GSTR No.54 of 2005 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH GSTR No.54 of 2005 Date of Decision: 15.5.2009 The State of Haryana ..Petitioner Versus M/s Crown Agencies Private Limited, Bahadurgarh ..Respondent CORAM : HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE H.S.BHALLA Present:- Ms. Ritu Bahri, DAG, Haryana for the petitioner. Mr. Sandeep Goyal, Advocate for the respondent. 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? H.SBHALLA, J. This order shall dispose of G.S.T.R. Nos. 54, 55, 56 and 57 of 2005 together since the question of law involved in all these references is identical. However, for the sake of convenience, facts are being extracted from G.S.T.R. No. 54 of 2005. Vide order dated 7.11.2005 of the Chairman, Haryana Tax Tribunal Chandigarh, the following question of law was referred under Section 42 of the Haryana General Sales Tax Act, 1973 GSTR No.54 of 2005 2 ( hereinafter referred to as “the Act”), for determination of this court:- “ Whether on true and correct interpretation of Entry No.14 of Schedule B appended to the State Act, could it be held that `labels ' are textiles and covered under the said Entry? The facts required to be noticed for the disposal of this reference are that the assessee is engaged in the business of manufacturing and trading of labels which are manufactured out of different types of yarns and are sold in rolls to the manufacturers of garments who use the same after cutting that into pieces according to their requirement. The Excise and taxation Officer-cum-Assessing Authority framed the assessment of the dealer for the year 2008-09 and allowed the sale of labels as tax-free falling under Entry 14 of Schedule-B of the Act. The aforesaid case was taken up for revision by the Revisional Authority, Jhajjar under section 40 of the Act and it was held by him that the sale of labels worth Rs.1,23,05,433/- are taxable and created an additional demand of Rs.12,30,543/- vide his order dated 28.7.2003. Feeling dissatisfied, an appeal was filed by the assessee before the Haryana Tax Tribunal, Chandigarh under section 39 of the Act. Appeal was initially taken up by a Bench consisting of the Chairman, Mr. M.L.Singhal (Retd.) and Shri B.S.Suhag, Member. Both of them delivered separate judgments dated 1.6.2004 and 25.11.2004 respectively whereas the Chairman had held that the goods are taxable as those are not falling under Entry 14 of Schedule B, the Member has held that the goods are tax free being a Schedule B item. Because of the difference of opinion between the two members of the Bench, case was referred to the larger Bench. The third Member GSTR No.54 of 2005 3 concurred with the judgment rendered by Shri B.S.Suhag, Member and differed with the opinion given by the Chairman, Mr. Justice M.L.Singhal (Retd.). In view of the majority judgment, appeals were allowed and the demand created by the Revisional Authority was set aside. The State filed an application under section 42 (1) of the Act read with Section 9 (2) of the Central Sales Tax Act, 1956 in reference of following question of law to this court for opinion: “Whether on true and correct interpretation of Entry No.14 of Schedule B appended to the State act, could it be held that `labels' are textiles and covered under the said Entry?” The matter was accordingly referred to this court for final determination. Ms. Ritu Bahri, learned Deputy Advocate General appearing for the State of Haryana has vehemently contended that the goods in question can not fall under Entry 14 of Schedule B inasmuch as they can not be treated as textiles. Learned State counsel has further contended that the textile will have to be understood as is done in the common parlance and lables can not be held to be textile by any stretch of imagination. According to her, the labels are used by ready made garment manufacturers and are made to order as per requirement of the purchaser. Learned counsel further submitted that in the commercial circle and in common parlance, the labels manufactured/sold by dealer company has a commercial identity different from fabrics or textile. Learned counsel has further pointed out that the correct test to be applied for interpreting the entries in the Schedule is as to how the item is known GSTR No.54 of 2005 4 in common parlance. According to her, the item labels is called as labels and not as fabrics of textiles and as such, this item is not covered under Entry 14 of Schedule B of the Act. In support of her contention, she has placed reliance on two judgments of Andhra Pradesh High Court