Case: The Commissioner, Commercial Tax, U.P., Lucknow Vs. S/s Rujhan Studio

Dr. Dhananjaya Y Chandrachud, J. Civil Appeal No 793 of 2021 [Arising out of SLP(C) No 3885 of 2021] 1. Delay condoned. 2. Leave granted. 3. By a judgment and order dated 11 September 2019, a Single Judge of the High Court of Judicature at Allahabad dismissed a Sales/Trade Tax Revision (Sales/Trade Tax Revision Defective No 95/2019) instituted by the Commissioner of Commercial Taxes. 4. The respondent is a dealer registered under the provisions of the Uttar Pradesh Value Added Tax Act 2008 (UP VAT Act 2008). The respondent carries on the business of purchasing textiles and selling dress material for women. A survey was conducted at the establishment of the respondent on 9 March 2010 by the Special Investigation Branch. During the course of the survey, the statement of a partner of the respondent was recorded in which the nature of the business was described in the following terms: The business of manufacture and unstitched suit, salwar, kameeze, dupatta etc. is carried out. The work of design/embroidery is carried out on kameeze, Kurta and Dupatta. The sewing process is carried out in the neck portion of the kameeze/kurta. No stitching is done on Salwar. PECO is done on the borders of Dupatta. The entire activity is got completed with the help of machine/manual labour. The process of Tanka as carried out on Kurta/Kameeze is commonly known as Rough Stitching i.e., Kachchi Silai. 5. During the course of the assessment, a similar statement on oath was made by the representatives of the dealer before the Assessing Authority, which was recorded by the Tax Assessment Officer in the following terms: ...Shri Bhushan Kumar Malhotra, authorised the representative, appeared on behalf of the trader and stated on oath that the business is of unstitched dress material. The cloth is purchased in bulk. Thereafter, by cutting it as per the length of the suit of the ladies and cutting as per the size of the neck of the shirt, the cutting of different sizes of neck is done and thereafter, the embroidery of the same is done. The head scarves/chunni, which is made of the thin cloth, the edges of the same are picoed. All the head scarves are not picoed. No work is done on the lower garment (salwar). The pieces of the same are cut and by matching with the shirt and headscarf, the set of the same is made out. We do only the cutting and embroidery work in the factory. This is the 1st year of the business and even now the business is continuing. From the business year 2008 – 09 till now, the nature has remained the same. The cloth, threads, stars, beads are used as the material... 6. The dealer was assessed to a tax of Rs 99,42,870 for assessment year 2009-2010, by treating the product as an unclassified item under Schedule V of the UP VAT Act 2008, under which the rate of tax is 12.5%. The respondent filed an appeal ( Appeal No 83/2013) before the Additional Commissioner, Gr.-2, (Appeal) IV, Ghaziabad. By an order dated 13 February 2013 the first appellate authority partly allowed the appeal and classified the goods as textile made ups which are subject to a duty of 4% under Serial Number 16 of Schedule IIA. The order passed by the appellate authority was assailed by the appellant and by the respondent before the Commercial Tax Tribunal (Tribunal). By an order dated 27 April 2019, the Tribunal allowed the appeal filed by the respondent and rejected the appeal of the Revenue. The product sold by the respondent was classified as a textile within the meaning of Entry 21 of Schedule I and was, therefore, held to be exempt from tax. The appellant unsuccessfully challenged the decision in a revision before the High Court which has been dismissed in limine by the impugned judgment and order dated 11 September 2019. 7. Notice was issued in the Special Leave Petition filed by the appellant on 28 August 2020. The Office Report indicates that the respondent has been served. No appearance has been entered on behalf of the respondent. 8. In order to facilitate the disposal of the appeal, it would be necessary to advert to the relevant entries in the Schedules to the UP VAT Act 2008 which have a bearing on the controversy. Schedule I provides a list of exempt goods. Serial No 21 of Schedule I is extracted below, both in its English and Hindi descriptions: TABLE Schedule II provides a list of goods which are taxed at 4%, of which Entry 16 is in the following terms: TABLE Finally, it is necessary to advert to Schedule V which furnishes a list of goods which are taxed at 12.5%. The residuary entry in that regard is as follows: TABLE 9. The issue which falls for consideration in the present appeal is 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). The other competing entries are Entry 16 of Schedule II which is other textile made ups and the residuary entry in Schedule V. 10. We would first deal with the question as to whether the product falls within the description of Entry 21 of Schedule I. Before dealing with the nature of the product, it would be material to advert to the definition of the expression manufacture in Section 2(t) which reads as follows: 2(t) manufacture means producing, making, mining, collecting, extracting, mixing, blending, altering, ornamenting, finishing, or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be prescribed; 11. The definition of the expression manufacture is in broad and comprehensive terms. The definition, inter alia, includes altering, ornamenting, finishing or otherwise processing, treating or adapting any goods. The respondent purchases textile material in bulk which is then cut to the length of a salwar kameez suit for women. The work of sewing, design and embroidery is carried out on the neck portion of the kameez or kurta. No stitching is done on the salwar. The dupatta is subjected to peco work. 12. The respondent contended before the Tax Assessment Officer that it carries on the work of cutting and embroidery in its factory. On the basis of the description which was indicated by the respondent, it is difficult to accede to the view of the Tribunal that the product will fall within the description contained in the list of exempt goods in Schedule I, more particularly, Entry 21. Entry 21 deals with silk fabric, handloom cloth of all kinds and textiles of several varieties manufactured on power loom excluding items which are described in the Second Schedule. This includes cotton fabric of all varieties, rayon or artificial silk fabric, woolen fabric made of a mixture of two or more of the listed fabrics