IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 27.04.2010 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.NOS.11761, 19261 AND 19262 OF 2006, 13808 AND 13809 OF 2008 AND 19138 AND 19139 OF 2009 and W.P.M.P.NO.13379 OF 2006, M.P.Nos.1 and 1 of 2006, 1 and 1 of 2008 and 1 and 1 of 2009 Sky Industries Limited, represented by its Power of Attorney, P.Swamidass, No.9 (Old No.5) South Street, V P Colony, Ayanavaram, Chennai-600 023. .. Petitioner in W.P.No.11761 of 2006 M/s.Aaron India, represented by its Proprietrix, Mrs.P.Nirmala Christopher, No.140, A.K.Swamy Nagar, 9th Street, Chennai-10. .. Petitioner in W.P.Nos.19261 and 19262 of 2006 Jain & Co. represented by its Proprietor Anil Jain, No.69, Mulla Sahib Street, Chennai-600 079. .. Petitioner in W.P.Nos.13808 and 13809 of 2008, 19138 and 19139 of 2009 Vs. 1.The Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai-600 005. .. 1st respondent in W.P.Nos.11761, 19261 and 19262 of 2006 2.The Commercial Tax Officer, Ayanavaram Assessment Circle, Chennai-600 023. .. 2nd Respondent in W.P.No.11761 of 2006 https://hcservices.ecourts.gov.in/hcservices/ The Commercial Tax Officer, Ayanavaram Asst Circle, 3rd Floor, Kuralagam Annex, Chennai-108. .. 2nd respondent in W.P.Nos.19261 and 19262 of 2006 1.Deputy Commercial Tax Officer, Peddunaickenpet (North) Assessment Circle, Chennai-600 001. 2.Appellate Assistant Commissioner (CT) II, VI Floor, Kuralagam Annexe, Chennai-600 108. 3.Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai-600 005. .. Respondents in W.P.Nos.13808 and 13809 of 2008 1.The Commercial Tax Officer/FAC Peddunaickenpet (North) Assessment Circle, Chennai-600 001. 2.Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai-600 005. .. Respondents in W.P.Nos.19138 and 19139 of 2009 W.P.No.11761 of 2006 is preferred under Article 226 of the Constitution of India praying for the issue of a writ of certiorari to to call for the records on the file of the first respondent herein in Acts Cell-II/5919/2006 (Clarification No.66/2006) dated 18.4.2006 and to quash the same. W.P.No.19261 of 2006 is preferred under Article 226 of the Constitution of India for the issue of a writ of certiorarified mandamus to call for the records of the respondent in TNGST/1000865/2004-2005 and to quash the impugned order dated 24.5.2006 and direct the second respondent to rectify the error apparent on the face of the assessment order dated 31.3.2006. W.P.No.19262 of 2006 is preferred under Article 226 of the Constitution of India for the issue of a writ of certiorari to call for the records on the file of the second respondent in TNGST/1000865/2004-2005 and to quash the impugned order dated 31.3.2006 levying tax on Hook and Loop Tape Fastener which is an exempted commodity falling under serial No.8(vi) of the Third Schedule to the TNGST Act. https://hcservices.ecourts.gov.in/hcservices/ W.P.Nos.13808 and 13809 of 2008 are preferred under Article 226 of the Constitution of India for the issue of a writ of certiorari to call for the records on the file of the second respondent in AP No.CST 6/2007 and A.P.No.99 of 2007 dated 10.4.2008 (CST.2004-05) and (TNGST 2004-05) respectively and to quash the same. W.P.Nos.19138 and 19139 of 2009 are preferred under Article 226 of the Constitution of India for the issue of a writ of certiorari to call for the records on the file of the first respondent in CST.95349/2003-04 and TNGST.1140932/2003-04 dated 16.6.2008 respectively and to quash the same. For Petitioner : Mr.N.Prasad in W.P.Nos.11761, 13808 and 13809 OF 2008, 19138 and 19139 OF 2009 Mr.K.Balasubramanian in W.P.Nos.19261 and 19262 of 2006 For Respondents : Mr.Haja Nazuruddin, Spl.G.P.(Taxes) assisted by Mr.Radhakrishnan, GA Mr.J.Ganesan, GA (Taxes) COMMON ORDER These batch of writ petitions were grouped together and posted before this court on being specially ordered by the Hon'ble Chief Justice by an order, dated 29.10.2009. 2.W.P.Nos.11761 of 2006, 13808 and 13809 of 2008 and 19138 and 19139 of 2009 were heard on 17.11.2009 and orders were reserved. Subsequently, W.P.Nos.19261 and 19262 of 2006 came to be heard on 19.11.2009. Since all the writ petitions have raised a common question, a common order is passed. 