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The State of Gujarat Vs. Ghanshyam Stores - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtGujarat High Court
Decided On
Case NumberSales Tax Reference No. 4 of 1978
Judge
Reported in[1982]49STC117(Guj)
ActsBombay Sales Tax Act, 1959 - Sections 10; Gujarat Sales Tax Act, 1969 - Sections 5, 5(1), 62 and 69(1)
AppellantThe State of Gujarat
RespondentGhanshyam Stores
Appellant Advocate J.R. Nanavati, Government Pleader, i/b.,H.V. Chhatrapati, Adv. for Bhaishanker Kanga and Girdharlal
Respondent Advocate R.D. Pathak and; S.L. Modi, Advs.
Cases ReferredHind Engineering Co. v. Commissioner of Sales Tax
Excerpt:
.....- whether inter-lining collar cuttings covered by entry 37 of schedule i - 'articles prepared from cotton fabrics' means articles prepared and made ready for immediate use - collar-lining is not an article prepared and made ready for immediate use - collar cuttings falls within entry 37 of schedule i. - - it should be emphasised that item 19 is an inclusive entry and though in common parlance the articles which have been included in the term 'cotton fabrics' may not be so known or called as cotton fabrics, none the less, the legislative intent is clear by making an inclusive definition so as to take within its sweep not only the cotton fabrics popularly known and recognised as such but also fabrics which may be impregnated or coated with certain chemical components and,..........question. the opponent-firm carried on the business of collar cuttings from different types of cotton fabrics and selling the same. these collar cuttings are meant to be used as materials for stiffening the collars of the shirts, etc. these collar cuttings are, therefore, sold to tailors for their use as inter-materials for the collars of shirts, etc., as stated above. the opponent-firm made an application under section 62 of the gujarat sales tax act, 1969, to the deputy commissioner for determination as to what would be the appropriate entry in the schedule under which these goods could be taxed. two bills were produced with the application being bills nos. 309 and 387 of 25th may, 1974, and 27th july, 1974, respectively. by bill no. 309 the material known as 'inter-lining collar.....
Judgment:

Mehta, J.

1. At the instance of the State of Gujarat, the following question is referred to us for our opinion under section 69(1) of the Gujarat Sales Tax Act, 1969 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that inter-lining collar cuttings and inter-lining double collar cuttings evidence by bill No. 309 dated 25th May, 1974, and bill No. 387 dated 27th July, 1974, respectively, and sold by the opponent were covered by entry 37 of Schedule I to the Gujarat Sales Tax Act, 1969 ?'

2. A few facts need be noticed in order to appreciate the rival contentions urged in connection with the aforesaid question. The opponent-firm carried on the business of collar cuttings from different types of cotton fabrics and selling the same. These collar cuttings are meant to be used as materials for stiffening the collars of the shirts, etc. These collar cuttings are, therefore, sold to tailors for their use as inter-materials for the collars of shirts, etc., as stated above. The opponent-firm made an application under section 62 of the Gujarat Sales Tax Act, 1969, to the Deputy Commissioner for determination as to what would be the appropriate entry in the schedule under which these goods could be taxed. Two bills were produced with the application being bills Nos. 309 and 387 of 25th May, 1974, and 27th July, 1974, respectively. By bill No. 309 the material known as 'inter-lining collar cuttings' were sold while by bill No. 387 the materials known as 'inter-lining double collar cuttings' were sold. The former materials, namely, inter-lining collar cuttings, are prepared out of ordinary cotton cloth of a particular type manufactured by certain textile mills for this purpose. The cloth is required to be cut into shapes of different sizes of collars. The latter materials, namely, inter-lining double collar cuttings, are prepared from two types of cotton cloth; one type of cotton cloth is the same from which inter-lining collar cuttings are prepared whereas the other type of cotton cloth is a cloth superimposed with certain plastic materials on one side. This cloth is also cut into pieces of particular shape of different sizes of collars. The piece of collar cutting prepared from ordinary plain cloth and the piece of cloth superimposed with plastic materials on one side are joined by the process of heating or ironing whereby both the pieces get stuck to each other. It is common ground that no other process is applied or was in fact applied by the opponent-firm except that the cotton cloth was cut into required shapes of collars and that two pieces of different kinds of cloth were put together and joined by the process of heating or ironing. It has been also found that the two pieces joined together by the process of ironing or heating were such that they could be easily separated.