rendered in the cases of Bharat Litho press Vs. State of Andhra Pradesh [1987] 67 STC 53 (AP) and Chandigarh Printing Press Hyderabad Private Limited Vs. State of Andhra Pradesh [1988] 71 STC 92. Per contra, learned counsel appearing for the respondent- assessee has assiduously argued that the Tribunal was right in holding the labels which are sold by it without cutting and in full rolls, are textiles and thus covered under Entry 14 of Schedule B of the Act. Learned counsel has further contended that various Dictionaries have defined the term `textile' as to be something which is woven. According to him, any kind of woven fabric would fulfil the requirements of being a textile and can not be excluded from Entry merely because it has been used in a particular trade. In support of his contention, learned counsel has placed reliance on a catena of judgments rendered by various courts. Learned counsel has further drawn our attention to the fact that yarn whether cotton silk, woolen, rayon, nylon or of any description are made out of any other material is woven into a fabric what comes into being is textile and it is known as such. The method of weaving adopted may be wrap and woof or any other technique. Learned counsel has further drawn our attention to Chapter 58 of the Central Excise Tariff Act and Item in question which falls at Entry Heading 58.07 which reads as under: GSTR No.54 of 2005 5 Heading No. Sub-heading No. Description of goods Rate of duty Basic Additional xxx xxx xxx 58.07 Label, Badges and similar Articles of Textile materials, in the piece, in strips or cut to shape or size not embroidered 5807.10 Woven Nil 5807.90 Other Nil xxx xxx Learned counsel for the respondent has laid much stress on the point that the item labels/label strips manufactured and sold by the Company are clearly a variety of textile and the order of Tribunal has correctly laid down the law. Having heard learned counsel for the parties and going through the paper-book and various judgments referred to by them, this court is of the view that the reference has got no merit and the same deserves to be dismissed for the reasons to be recorded hereinafter. Before dealing with various aspects of the matter in issue, it would, first of all, be useful to refer to certain judgments rendered by Hon'ble the Supreme Court in which similar controversy regarding the same entry was resolved especially in the cases of Porritts and Spencer (Asia) Ltd. Vs. State of Haryana [1978] 42 STC 433 (SC); Delhi Cloth & General Mills Co. Ltd. Vs. State of Rajasthan and others [1980] 46 STC 256; Palco Lining Company and another Vs. The sales Tax Officer, sector IV, Allahabad reported in [1983] 54 STC 255; Nathmal Manghilal and Company Vs. The State of Andhra Pradesh [1983] 54 STC 91 W; Sugan Chand Basantlal Singhania Vs. GSTR No.54 of 2005 6 Commissioner of Sales Tax, M.P. [1996] 103 STC 392; Deputy Commissioner of Commercial Taxes Vs. Madurai Printing Tape Factory, 28 STC 431; Radhika Vs. State of Orissa [1977] 39 STC 93 W; and Delhi Cloth and General Mills Co. Ltd. Vs. Commercial Tax Officer [1975] 36 STC 575. In Porritts and Spencer 's case (supra), their Lordship of Hon'ble the Supreme Court have observed as under:- “......The question is: whether `dryer felts' manufactured by, the assessee fell within category of goods so as to exempt from sales tax? Can it be said that `dryer felts' constitutes a variety of cotton of woolen textiles? The answer to the question depends on what is the true meaning of the word `textiles' as used in item 30 of Schedule B......” “There can therefore be no doubt that the word `textiles' in item 30 of Schedule B must be interpreted according to its popular sense, meaning `that sense which people conversant with the subject matter with which the statute is dealing would attribute to it.' There we are in the complete agreement with the judges who held in favour of the revenue and against the assessee. But the question is “What result does not application of this test yield? Are `dryer felts' not `textiles' which means `to weave' and it means any woven fabric. When yarn, whether cotton, silk, woolen, rayon, nylon or of any other description or made out of any other material is woven into a fabric, what comes into being as a `textile' and it is known as such. It may be cotton textile, silk textile, woolen textile, rayon GSTR No.54 of 2005 7 textile, nylon textile or any other kind of textile. The method of weaving adopted may be the wrap and woof pattern as is generally the case in most of the textiles, or it may be any other