3.W.P.No.11761 of 2006 was filed by one M/s.Sky Industries Ltd., seeking to set aside the clarification order, dated 18.4.2006 issued by the Commissioner of Commercial Tax (for short COCT), Chennai. The COCT, by the impugned communication, dated 18.4.2006 issued a clarification No.66/2006 in respect of the petitioner holding that the "Hook and Loop Tape Fasteners" otherwise called "Velcro Fastener" is an article of narrow woven fabrics, falling under excise chapter heading No. 58.07. It was clarified that it was taxable at 12% under residuary entry 40, Part D, First Schedule to the TNGST Act, 1959 and also the earlier clarification dated 31.10.2005 was reiterated . If it is imported it is taxable at 20% under Entry 9 of Eleventh Schedule to the TNGST Act. The said writ petition was admitted on 26.4.2006. Pending the writ petition, an interim stay was granted. 4.Thereafter, W.P.Nos.19261 and 19262 of 2006 came to be filed by https://hcservices.ecourts.gov.in/hcservices/ M/s.Aaron India, seeking to challenge the orders, dated 24.5.2006 and 31.3.2006. In the first writ petition, the impugned order was pursuant to the communication sent by the CTO, Ayanavaram Assessment Circle, Chennai stating that the dispute regarding is disallowance of exemption on sales of Hook and Loop Fasteners to a sum of Rs.32,04,104/- and assessed to tax at 12% and the petitioner's claim was rejected on the ground that dealers have effected local purchase of Hook and Loop Fasteners from the unauthorised dealers. They have purchased commodity for Rs.22,44,670/- from M/s.Sky Industries Limited, (petitioner in W.P.No.11761 of 2006) and the burden of proof for sufferance of tax lies with dealers under Section 10. Therefore, the earlier order passed by the authority cannot be reconsidered. 5.In the second writ petition, the challenge is to the assessment order, dated 31.3.2006, wherein they were levied 12% interest on purchase of Hook and Loop Fasteners and also a penalty was imposed. These two writ petitions were dismissed by the learned Judge of this court by his common order, dated 26.6.2006 on the ground that they have a right of remedy by way of an appeal. A writ appeal was filed before a division bench in W.A.No.921 of 2006. The said writ appeal came to be disposed of by holding that since seller's writ petition, i.e. W.P.No.11761 of 2006 has been admitted by this court and an interim stay was granted, these two writ petitions ought not to have been dismissed. Therefore, the order of the learned single judge was set aside and the matter was remanded for a fresh disposal along with W.P.No.11761 of 2006. 6.Subsequently, W.P.No.13808 and 13809 of 2008 came to be filed by M/s.Jain & Co. Both the writ petitions were admitted on 13.6.2008. Pending the writ petitions, an interim stay was granted . Both the writ petitions were also directed to be posted along with W.P.No.11761 of 2006. In that case, the petitioner had challenged the orders, dated 10.4.2008. These were the orders passed by the Appellate Assistant Commissioner, Commercial Tax-II, Chennai in APCST No.6 of 2007 and AP No.99 of 2007. By the said order, the appeal made against the order of DCTO-II, Pethanayakenpet North in respect of assessment year 2004-05, dated 29.12.2006 was confirmed. It was held that they are not eligible for exemption under Sales Tax Act as per Entry 8(vi) Part A of Third Schedule to the TNGST Act. Therefore, the assessment was made on the turn over at the rate of 12% under the TNGST Act and 12.6% under the CST Act as unclassified item and both appeals were dismissed. 7.The very same petitioner filed W.P.Nos.19138 and 19139 of 2009. In these writ petitions, the challenge is to the order of the first respondent Commercial Tax Officer, Bethanayakanpet North Assessment Circle, dated 16.6.2008 in CST.95349/2003-04 and TNGST 1140932/2003- 04. In both the cases, the assessment orders were under challenge in respect of the same subject matter. In those two writ petitions, notices were ordered to the respondents and an interim stay was https://hcservices.ecourts.gov.in/hcservices/ granted. 