2021 (5) TMI 933 - SC - VAT and Sales Tax

Supreme Court: Embroidered ladies suit taxed at 12.5% under residuary entry

COMMISSIONER OF COMMERCIAL TAX, LUCKNOW Versus RUJHAN STUDIO

The Supreme Court allowed the appeal, setting aside the judgments of the High Court and the Tribunal, and restored the order of the Assessing Authority. ... Classification of goods - textile made ups - whether the commodity which is described as an “embroidered ladies suit”, which the respondent claims to be unstitched, would fall within the description of a ‘textile’ under Entry 21 of Schedule I (as the respondent asserts) or under Entry 16 of Schedule II which is “other textile made ups” and the residuary entry in Schedule V? - UP VAT Act, 2008 - HELD THAT:- Firstly, the expression in Entry 16 of Schedule II is “other textile made ups”. A textile made up is an article which is manufactured or stitched from any type of cloth. In the present case, going by the case of the respondent, the product is unstitched because the ultimate work of stitching the salwar kameez is yet to be performed and is not carried out by the respondent. In the circumstances, the product can certainly not be called as a textile made up. Secondly, the entry “other textile made ups” is not a residuary entry for Schedule II, but is used in conjunction with the expression “bedsheets and pillow covers”. The expression “other textile made ups” must be read ejusdem generis with the articles which precede it and should hence comprehend goods of the same class and description. The general entry “other textile made ups” must receive a meaning and connotation bearing in mind the preceding items of Entry 16. Hence, it is not possible to accept the view of the first appellate authority that the product falls within the purview of Entry 16 of Schedule II. The product would fall for classification under Serial 1 of Schedule V which is a residuary entry which covers all goods except those which are mentioned and described in Schedules I, II, III and IV - the judgment of the Tribunal as well as of the first appellate authority would have to be set aside. Appeal allowed. Issues Involved:1. Classification of the product under the UP VAT Act, 2008.2. Applicability of tax rates based on the classification.3. Interpretation of relevant entries in the Schedules to the UP VAT Act, 2008.4. Jurisdiction and correctness of the High Court's decision.Issue-Wise Detailed Analysis:1. Classification of the product under the UP VAT Act, 2008:The primary issue is whether the product described as an 'embroidered ladies suit,' claimed to be unstitched, falls within the description of a 'textile' under Entry 21 of Schedule I. The respondent, a dealer registered under the UP VAT Act, 2008, purchases textile material in bulk, cuts it to the length of a salwar kameez suit, and performs embroidery and 'pico' work. The Court noted that the textile material, after undergoing these processes, ceases to be a mere textile and assumes the character of an article with a distinct meaning and description. Therefore, it does not fall under Entry 21 of Schedule I, which lists exempt goods.2. Applicability of tax rates based on the classification:The Assessing Authority initially taxed the product under the residuary entry in Schedule V at a rate of 12.5%. The first appellate authority reclassified the goods as 'textile made ups' under Entry 16 of Schedule II, subjecting them to a 4% tax rate. However, the Tribunal classified the product as a 'textile' under Entry 21 of Schedule I, making it tax-exempt. The Supreme Court found that the product does not fit the description of 'other textile made ups' in Entry 16 of Schedule II, as it is unstitched and the ultimate work of stitching is not performed by the respondent. Consequently, the product falls under the residuary entry in Schedule V, taxed at 12.5%.3. Interpretation of relevant entries in the Schedules to the UP VAT Act, 2008:The Court examined the definitions and descriptions in the relevant Schedules. Entry 21 of Schedule I includes various types of textiles but excludes items described in Schedule II. Entry 16 of Schedule II lists 'bedsheets (other than unstitched bedsheets), pillow covers & other textile made ups.' The Court emphasized that 'other textile made ups' should be read in conjunction with the preceding items and cannot be interpreted as a standalone entry. The product in question, being unstitched, does not fit this category and thus falls under the residuary entry in Schedule V.4. Jurisdiction and correctness of the High Court's decision:The High Court dismissed the revision petition filed by the Department, accepting the Tribunal's classification of the product as a 'textile' under Entry 21 of Schedule I. The Supreme Court found that the High Court erred in its interpretation of the entries in the Schedules to the UP VAT Act, 2008. The High Court failed to recognize that the product, after undergoing significant processing, no longer qualifies as a mere textile. Consequently, the Supreme Court set aside the High Court's judgment, restoring the Assessing Authority's order.Conclusion:The Supreme Court allowed the appeal, set aside the judgments of the High Court and the Tribunal, and restored the order of the Assessing Authority, classifying the product under the residuary entry in Schedule V, taxed at 12.5%. The appeals were disposed of with no order as to costs, and all pending applications were also disposed of.