and canvass cloth. It is evident from the work which is carried on by the respondent in its factory that the textile material which is purchased in bulk is cut to the size of a salwar kameez. The court must have regard to the common parlance meaning and understanding of the expression textile. Evidently, the respondent cuts the textile material which is then subjected to the work of embroidery on the neck portion. The textile material which is cut may not assume the character of a final article of apparel which can be worn by the consumer because the final work of stitching is not carried out by the respondent. This is done to ensure that the ultimate consumer may get the salwar kameez stitched to their specifications and dimensions. What is sold is an unstitched suit and not textile fabric. The important point to note is that as a result of the work which is carried out by the respondent in the factory, the material ceases to be textile within the meaning of Entry 21 and assumes the character of an article which has a distinct meaning and description. 13. This leaves the Court with the issue as to whether the view of the Assessing Authority was correct or whether the order of the first appellate authority should be maintained. The Assessing Authority taxed the product under the residuary entry in Schedule V and subjected it to at the rate of duty of 12.5%. The First Appellate Authority on the other hand took the view that the product should be classified under Entry 16 of Schedule II and would be subject to the rate of 4%. The residuary entry would be attracted if no other specific entry applies. The appellant had also challenged the order of the first appellate authority before the Commercial Tax Tribunal. Entry 16 of Schedule II refers to bedsheets (other than unstitched bedsheets), pillow covers and other textile made ups. This description in the English version is also in accordance with the text in Hindi. 14. Mr R K Raizada, learned senior counsel appearing on behalf of the appellant submits that the expression other textile made ups is not a stand-alone entry, but occurs in the same entry together with bedsheets (other than unstitched bedsheets) and pillow covers. Hence, the learned counsel submitted that the expression other textile made ups should be read in conjunction with the other goods which are specified in Entry 16. There is merit in the submission which has been urged, for two reasons. 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. 15. In view of the above discussion, 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. 16. The High Court declined to exercise its jurisdiction in the revision which was filed by the Department. The High Court was of the view that the factual findings of the Tribunal did not warrant interference. The High Court has manifestly erred in ignoring the plain meaning of the entries in the Schedules to the UP Vat Act 2008 which have been discussed earlier in the course of this judgment.

Decision reasoning: 1[ds]11. The definition of the expression manufacture is in broad and comprehensive terms. The definition, inter alia, includes altering, ornamenting, finishing or otherwise processing, treating or adapting any goods. The respondent purchases textile material in bulk which is then cut to the length of a salwar kameez suit for women. The work of sewing, design and embroidery is carried out on the neck portion of the kameez or kurta. No stitching is done on the salwar. The dupatta is subjected to peco work.12. The respondent contended before the Tax Assessment Officer that it carries on the work of cutting and embroidery in its factory. On the basis of the description which was indicated by the respondent, it is difficult to accede to the view of the Tribunal that the product will fall within the description contained in the list of exempt goods in Schedule I, more particularly, Entry 21. Entry 21 deals with silk fabric, handloom cloth of all kinds and textiles of several varieties manufactured on power loom excluding items which are described in the Second Schedule. This includes cotton fabric of all varieties, rayon or artificial silk fabric, woolen fabric made of a mixture of two or more of the listed fabrics and canvass cloth. It is evident from the work which is carried on by the respondent in its factory that the textile material which is purchased in bulk is cut to the size of a salwar kameez. The court must have regard to the common parlance meaning and understanding of the expression textile. Evidently, the respondent cuts the textile material which is then subjected to the work of embroidery on the neck portion. The textile material which is cut may not assume the character of a final article of apparel which can be worn by the consumer because the final work of stitching is not carried out by the respondent. This is done to ensure that the ultimate consumer may get the salwar kameez stitched to their specifications and dimensions. What is sold is an unstitched suit and not textile fabric. The important point to note is that as a result of the work which is carried out by the respondent in the factory, the material ceases to be textile within the meaning of Entry 21 and assumes the character of an article which has a distinct meaning and description.The Assessing Authority taxed the product under the residuary entry in Schedule V and subjected it to at the rate of duty of 12.5%. The First Appellate Authority on the other hand took the view that the product should be classified under Entry 16 of Schedule II and would be subject to the rate of 4%. The residuary entry would be attracted if no other specific entry applies. The appellant had also challenged the order of the first appellate authority before the Commercial Tax Tribunal. Entry 16 of Schedule II refers to bedsheets (other than unstitched bedsheets), pillow covers and other textile made ups. This description in the English version is also in accordance with the text in Hindi.There is merit in the submission which has been urged, for two reasons. 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.15. In view of the above discussion, 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.16. The High Court declined to exercise its jurisdiction in the revision which was filed by the Department. The High Court was of the view that the factual findings of the Tribunal did not warrant interference. The High Court has manifestly erred in ignoring the plain meaning of the entries in the Schedules to the UP Vat Act 2008 which have been discussed earlier in the course of this judgment.