8.On behalf of the DCTO, Pethanayakanpet North, a common counter affidavit, dated 09.11.2009 was filed. 9.Heard the arguments of Mr.N.Prasad and Mr.K.Balasubramanian, learned counsel for the petitioners and Mr.Haza Nazruddin, Special Government Pleader (Taxes) assisted by Mr.Radhakrishnan and Mr.J.Ganesan, learned Government Advocates for Tax. 10.According to the petitioners, the entire issue arose out of the order passed by the COCT under Section 28A , dated 18.4.2006. The operative portion of the order reads as follows: "From the perusal of the sample furnished by them, it is seen that it is commercially called as "Velcro tape". It is a pair of nylon tapes having adhesive character by a machanism of tiny hooked fibres on one surface that fasten easily to other surface. This paired device is used in clothing, carpentry etc. In other words this article named 'velcro fastener' consists of two strips of nylon fabric one having tiny hooked threads and the other a coarse surface which form a strong bond when pressed together. Also it is seen that not all narrow woven fabrics are a specific mention under the sub-heading 58.06 classified under Excise. There is a clear exclusion clause: "other than goods of heading No.58.07". The relevant Excise Tariff Headings are extracted as below: The extract of Tariff Headings. 58.06 Narrow Woven Fabric, other than goods of heading No.58.07; narrow fabrics consisting of Warp without weft assembled by means of adhesive (Bolducs). 5806.10 Woven Pile fabrics (including terry towelling and similar terry fabrics) and chenille fabrics 58.07 Label, badges and similar articles of textile materials in the piece, in strips or cut to shape or size, not embroidered. https://hcservices.ecourts.gov.in/hcservices/ Thus goods of heading 58.07 are taken away from the scope of heading 58.06 for Excise and AED purposes. Any "articles of textile materials" even if they are made/assembled from narrow woven-textile materials, by virtue of their finding place under 58.07, are specifically excluded from 58.06. There cannot be any doubt that "Velcro" (this expression is a trademark name) "fastener" is an article made of narrow woven-fabrics. In other words, "Velcro Fastener" is not narrow woven-fabric simpliciter; it is an article made of narrow-woven fabric. In as much as the commodity in question i.e. 'Hook and Loop Tape Fastener" otherwise called "Velcro Fastener" is an article of narrow woven fabrics falling under excise chapter heading No.58.07, it is clarified that it is taxable at 12% under residuary entry No.40, Part-D, First Schedule to the TNGST Act, 1959 by reiterating the clarification, dated 31.10.2005. If imported it is taxable at 20% under Entry No.9 of Eleventh Schedule to the TNGST Act, 1959." 11.According to the petitioners, Section 8 of the Tamil Nadu General Sales Tax Act (for short TNGST), provides for exemption in respect of goods specified in Third Schedule and Serial No.8(vi). The Third Schedule specifies narrow woven fasteners described against the heading 58.06 in column 3 to the First schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (for short ADE Act, 1957), which reads as follows: THE THIRD SCHEDULE GOODS EXEMPTED FROM TAX BY SECTION 8 Description of goods (Effective from 27.3.2002) PART-A The following goods produced or manufactured in India as described in column (3) against the relevant heading in column (1) of the First Schedule to the Additional Duties of Excise (Goods of Special Importance Act, 1957 (Central Act 58 of 1957)) ["1 to 7 omitted"] 8.(i)Woven pile fabrics and chenille fabrics of wool, cotton or manmade fibres as described against the heading '58.01'. (ii)Terry towelling and similar woven terry fabrics and tufted textile fabrics as described against https://hcservices.ecourts.gov.in/hcservices/ the heading '58.02'. (iii)Guaze as described against the heading '58.03'. (iv)Lace in the piece in strips on in motifs of cotton or man made fibres as described against the heading '58.04'. (v)Embroidery in the piece, in strips or in motifs as described against the heading '58.05'. (vi)Narrow woven fabrics as described against the heading '58.06'." 