Cotton fabrics exemption applies to mill-made handkerchiefs when incidental stitching does not change their essential character.

Mill-made handkerchiefs manufactured wholly from cotton and sold without further manufacturing were treated as cotton fabrics because incidental stitching of the edges did not alter their essential character. The note explains that Item 7 of the Third Schedule to the Kerala General Sales Tax Act exempts cotton fabrics as defined in Item 19 of the First Schedule to the Central Excises and Salt Act, 1944, and that finished cotton articles retaining the same identity remain within that definition. On that basis, the exemption claim for the handkerchiefs was accepted and the assessee's position was upheld.

---

---

Issues: Whether mill-made handkerchiefs, sold in the same form in which they were received from the mill, fall within the description of cotton fabrics under Item 19 of the First Schedule to the Central Excises and Salt Act, 1944 and are therefore exempt from sales tax under Item 7 of the Third Schedule to the Kerala General Sales Tax Act.

Analysis: Item 7 of the Third Schedule to the Kerala General Sales Tax Act exempts cotton fabrics as defined in Item 19 of the First Schedule to the Central Excises and Salt Act, 1944. The handkerchiefs were manufactured wholly out of cotton and were sold without any further process of manufacture after they left the mill. The mere stitching of the edges did not alter their essential character, particularly when the definition of cotton fabrics itself includes several finished articles of cotton cloth that undergo similar processing. The goods therefore retained their identity as cotton fabrics within the statutory definition.

Conclusion: Mill-made handkerchiefs are cotton fabrics within Item 19 of the First Schedule to the Central Excises and Salt Act, 1944 and are exempt under Item 7 of the Third Schedule to the Kerala General Sales Tax Act. The finding is in favour of the assessee.

Final Conclusion: The exemption claimed for the mill-made handkerchiefs was upheld and the revision was rejected.

Ratio Decidendi: Articles manufactured wholly from cotton retain their character as cotton fabrics for exemption purposes where no subsequent manufacturing process alters their essential identity, and incidental stitching does not by itself take them outside the statutory definition.

---