process or technique. There is such phenomenal advance in science and technology, so wondrous is the variety of fabrics manufactured from materials hitherto unknown or unthought of and so many are the new techniques invested for making fabric out of yarn that it would be most unwise to confine the weaving process to the wrap or woof pattern. Whatever be the mode of weaving employed, woven fabric would be `textiles'. What is necessary is no more than weaving of yarn and weaving would mean binding or putting together by some process so as to form a fabric. Moreover, a textile need not be of any particular size or strength or weight. It may be in small pieces or in big rolls: it may be weak or strong, light or heavy, bleached or dyed, according to the requirement of the purchaser. The use to which it may be put is also immaterial and does not bear in its character as a textile . It may be used for making searing apparel, or it may be used as a covering or bed sheet or it may be used as tapestry or upholstery or as duster for cleaning or as towel for drying the body. A textile may have diverse uses and it is not the use which determines its character as textile. It is therefore no argument against the assessee that `dryer felts' are used only as absorbents of moisture in the process of manufacture in a paper manufacturing unit. That can not GSTR No.54 of 2005 8 militate against ` dryer felts' falling within the category of textiles', if otherwise they satisfy the description of `textiles.” .......”The character of a fabric or material as textile does not depend upon the use to which it may be put. The uses of textiles in a fast developing economy are manifold and it is quite common now to find `textiles' being used even for industrial purposes. If we look at the Customs Tariff Act, 1975, we find in Chapter 59 occurring in Section XI of the First Schedule that there is a reference to 'textile fabrics' and textile expression shall be taken to apply inter alia to `woven textile felts.... of a kind commonly used in paper making or other machinery....” This reference in a statute which is intended to apply to imports made by the trading community clearly shows that `dryer felts' which are `woven textile felts.... of a kind commonly used in paper making machinery.....” are regarding in common parlance, according to the sense of ordinary traders and merchants, textile fabrics. We have therefore no doubt that `dryer felts' are ` textiles' within the meaning of that expression in item 30 of Schedule B.” In Delhi Cloth & General Mill's case (supra), it has been held as under:- “ What is a fabric? The `Mercury' Dictionary of Textile Terms defines `fabrics' as a term covers `all textiles no matter how constructed, how manufactured, or the nature of the material from which made' and the expression GSTR No.54 of 2005 9 `textile' is described as `any product manufactured from fibres through testing, interlacing, bonding, looping or any other means, in such a manner that the flexibility, strength and other characteristics properties of the individual fibres are not suppressed'. The man-made textile Encyclopedia 1959 defines fabric as a collective term applied to cloth no matter how constructed or manufactured and regardless of the kind of fibre from which made. In structure it is planar produced by interlacing yarns, fibres or filaments. Textile fabrics include the following varieties, bonding, felted, knitted, braided and woven.” The Fairchild's Dictionary of Textiles 1959 says that fabric is ` a cloth that is woven or knit, braided, netted, with any textile fibre....', and ` textile' is said to refer to `a broad classification of any material that can be worked into fabric, such as fibres and yarns including woven and knitted fabric, felt, netted fabric, lace and crouched goods.' In `Textile Terms and Definitions, 1969' the word cloth is defined as ` a generic term embracing all textile fabrics and laminar felts' and `textile' is applied in its modern sense to ` any manufacture from fibres, filaments, or yarns, natural or artificial, obtained by interlacing'. The 1967 Annual Book of ASTM Standards defines cloth as `any textile fabric but specially one designed for apparel, domestic or industrial use', and textile fabric as ` a planar structure consisting of interlaced yarns or fibres'. The 1973 Annual Book of ASTM Standards reproduced those definitions.” GSTR No.54 of 2005 10 “ On a comprehensive consideration of the material before us, there is no escape from the conclusion that by any large a tyre cord fabric is regarded