12.Section 8 of the TNGST Act provides for a general exemption from Tax which reads as follows: Section 8.Exemption from tax.- Subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule shall not be liable to pay any tax under this Act in respect of such goods." 13.Appendix 4 to the Additional Duties of Excise (Goods of Special Importance) Act in the First Schedule, heading 5806 deals with narrow woven fasteners other than goods of heading 5807, wherein additional duties rates are prescribed. 14.Even as early in the year 1989, the Special Commissioner and Commissioner for Commercial Tax earlier by a communication, dated 7.4.1989 addressed to all Deputy Commissioners for Commercial Tax including Enforcement Wing sent a circular which reads as follows: "In the references cited, it has been clarified that velore-Brand Hook and Loop Tape Fasteners are taxable at 5% Multipoint. 2.The above clarification was re-examined in the light of the opinion given by the Collector of Central Excise, Madras Ref.IV/16/52/89 CXI dt.10.3.1989. According to the Central Excise Tariff of India Act, 1985, the commodity, Hook and Loop Tape Fasteners are classifiable under 5801.30 of Central Excise Tariff. The above articles attract Additional Excise Duty in lieu of Sales Tax. In view of this, it is now clarified that "Hook and Loop Tape Fasteners" are not liable to tax under Tamil Nadu General Sales Tax Act, 1959. 3.The earlier clarification issued in this https://hcservices.ecourts.gov.in/hcservices/ office Ref.Acts Cell II/50273/88 dt.12.12.1988 and 4490/89 dt.2.2.1989 is hereby cancelled." (Emphasis added) 15.Notwithstanding this clarification, since the department insisted upon imposition of 12% tax, a clarification was sought for by the petitioner in W.P.No.11761 of 2006. In support of their stand, the petitioner enclosed the following documents: "a)A technical report dated 22.7.1998 given by The Silk and Art Silk Mills' Research Association, Bombay, certifying that hook and loop fastener was a narrow woven fabric. b)A copy of the approved classification list filed by the petitioners under Rule 173B of the Central Excise Rules, 1944, where the classification of the petitioner's product as one falling under chapter 58.06 which had been approved by the central excise authorities. c)A copy of the proceeding dated 16.10.2000 of the Commissioner of Commercial Taxes, Thiruvananthapuram, clarifying that hook and loop tape fastener fell under chapter 58.06 to the schedule to the Additional Duties of Excise Act. d)A copy of the proceeding dated 15.7.2000 of the Additional Commissioner (CT) Calcutta, clarifying that hook and loop tape fastener fell under chapter 58.06 to the schedule to the Additional Duties of Excise Act. e)A copy of the order of the Sales Tax Appellate Tribunal, U.P. Lucknow, in A.P.No.13 of 1991 dated 21.1.1992 holding that hook and loop tape fastener fell under chapter 58.01 (presently 58.06) of the schedule to the Additional Duties of Excise Act." 16.It was also brought to the notice of the COCT that the Government of India by a notification No.76/05, dated 25.7.2005 imposed anti dumping duty on Hook and Loop Type fasteners, treating it as a narrow woven fasteners falling under Chapter 58.06. It is also claimed that the Ministry of Industries, Government of India certified that Hook and Loop Type Fasteners falling under Chapter 58.06. However, in the impugned clarification, the COCT clarified that Hook and Loop Tape Fasteners falling under 58.07. 5807 reads as follows: "Labels, badges and similar articles of textile materials, in the piece, in strips or cut to shape or https://hcservices.ecourts.gov.in/hcservices/ size, not embroidered." 17.It is ununderstandable as to how the COCT can treat a specific commodity as residuary commodity of being labels or badges or similar article of textile material when there is already specific Entry in 58.06 is available in Additional Duties of Excise (Goods of Special Importance) Act, 1957. It is also claimed that in all other States such as West Bengal and Kerala, the very same commodity was treated as falling under 58.06 and not liable for any sales tax since additional excise duties are charged. Initially when COCT by an order dated 31.10.2005 rejected the case, a writ petition was filed in W.P.No.40084 of 2005. This Court by an order dated 23.12.2005 found that it was a non speaking order and directed the COCT to consider the issue afresh after taking into account the other relevant circumstances. It is pursuant to the said direction, the impugned order came to be passed. 