3. Before the Deputy Commissioner of Sales Tax, a contention was raised by the opponent-firm that the sales of these collar cuttings would fall under entry 51 of Schedule I to the Gujarat Sales Tax Act, 1969, inasmuch as they are articles prepared from any textile or handloom fabrics and sold at a price not exceeding Rs. 10 per article. This contention of the opponent-firm did not find favour with the Deputy Commissioner who was of the opinion that the articles in question would be covered by the residuary entry 13 of Schedule III of the said Act. The opponent-firm being aggrieved by this order of the Deputy Commissioner carried the matter in appeal before the Tribunal.

4. In the course of hearing of the appeal before the Tribunal, it was contended on behalf of the opponent-firm, which was the appellant before the Tribunal, that the articles in question would fall within entry 37 of Schedule I or in any case under entry 51 of the same schedule.

5. On behalf of the department, it was contended by the learned Government Agent that the articles in question could not be considered as cotton fabrics inasmuch as the cloth has to be cut into particular shape and size so far as inter-lining collar cuttings were concerned while in respect of inter-lining double collar cuttings the cloth is not only required to be cut into particular shape and size but cotton fabric impregnated with the plastic material has to be fixed with the cotton so cut to the required shape and size and, therefore, by no stretch of imagination without violence to the language they could be treated as falling within the terms of entry 37. As regards the alternative contention of the assessee, it was sought to be repelled by the learned Government Agent that they were not ready-made garments or articles which can be used by the consumers, inasmuch as they are required to be inserted in collars of the garments, namely, shirts, etc., so as to give stiffness to the collars of those garments. The Tribunal, having regard to these rival contentions and the facts which have been found about how these articles are prepared and also on consideration of the different decisions, which were cited at the Bar, reached the conclusion that collar cuttings in question sold by the opponent-firm would be cotton fabrics as falling within entry 37 of Schedule I to the said Act. The State Government has, therefore, sought the question for our opinion.

6. At the time of hearing of this reference, the learned Government Pleader urged the following three contentions :

1. The articles in question would not fall within the terms of entry 51 of Schedule I to the Sales Tax Act of 1969 inasmuch as they cannot be said to be ready-made garments or articles.

2. The Tribunal committed a clear error of law in holding that the articles in question would be cotton fabrics within the terms of entry 37 of Schedule I to the 1969 Act inasmuch as the Tribunal overlooked a very significant fact that the assessee was required to cut the cotton cloth to the required size and shape for purposes of preparing inter-lining collar cuttings and also to superimpose the material of cotton fabrics with another material with cotton fabrics impregnated with plastic by either process of heating or by ironing, and as a result of which when a new commercial product has come into existence, it cannot be said that it retained its original characteristics of cotton fabric from which it is manufactured. In support of this contention, the learned Government Pleader relied on the decision of this Court in Pravin Bros. v. State of Gujarat [1964] 15 STC 478.

3. The Tribunal ought to have appreciated that inasmuch as there was no specific entry in the relevant schedule, the item must be subjected to tax under the residuary entry 13 of Schedule III as was rightly done by the Deputy Commissioner of Sales Tax, and ought not to have held that the articles in question, merely because they were prepared from cotton fabrics, would fall within entry 37 which is a general entry not providing for the specific items in question. In support of this contention, reliance was placed by the learned Government Pleader on the decision of this Court in Shree Ram Industries v. State of Gujarat [1974] 34 STC 153.

