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 ... Construction of trade terminology by reference to commercial usage - definition and scope of 'rayon or artificial silk fabrics' as meaning all varieties of fabrics - classification of tyre cord fabric as a textile fabric - exemption from sales tax by reference to scheduled goods where no conditionality of excise payment exists - temporal limitation of statutory exemptions and subsequent imposition of condition by notification - judicial review of classification as a question of lawClassification of tyre cord fabric as a textile fabric - definition and scope of 'rayon or artificial silk fabrics' as meaning all varieties of fabrics - construction of trade terminology by reference to commercial usage - Rayon tyre cord fabric manufactured by the appellant is a textile fabric falling within the expression 'rayon or artificial silk fabrics' in Item 22 of the First Schedule to the Central Excises and Salt Act and thus within Item 18 of the Schedule to the Rajasthan Sales Tax Act. - HELD THAT: - The court examined technical descriptions, authoritative textile dictionaries, Indian Standards definitions and governmental classifications, and concluded that a tyre cord fabric-although dominated by warp cords and employing light wefts-is nonetheless regarded in trade and by recognised standards as a textile fabric. The presence of an integrated woven structure in the appellant's product, its sale as an integrated roll, and market practice showing distinct saleability of both tyre cord and tyre cord fabric support treating the product as a 'fabric.' Item 22's language 'all varieties of fabrics' is wide enough to include such industrial fabrics. Reliance on an earlier Revenue Board circular to the contrary was held insufficient to override the broader indicia of legislative and trade understanding. [Paras 11, 12]The rayon tyre cord fabric manufactured and sold by the appellant is a rayon fabric within the meaning of the relevant excise and sales tax schedules.Exemption from sales tax by reference to scheduled goods where no conditionality of excise payment exists - temporal limitation of statutory exemptions and subsequent imposition of condition by notification - For the assessment years in question the exemption from sales tax applied to rayon fabrics without any condition of prior payment of the additional excise duty; thus the appellant was entitled to exemption even though additional duty had not been paid. - HELD THAT: - The Rajasthan Government by notification dated 1 July 1958 unconditionally exempted textiles made wholly or partly of rayon. Item 18 was later inserted in the Schedule to the Rajasthan Sales Tax Act incorporating rayon fabrics as defined by the Additional Duties of Excise (Goods of Special Importance) Act, without any qualifying condition. Consequently, for the relevant assessment years (prior to the notification of 5 March 1973) the exemption under the State Act operated without the requirement that additional excise duty had been levied or paid. The subsequent notification of 5 March 1973 and the statutory amendment withdrawing Item 18 imposed a new conditionality only from that date; it did not have retrospective effect to negate the unconditional exemption applicable to the years under adjudication. [Paras 18, 19]The appellant was entitled to sales tax exemption on the turnover of rayon tyre cord fabric for the assessment years under consideration, notwithstanding non-payment of additional excise duty.Judicial review of classification as a question of law - construction of trade terminology by reference to commercial usage - The question whether the product is a 'rayon fabric' is not a mere question of fact for taxing authorities but involves construction of statutory description and trade terminology and is properly amenable to judicial determination on the merits. - HELD THAT: - Although assessing and appellate authorities had reached a contrary factual conclusion, the court held that the controversy touches upon construction of Item 22 and the legislative intention reflected through trade usage and recognised definitions. Given the legal character of that inquiry and its consequence-whether tax jurisdiction exists-the Supreme Court was justified in entertaining and deciding the appeals on their merits rather than treating the issue as an exclusively factual matter within the exclusive domain of the revenue authorities. [Paras 20]The Court may adjudicate the classification issue on the merits; it is not precluded as a mere question of fact.Final Conclusion: Appeals allowed; assessments in respect of the turnover of rayon tyre cord fabric for 1969-70, 1970-71, 1971-72 and the first six months of 1972-73 quashed; no order as to costs. 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.