18.In assailing the conclusions reached by the COCT, the counsel for the petitioners contended that the classification adopted by the petitioner was accepted by the Central Excise Authority that the product in question is no way different from the Narrow woven Fastener. That product was also known as Velcro. It is claimed that Velcro was a brand of M/s.Velcro, USA, a company which pioneered the concept of Hook and Loop Type Fastener. The petitioners are marketing their product under the brand Sky Magic. In the clarification for exemption under Third Schedule, prima facie opinion of Excise authority alone will count. One has to find out whether for the purpose of exemption under Third Schedule, the product is falling under Chapter 58.06. When the petitioners claim that it falls under 58.06, it would not be open to the COCT to bring it under Chapter 58.07, which is not only done without notice, but it is a classification based on ipse-dixit. Chapter 58.07 deals with the excise of Garments. But Hook and Loop Type Fasteners manufactured and marketed by the petitioner in W.P.No.11761 of 2006, used in the industry to perform the function of fastening. The product is used in the leather, garments, Orthopedic, luggage industry and Telecommunication industry. Therefore, it was claimed that the conclusion arrived at by the COCT was totally repugnant to the rule. It was claimed that the order was a non application of mind, arbitrary and violative of Article 14 of the Constitution. 19.In fact, the very same department has been accepting vide its earlier circular referring to that the commodity in question does not attract any tax under TNGST Act. The first respondent's finding in the impugned clarification is that the Hook and Loop Tape Fasteners, which was Velcro, was commercially different from narrow woven fasteners. This conclusion was drawn applying an incorrect test user. It has always been held that the user test is not conclusive for the purpose of classification. The directive issued by the Government of West Bengal, dated 15.7.2005 in respect of the very https://hcservices.ecourts.gov.in/hcservices/ same hook and loop tape fastener is produced and it reads as follows: "With reference to above, this is inform you that hook tapes and loop tapes, known as hook and loop tape fasteners and also as Velcro, made from nylon, are nothing but woven fabrics of nylon. Therefore, such hook tapes and loop tapes, manufactured or made in India, are covered by the description of goods, "Textile fabrics made wholly or partly of cotton, rayon, artificial silk or wool manufactured or made in India, other than those specified elsewhere in any other Schedule.", specified in column (2) against Serial No.37A in column (1) of schedule A, appended A, appended to the West Bengal Value Added Tax Act, 2003." 20.The impugned order insofar as bringing it under Entry 58.07 is totally repugnant. If an Entry is already covered by the specific Entry, the question of relegating it as residuary entry will not arise. Since in view of the clarification of the other authorities will not apply, the other assessment officer's assessment in their independent judgment and when a writ petition came to be filed, the need for this court to decide the validity of the clarification issued under Section 28A of the TNGST Act than remanding the matter to the authorities has been reiterated by the Courts in several instances. 