7. We are of the opinion that this reference should be rejected obviously for the following reasons : It is axiomatic to say that the taxing authorities under the relevant sales tax legislation have to look into all entries in the various schedules and find out which is the appropriate one covering the article in question which is sought to be taxed. If there is any apparent conflict between a general provision and a special provision in a given taxing statute, an attempt should be made to construe them harmoniously and on recognised principles of interpretation of statute, a general entry must give way to a special entry (vide Shree Ram Industries' case [1974] 34 STC 153.) The short question which arises in this reference in not of any conflict between a general provision and a special provision in the taxing schedule of the Gujarat Sales Tax Act, 1969, but the only question which arises is whether the articles known as inter-lining collar cuttings and inter-lining double collar cuttings, as held by the Tribunal, fall within entry 37 of Schedule I to the said Act. It is no doubt true that in an application made by the assessee-firm the opponent herein under section 62 of the Gujarat Sales Tax Act, 1969, which provides for the determination of the disputed questions, the contention of the assessee-firm was that the articles in question would fall within entry 51 of the Schedule I. This contention did not find favour with the Deputy Commissioner who held that since there was no specific provision or a general provision under which these articles could be subjected to tax, they must necessarily therefore be taxed under the residuary entry 13 of Schedule III to the said Act. In appeal, however, at the instance of the assessee before the Tribunal, a contention was urged on behalf of the assessee-firm that the articles would be covered by entry 37 and in the alternative by entry 51. The Tribunal agreed with the assessee-firm that the articles would fall within entry 37 of the Act. Having accepted this contention that the articles would fall within the general provision pertaining to cotton fabrics as prescribed under entry 37, the alternative contention was not required to be gone into. Once having found that the articles fall within the general provision contained in entry 37, the Tribunal rightly rejected the contention urged on behalf of the department since there was no need to resort to the residuary entry, namely, entry 13 of Schedule III. The crux of the problem therefore is, whether the Tribunal was justified in reaching the conclusion, on the fact and in the circumstances of the case, that the articles in question fall within the general provision contained in entry 37 of the said Act. Entry 37 is an instance of referential legislation where the article specified by that entry is described by reference to some other fiscal legislation. In the present case, entry 37 of Schedule I specifies cotton fabrics as defined in item 19 of the First Schedule to the Central Excises and Salt Act, 1944. Similarly entry 51 of Schedule I specifies ready-made garments and articles. Both these entries, namely, entry 37 and entry 51, provided as under :

----------------------------------------------------------------------'Sl. Description of goods Conditions and exceptions No.subject to which exemptionis granted.(1) (2) (3)---------------------------------------------------------------------- 37. Cotton fabrics as defined in item When levy and collectionNo. 19 of the First Schedule to of additional duties ofthe Central Excises and Salt excise under theAct, 1944. Additional Duties ofExcise (Goods of SpecialImportance) Act, 1957, isnot exempted on accountof any exemption ordrawback granted underthat Act. 51.Ready-made garments and articles (excluding hosiery goods andgarments and articles to which entry 35 of this schedule applies)prepared from any textile or handloom fabrics including thosewhich have been embroidered or otherwise decorated sold at aprice not exceeding ten rupees per article or suit.'----------------------------------------------------------------------

8. It should be recalled that Schedule I prescribes goods, the sale or purchase of which is free from all taxes as provided in section 5 of the said Act. We have, therefore, to consider as to what is the definition of the term 'cotton fabrics' in item 19 of the First Schedule to the Central Excises and Salt Act, 1944. The material part of item 19 of the First Schedule to the Central Excises and Salt Act, 1944, has been set out by the Tribunal in its order. However, in order to have proper perspective of the matter, we set out the entire item 19 from the First Schedule to the Central Excises and Salt Act, 1944 :

-----------------------------------------------------------------------Item No. Description of goods Rate of duty-----------------------------------------------------------------------(1) (2) (3)-----------------------------------------------------------------------

'19. Cotton fabrics -

'Cotton fabrics' means all varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadars, bed-sheets, bedspreads, counter-panes, table-cloths, embroidery in the piece, in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials but does not include any such fabric if it contains -

(i) 40 per cent or more by weight of wool;

(ii) 40 per cent or more by weight of silk;

(iii) 60 per cent or more by weight of rayon or artificial silk; or

(iv) 50 per cent or more by weight of jute (including Bimlipatam jute or mesta fibre) : Provided that in the case of embroidery in the piece, in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials, the percentages referred to in (i) to (iv) above shall be in relation to the base fabrics which are embroidered or impregnated or coated, as the case may be.'

9. On the plain reading of item 19 we agree entirely with the conclusion of the Tribunal that the articles of cotton fabrics as defined in item 19 of the First Schedule to the Central Excises and Salt Act, 1944, being of widest amplitude take within its sweep cotton fabrics of all varieties whether they are manufactured wholly or partly from cotton and includes dhoties, sarees, etc., and also includes fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials. It should be emphasised that item 19 is an inclusive entry and though in common parlance the articles which have been included in the term 'cotton fabrics' may not be so known or called as cotton fabrics, none the less, the legislative intent is clear by making an inclusive definition so as to take within its sweep not only the cotton fabrics popularly known and recognised as such but also fabrics which may be impregnated or coated with certain chemical components and, particularly, since the present articles are impregnated with other artificial plastic materials, they would precisely fall within the term 'cotton fabrics'. The contention urged on behalf of the department is that inasmuch as there is cutting of the cloth to the required size and shape and also because there is a superimposition of cotton fabrics impregnated with the plastic material, the end articles so prepared would lose their characteristics of cotton fabrics and, therefore, the Tribunal was in error, even after this process had been carried out, to treat these articles as cotton fabrics. In support of this contention reliance was sought to be placed on the decision of a Division Bench of this Court consisting of Shelat, C.J., and Bhagwati, J., in Pravin Bros.' case [1964] 15 STC 478, where the Division Bench was concerned with the question whether after a dealer cuts out five yards pieces from takas of malmal and voile and has embroidered and superimposed on them for the purpose of selling those pieces as embroidered sarees, such articles can still be said to be cotton fabrics within the meaning of entry 15 of Schedule A to the Bombay Sales Tax Act, 1959. Entry 15 of Schedule A to the Bombay Sales Tax Act was also a referential piece of legislation where cotton fabrics as defined in item 12 (now item 19) of the First Schedule to the Central Excises and Salt Act, 1944, were exempted from the liability of sales tax under Schedule A as provided in section 5 of the said Act. Now, entry 12, as it then stood, was referred and set out in the decision of the Division Bench at page 481 as under :

