tax granted on the sale of rayon fabrics, that is to say, without the condition that additional excise duty was paid by the manufacturer, was withdrawn by a notification dated 5th March, 1973 made by the Rajasthan State Government under Section 4(2) of the Rajasthan Sales Tax Act. The notification provided that in the case of unprocessed rayon and artificial silk fabrics the exemption from sales tax would apply only if the additional duty is leviable on them under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and such goods had not specifically been exempted from the said duty and the dealers thereof furnished proof to the satisfaction of the assessing authority that such duty had been paid. Therefore, as from 5th March, 1973, the exemption from tax under the Rajasthan Sales Tax Act was available only if additional excise duty was leviable and the dealer had established that he had paid such duty. About the same time, the Rajasthan Taxation Laws (Amendment) Act, 1973 deleted Item 18 in the Schedule to the Rajasthan Sales Tax Act with effect from 5th March, 1973. It is evident, therefore, that a dealer was entitled to exemption from sales tax up to 4th March, 1973 without the requirement of payment of the additional excise duty. The conclusion is inescapable that even if the appellant did not pay additional excise duty, he was exempt from sales tax on the turnover of rayon tyre cord fabric for the assessment years under consideration. In the result the appeals are allowed, the assessments in respect of the turnover of rayon tyre cord fabric manufactured by the appellant relating to the assessment years 1969-70, 1970-71, 1971-72 and the first six months of 1972-73 are quashed. Issues Involved:1. Classification of 'Rayon Tyre Cord Fabric' under Item 18 of the Schedule to the Rajasthan Sales Tax Act, 1954.2. Whether the product is exempt from sales tax under the Central Sales Tax Act.3. Consideration of technical and commercial definitions of 'fabric.'4. Interpretation of statutory provisions and legislative intent.5. Requirement of payment of additional excise duty for exemption from sales tax.6. Jurisdiction and authority of sales tax assessments.Issue-Wise Detailed Analysis:1. Classification of 'Rayon Tyre Cord Fabric' under Item 18 of the Schedule to the Rajasthan Sales Tax Act, 1954:The primary question raised in the appeals was whether 'Rayon Tyre Cord Fabric' manufactured by the appellant falls within Item 18 of the Schedule to the Rajasthan Sales Tax Act, 1954, which exempts certain fabrics from sales tax. The appellant claimed that the product is a rayon fabric and thus should be exempt.2. Whether the product is exempt from sales tax under the Central Sales Tax Act:The appellant was assessed to sales tax by the Commercial Tax Officer for the years 1969-70 and 1970-71, and the plea for exemption was not accepted. The Rajasthan High Court dismissed the writ petitions filed by the appellant, leading to appeals and a writ petition in the Supreme Court. The Supreme Court observed the need for careful consideration of the manufacturing processes, composition, and expert opinions, ultimately upholding the view that the matter was for determination by the taxing authorities.3. Consideration of technical and commercial definitions of 'fabric':The judgment delves into various definitions of 'fabric' and 'textile' from authoritative sources like the 'Mercury' Dictionary of Textile Terms, Man-Made Textile Encyclopaedia, and Fairchild's Dictionary of Textiles. The definitions generally describe fabric as any product manufactured from fibers through twisting, interlacing, bonding, or other means. The court also reviewed definitions specific to tyre cord fabric, noting that it is commonly understood as a fabric in the trade.4. Interpretation of statutory provisions and legislative intent:The court emphasized that words and expressions in sales tax enactments should be construed in the sense understood in the trade by the dealer and consumer. The court referenced the Porritts and Spencer (Asia) Ltd v. State of Haryana case to support this view. The court concluded that tyre cord fabric is regarded as a textile fabric, considering its manufacturing process and market understanding.5. Requirement of payment of additional excise duty for exemption from sales tax:The court examined whether the exemption from sales tax was conditional upon the payment of additional excise duty. It noted that the Rajasthan Sales Tax Act, 1954, empowered the State Government to exempt goods from tax, and a notification dated 1st July 1958 unconditionally exempted all varieties of textiles made wholly or partly of rayon. This exemption was valid for the assessment years in question, and there was no requirement for payment of additional excise duty. The exemption was only conditional upon payment of additional excise duty from 5th March 1973 onwards.6. Jurisdiction and authority of sales tax assessments:The court addressed the contention that the classification of rayon tyre cord fabric is a question of fact and should not be interfered with. The court disagreed, stating that the question concerns the construction of statutory provisions. It held that the rayon tyre cord fabric manufactured by the appellant falls under the relevant item in the Additional Duties of Excise (Goods of Special Importance) Act, 1957, and is thus exempt from sales tax.Conclusion:The appeals were allowed, and the assessments in respect of the turnover of rayon tyre cord fabric for the years 1969-70, 1970-71, 1971-72, and the first six months of 1972-73 were quashed. The court concluded that the product is a fabric and is exempt from sales tax under the applicable statutory provisions. There was no order as to costs.