as a textile fabric. The peculiar feature that the tyre cord constitutes the dominating element indicating the use to which the fabric is put and the close concentration in which it is packed in contrast to the light density with which the weft threat is woven does not detract from the conclusion that what we have is a textile fabric. We are concerned with the product manufactured and sold by the appellant. It is wholly immaterial that once tyre cord fabric has, in the hands of the tyre manufacture, undergone the process of rubberizing and is embedded in the tyre body the significance of the weft threat is greatly reduced. It may also be that in the more modern process of manufacturing tyres what is used is cabled rayon with howsoever twists with the cords assembled in paralleled order and rubberized without the intermediate process of weaving on a loom. The material on the record, however, indicates that the produce manufactured by the appellant does not fall in that category. It is a woven fabric in which the intermediator process of weaving the weft threat across the wrap cord is an integral stage of manufacture. When the purchaser buys the product, it is the entire integrated woven fabric which he buys, it is not merely the tyre available, and not tyre cord fabric. We may also point out that item 22 of First Schedule to the Central Excise and Salt Act speaks of “all varieties of fabrics”, language wide GSTR No.54 of 2005 11 enough to include the rayon tyre cord fabric , manufactured by the appellant.” In the case of Palco Lining Company's case (supra), it has been observed as under:- “ The word 'cotton fabric' has not been defined in the notification but the meaning is obvious. It must be a fabric made of cotton and further it must answer the description of textile. So far as the buckram cloth and the other cloth that is used for manufacturing the collars and the shoulder straps is concerned, that is, undoubtedly a textile and a cotton fabric. In the case of Porritts & Spencer (Asia) Ltd. Vs. State of Haryana (1978) 42 STC 433 (SC), 1979 UPTC 866 (SC), their lordships have held that the word 'textile' means any woven fabric and when yarn, whether cotton, silk, woolen, rayon nylon or of any other description or made out of any other material is woven into a fabric what comes into being is a textile and is known as such. The method of weaving adopted may be the wrap and wood pattern or it may be any other process or technique. In the present case, it can not be denied that both the cloth used as the outer line and the buckram cloth used as the inner line and the buckram cloth used as the inter line is produced by weaving. As it is not the department's case that cotton yarn is not used in weaving buckram, and the other cloth yarn is not used in weaving buckram and the other cloth. Thus the essential constituents of articles is cotton fabric.....” In Nathmal Manghilal”s case (supra), a Division Bench of GSTR No.54 of 2005 12 the Andhra Pradesh High Court has held as under: “ A reading of this entry clearly shows that even a cotton fabric coated with cellulose derivatives, or other artificial plastic materials is a cotton fabric'. Two buckram collars have been placed before us for our perusal. By looking at them, and also on perusing the process by which they are prepared, as set out in the judgment of the Madras High Court, we feel no difficulty in holding that it is a cotton fabric. Merely because it is stiffened, it does not cease to be a cotton fabric. We are also of the opinion that it can not be called a `garment'. To become a `garment', it must be stitched into a different product, which it is not. This is also the view taken by the Madras and Gujarat High Courts in Narasimha Agencies Vs. State of Tamil Nadu, (1977) 40 STC 217 and State of Gujarat Vs.Ghanshyam Stores (1982) 49 STC 117. We may in this connection refer to the decision of the Supreme Court in Delhi Cloth & General Mills Company Ltd. Vs. State of Rajasthan (1980) 47 STC 256 (SC). In that case, it was held that `rayon tyre cord fabric' used in the manufacture of tyres is a rayon fabric within the meaning of item 18 of the Schedule to the Rajasthan Sales Tax Act, 1954. We are of the opinion that, on the same analogy, buckram collars which serve as a lining in the collars of readymade shirts, must be held to be `cotton fabric'. In Sugan chand Basantlal Singhania's case (supra), it was observed as under: “ 19. Cotton Fabrics”- ` Cotton fabrics' means all varieties GSTR No.54 of 2005 13 of fabrics manufactured either wholly or partly from cotton