'.................. According to item 19 in the First Schedule to the Central Excise Act, 'cotton fabrics' mean all varieties of fabrics manufactured either wholly or partly from cotton, and include dhoties, sarees, chadars, etc., but do not include any such fabric if it contains 40 per cent or more by weight of wool, if it contains 40 per cent or more by weight of silk, if it contains 60 per cent or more by weight of rayon or artificial silk, or if manufactured on a handloom.'

10. In the context of that entry, the Division Bench, speaking through Shelat, C.J., negatived the contention urged on behalf of the assessee that saree pieces would still be cotton fabrics after superimposition of embroidery on them as specified by entry 15 of Schedule A and held as under :

'................. The contention of Mr. Mody was that such saree pieces would still be cotton fabrics within the meaning of entry 15 of Schedule A and the mere fact that the dealer gets them embroidered would not make any difference as they would still retain the characteristics of cotton fabrics and, therefore, section 5(1) would be applicable to such goods. Entry 3 in Schedule E specifically deals with sarees embroidered or otherwise decorated and provides different rates of sales tax, depending upon the price at which they are sold per piece. The explanation to the entry provides that a saree decorated during the process of weaving shall not be a decorated saree for the purposes of this entry. The explanation to this entry clearly shows a distinction between sarees which are decorated during the course of weaving and those which are decorated after the process of their manufacture is completed, that is to say, sarees upon which, after their manufacture is completed, some decoration through an additional process distinct from the process of manufacture is superimposed, Presumably, the former, manufactured from cotton, would be classified as cotton fabrics and would fall within entry 15 of Schedule A, but the latter are specifically intended to fall within entry 3 of Schedule E. Entry 3 of Schedule E therefore itself shows the legislative intent to treat the two kinds of sarees differently; those that are embroidered or otherwise decorated within the meaning of that entry and those that are not. Though, therefore, cotton sarees may, in ordinary parlance, be called cotton fabrics, if such sarees are sarees embroidered or decorated, provided such embroidery or decoration is superimposed upon them after the process of their manufacture is over, they would be dealt with differently and the sales thereof are subjected to sales tax under section 10 and entry 3 of Schedule E to the Act .........'

11. We have not been able to appreciate how this decision of the Division Bench of this Court in Pravin Bros.' case [1964] 15 STC 478 can be of any assistance to the cause of the revenue before us. As a matter of fact, the Division Bench in Pravin Bros.' case [1964] 15 STC 478 has emphasised that the fact that the dealer had cut the takes into five yards pieces of sarees would not make any difference. It was the superimposition on the sarees and having regard to a specific entry in that behalf taxing the articles known as embroidered or decorated sarees that the Division Bench reached the conclusion as it did in Pravin Bros.' case [1964] 15 STC 478.