21.Mr.N.Prasad, learned counsel for the petitioners brought to the notice of this court a judgment of the Supreme Court in Innamuri Gopalan v. State of A.P., reported in (1964) 2 SCR 888 = 1963 (14) STC 742 and relied on the following passage found in paragraph 10, which reads as follows: "10....The next question would be as to whether the exemption to which the appellants were manifestly entitled under the 1st paragraph of the notification they have been deprived of by the operation of the proviso. If the proviso on its proper construction, as we have endeavoured to point out earlier, cannot apply to cases where an additional duty of excise is not leviable under clause 3 of the Bill it would follow that the operation of the exemption is unaffected by the proviso. The appellants were therefore entitled to the relief from sales tax granted by the notification dated December 13, 1957." 22.The judgment of the Supreme Court in Filterco v. Commissioner of Sales Tax, Madhya Pradesh and another reported in (1986) 2 SCC 103 = 1986 (61) STC 318 was pressed into service. The following passage found in paragraph 11 was relied upon: https://hcservices.ecourts.gov.in/hcservices/ "11. We are of opinion that the High Court should have examined the merits of the case instead of dismissing the writ petition in limine in the manner it has done. The order passed by the Commissioner of Sales Tax was clearly binding on the assessing authority under Section 42-B(2) and although technically it would have been open to the appellants to urge their contentions before the Appellate Authorities namely, the Appellate Assistant Commissioner, that would be a mere exercise in futility when a superior officer namely, the Commissioner, has already passed a well considered order in the exercise of his statutory jurisdiction under sub-section (1) of Section 42-B of the Act holding that 21 varieties of the compressed woollen felt manufactured by the appellants are not eligible for exemption under Entry 6 of Schedule I of the Act. Further Section 38 (3) of the Act requires that a substantial portion of the tax has to be deposited before an appeal or revision can be filed. In such circumstances we consider that the High Court ought to have considered and pronounced upon the merits of the contentions raised by the parties and the summary dismissal of the writ petition was not justified. In such a situation, although we would have, ordinarily, set aside the judgment of the High Court and remitted the case to that court for fresh disposal, we consider that in the present case it would be in the interests of both sides to have the matter finally decided by this Court at the present stage itself especially since we have had the benefit of elaborate and learned arguments addressed by the counsel appearing on both sides." 23.Once the commodity is the subject matter of ADE Act, 1957, an additional duty will be collected on those goods. On the interplay between ADE Act and Sales Tax Law, the learned counsel relied upon a division bench judgment of this court in Kishinchand Chellaram and others Vs. Joint Commercial Tax Officer, Chintadripet Division, Madras-2 and others reported in 1968 (21) STC 367. The following passages found in pages 376 and 377 may be usefully extracted below: "....The latter relative motion of law has to be interdicted in a deserving case by courts exercising extraordinary jurisdiction under Article 226 of the Constitution, if on a prima facie review of the relative and relevant facts, it is found that the jurisdictional fact has been erroneously found by the https://hcservices.ecourts.gov.in/hcservices/ concerned tribunal. In other words, if the assessing authority is not right in having assumed jurisdiction in it to levy sales tax on its own self serving finding that Terylene, Terene, Decron etc., are not artificial silk, then a writ of prohibition can issue in order to avert the application and understanding test in that it is understood as ordinary mill textiles and which is a man-made fabric, may the base be either viscose or mineral oil. Such overwhelming authority is available that it would not be safe to take out artificial silk appearing as item 4 in the Third Schedule to the Madras General Sales Tax Act, 1959, totally out of the popular context and meaning attributed to it and accept the contention of the revenue that the articles under review are not artificial silk. The Central Government which has