and includes dhotis, sarees, chaddars, bed sheets, bed spreads, counterpanes, table clothes, embroidery in the piece, in strips or in motifs, fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic material, and fabrics covered partially or fully with textile flocks or with preparations containing textile flocks, if (i) in such fabrics cotton predominates in weight, or (ii) such fabrics contain more than 40 per cent by weight of cotton and 50 per cent or more by weight or non-cellulosic fibres or yarn or both...” Niwar and dari both are prepared after weaving cotton fabrics. Therefore, simply because they have not been mentioned specifically by name, would not mean that both these items will not be covered by this entry. In fact, the items which have been mentioned in this entry are illustrative only and not exhaustive. Similarly because certain items have been mentioned would not mean that the entry should be confined to those items only. These are all illustrative and not exhaustive in itself. The items which have been mentioned are only illustrative. Therefore, it can not be treated hat the list is exhaustive. The definition of `cotton fabric' is too wide and it would mean that all varieties of items manufactured wholly or partly from cotton fabric would fall in this entry and all other illustrative items given cannot be treated as exhaustive.” GSTR No.54 of 2005 14 In Deputy Commissioner of Commercial Taxes's case (supra), their Lordships of Madras High Court have held as under: “........All varieties of textiles (other than durries, carpets, druggets and pure silk cloth) made wholly or partly of cotton, staple fibre, rayon, artificial silk and wool, including handkerchiefs, towels, napkins, dusters, cotton velvets and velveteen, tapes, niwars and laces and hosiery cloth in lengths. Specific mention having been made of tape in the entry, the revenue contents that the term would apply only to tape made of threads as a result of weaving. The tape now in question which is shown to us, is used generally in typing up bundles or papers, and is made of threads which lengthwise are pasted together, without employing the process of interlocking or interlacing the threads, as in making cotton cloth and the like. The terms `textile' has come up for judicial interpretation in State of Madras Vs. T.T. Gopalier and another (1) and The Government of Madras Vs. Madurai Braided Cord and Tape Producers Cooperative Industrial Society (2). Following the dictionary meaning of the word, it has been held that `textile' in its broad sense is what is woven and it means woven suitable for weaving textile fabrics. `Fabric' itself is according to the Concise Oxford Dictionary, `thing put together woven material, texture, tissue'. There is no doubt, therefore, that the ingredient of textile is necessarily weaving, and what is now woven can hardly be described as textile. The various items mentioned in the entry themselves point to this meaning. GSTR No.54 of 2005 15 Tapes made as a result of weaving would clearly be within the entry. But, would it be so if the normal pattern of producing textile by using the warp and wood pattern of thread is not applied? In our view, that will not be conclusive. We are inclined to think that weaving is not necessarily limited to that type of weaving. In modern advancement of textile technology, it is now possible, without using the warp and the wood pattern to produce tape; by holding the threads together lengthwise by using gum. Toa causal look, the product resembles a tape which has been woven in the normal sense on the loom. But it is not the appearance alone, but what is necessary for weaving is that threads are bound together in order to produce a pattern of fabric or tape.” In Radhika 's case ( supra), their Lordships of Orissa High Court have observed as under:- “3 The entry in question reads thus: All, Mill made fabrics made wholly or partly of cotton, staple fibre, rayon, artificial silk or wool including processed fabrics, made in the processing mills.” The learned Standing counsel does not dispute the fact that mill made cloth is exempt from tax. The contention, however, is that even if manufactured by mills, the four commodities referred to here are not mill made cloth simpliciter but have been otherwise processed and becomes different commodities which would not be covered by the entry. We agree with the submission of the learned standing counsel that if mill made cloth is GSTR No.54 of 2005 16 converted into a different item of goods, the exemption would not extend to such goods. The