12. There is also another aspect of the question which would justify the distinction which has been rightly made by the Tribunal in holding that the ratio of Pravin Bros.' case [1964] 15 STC 478 would not be of any assistance to the present case with which we are concerned. The context of item 19 which is materially different from the one with which the Division Bench was concerned in Pravin Bros.' case [1964] 15 STC 478 makes a lot of difference because the cotton fabrics as defined in item 19 now includes fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials subject to the proviso which enjoins that in cases of fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials the percentage referred to in (i) to (iv) of the main enactment of the item shall be considered in relation to the base fabrics which are impregnated, embroidered or coated. It is common ground that the condition prescribed in the proviso is not violated since the Tribunal has found on the basis of the evidence produced before it that it was clear that one of the pieces of the cloth used in the preparations of inter-lining double collar cuttings was impregnated with plastic materials. The entire approach of the Deputy Commissioner in subjecting these articles to tax under the residuary clause in entry 13 of Schedule III has not been approved by the Tribunal, and rightly so in our opinion. Firstly, the mere cutting of the cotton cloth to the required size and shape cannot be said to be a process so as to make the end-product a different article than the cotton fabric which is the entry under which the articles have been sought to be placed by the assessee. Secondly, the definition of the term 'cotton fabrics' in item 19 of the Central Excises and Salt Act, 1944, as stated above, is an inclusive definition which has brought in the fabrics which are impregnated or coated with other chemical compounds. In that view of the matter, therefore, the Deputy Commissioner was not right in overlooking this inclusive definition of 'cotton fabrics' and treating the end-products merely because they have been cut to the required shape and size from the cotton fabrics as article not provided for the Schedule I to the Gujarat Sales Tax Act, 1969.

13. The learned Government Pleader, therefore, attempted to persuade us by relying on the another decision of a Division Bench of this Court consisting of T. U. Mehta (as he then was) and P. D. Desai, JJ., in Hind Engineering Co. v. Commissioner of Sales Tax [1973] 31 STC 115 where the Division Bench was concerned with the question as to whether articles of Hind rubber beltings and Cooper rubber beltings would be within the purview of entry 15 of Schedule A to the Bombay Sales Tax Act, 1959, which pertained to cotton fabrics again. We do not think that the decision in Hind Engineering Co.'s case [1973] 31 STC 115 would take the case of the revenue any further since the Division Bench, speaking through P. D. Desai, J., found that the process of manufacturing rubber beltings involved superimposition of rubber compound on both sides of canvas and, therefore, they cannot be said to have been manufactured either wholly or partly from cotton directly. The Division Bench reached this conclusion in the following terms :

'....... What is utilised in the manufacture of rubber beltings is canvas which itself is a distinct and complete product manufactured either wholly or partly from cotton and is a known commercial commodity. It cannot, therefore, be said that rubber beltings are manufactured wholly or partly from cotton.'

14. It is pertinent to note that the Division Bench has indicated the width of item 19 of the Central Excises and Salt Act, 1944, which defines the goods known as 'cotton fabrics' in the following terms :

'....... The definition of 'cotton fabrics' as found in item No. 19 of the First Schedule to the Central Excise and Salt Act shows that it is not intended merely to cover articles known as cotton fabrics in common parlance. It is intended to cover all varieties of fabrics manufactured either wholly or partly from cotton provided they do not contain by weight wool, silk, rayon, or artificial silk in excess of the prescribed percentage. Since the definition embraces an article which might by weight contain, within the prescribed limits, specified material other than cotton, it appears that it is intended to cover an article which may not be understood in common parlance as 'cotton fabrics' .........'

15. It should be noted that these articles in question cannot appropriately be placed under entry 51 of Schedule I to the Gujarat Sales Tax Act, 1969. Entry 51 specifies ready-made garments and articles prepared from any textile or handloom fabrics including those which have been embroidered or otherwise decorated and sold at a price not exceeding ten rupees per article or suit. It is no doubt true that collar-lining is an article but it cannot be said that it is is an article prepared and made ready for immediate use (vide Pravin Bros.' case [1964] 15 STC 478). The Division Bench is Pravin Bros.' case [1964] 15 STC 478 was concerned with the question whether the articles of three yards embroidery pieces for ladies' underwear could be said to be a ready-made garment or article prepared from cotton fabrics and sold at a price exceeding Rs. 5 per article or suit. In that context, the Division Bench said that the 'articles prepared from cotton fabrics' must mean articles prepared and made ready for immediate use, and the three yards pieces in question was prepared for a garment yet to be made or prepared. Applying this reasoning we are of the opinion that the collar-lining cannot be said to be an article, though prepared from cotton fabrics, which can be put to immediate use. If it has its use, it can be only to tailors for stiffening the collars of the garments. In that view of the matter, therefore, the Tribunal was justified in holding that the articles in question squarely fall within entry 37 of Schedule I to the Gujarat Sales Tax Act, 1969, and the Deputy Commissioner was not justified in subjecting them to tax under the residuary entry 13 of Schedule III to the said Act.

16. The result is that we have to answer the question referred to us in the affirmative, that is, in favour of the opponent-assessee and against the department. The State Government shall pay costs of this reference to the opponent-assessee.

17. Reference answered in the affirmative.


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