Case: Delhi Cloth and General Mills Company Limited Vs. State of Rajasthan and Others

The appellant owns an industrial unit, Shriram Rayons, situated at Kota in the State of Rajasthan. It manufactures a product described as "Rayon Tyre Co rd Fabric." The appellant claims that the product falls within item 18 of the Schedule to the Rajasthan Sales Tax Act which exempts from sales tax and purchasecotton fabrics, rayon or artificial silk fabrics, woollen fabrics as defined in the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of2(c) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 declares that the express ion "rayon or artificial silk fabrics" shall have the meaning assigned to it in Item 22 of the First Schedule to the Central Excise and Salt Act, 1944. Item 22or artificial silk fabrics" means all varieties of fabrics manufactured either wholly or partly from rayon or artificial silk and includes 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, .... ..... ..... .... .... ....appellant was assessed to sales tax by the Commercial Tax Officer for the years 1969-70 and 1970-71 on the turnover of rayon tyre cord fabric. The plea that the product was exempt from sales tax was not accepted. Two writ petitions were filed by the appellant in the Rajasthan High Court against the assessments while appeals were also filed before the Deputy Commissioner (Appeals). The Rajasthan Hig h Court dismissed the writ petitions on the ground that disputed questions of fact were involved in the controversy and recourse should be had to the remedy by way of appeal. Against the order of the High Court the appellant obtained from the Supreme Court special leave to appeal under Article 136 of the Constitution. Meanwhile, the Commercial Tax Officer made a provisional assessment on the turnover of rayon tyre cord fabric for the period 1971-72. Against the assessment the appellant filed a writ petition directly in this Court under Article 32 of the Constitution. The two appeals and the writ petition were dismissed by this Court on 3rd May, 1976.The Court observed that the controversy "requires careful consideration of the technical processes of manufacturing, of the composition of the tyre cord fabric,  and an evaluation of opinions of experts on the subject, to be able to decide the question satisfactorily, " as well as "some examination of commercial usage and terminology or the language of the market in goods of this type." It upheld the view taken by the High Court that the matter was one for determination by the taxingDeputy Commissioner (Appeals) was meanwhile seized of not only the two appeals pertaining to the assessment years 1969-70 and 1970-71 but also appeals against the assessment order for 1971-72 and a provisional assessment for the first six months of the assessment year 1972-73. When t he appeals were taken up by the Deputy Commissioner (Appeals) voluminous evidence, both oral and documentary, was led before him. The appeals were, nevertheless, dismissed. Thereafter, the appellant applied in revision to the Board of Revenue for Rajasthan, but again met with no success. The Board expressed the view that the product was not a fabric and dismissed the revision petitions by their order dated 6th October, 1977. The present appeals are directed against thatundisputed facts concerning the product manufactured by the appellant may be set out. Rayon fibre is spun into rayon and twisted into cord. The cords are arranged lengthwise, and are commonly described as the "warp". They are packed 25 to the inch. By a process of weaving, cotton threads are wefted through a loom across the cords. The wefts are thinner and fewer than the cords, being not more than two to five per inch. The cord component comprises the major content of the product. The unprocessed rayon tyre cord fabric so produced is sold in the form of rolls in the market. After initial chemical treatment it is put through a process of rubberizing in the tyre manufacturing plant. The rayon tyre cord fabric is used as a reinforcing base in the manufacture of tyres. It is a product generally intended for industrial use. The rayon tyre cord employed as a component in the manufacture of rayon tyre cord fabric is also sold directly as such. It is sold packed on cones, somewhat like yarn is sold. Tyre cord is purchased directly by some tyre manufacturers, who by applying the same process of putting in the wefts, convert it into a tyre cord fabric for use in theholding that the rayon tyre cord fabric is not a fabric, the Board has noted that the tyre body or carcass consists of a series of layers of cord fabric in the form of plies buried in rubber, and that the significant factor in the tyre cord fabric is represented by the tyre cord. The properties and characteristics of the fibre constituting the tyre cord, it is said, determines the tyre performance. The weft in the fabric, it is pointed out, merely plays the subsidiary role of holding the cord in place before the process of tyre manufacturing is commenced.

Court's reasoning:
On a comprehensive consideration of the material before us, there is no escape from the conclusion that by and 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 thread 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 manufacturer, undergone the process of rubberizing and is embedded in the tyre body the significance of the weft thread is greatly reduced. It may also be that in the more modern process of manufacturing tyres what is used is cabled rayon with hawser twists with the cords assembled in parall el order and rubberized without the intermediate process of weaving on a loom. The material on the record, however, indicates that the product manufactured by the appellant does not fall in that category. It is a woven fabric in which th e intermediate process of weaving the weft thread across the warp 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 cord by itself . If tyre cord was all that he desired, he would purchase that commodity, which is readily available, and not tyre cord fabric. We may also point out that Item 22 of the First Schedule to the Central Excises and Salt Act speaks of "all varieties of fabrics", language wide enough to include the rayon tyre cord fabric manufactured by theof the Rajasthan Sales Tax Act, 1954 empowers the State Government, by notification in the Official Gazette, to exempt from tax the sale of any goods or class of goods on such conditions as may be specified in the notification. By a notification dated 1st July, 1958, the Rajasthan Government unconditionally exempted all varieties of textiles made wholly or partly of rayon from 1st July, 1958. S.4(1) of the Rajasthan Sales Tax Act, 1954 provides for exemption from sales tax of the goods specified in the Schedule to that Act provided the conditions mentioned in the Schedule are satisfied. Item 18, inserted in the Schedule by the Rajasthan Taxation Laws (Amendment) Act, 1964, included "rayon fabrics" as defined in the Additional Duties of Excise (Goods of Special Importance) Act, 1957. On this, the notification dated 1st July, 1958 was withdrawn as redundant. Now when Item 18 was inserted in the Schedule, no conditions were specified therein as a qualification for the exemption. Therefore, in respect of the assessment years with which these appeals are concerned, the turnover of rayon tyre cord fabric was clearly exempt from sales tax under the Rajasthan Sales Tax Act, and there was no condition in that Act that the exemption was dependent on payment of additional excise duty. That being so, there was an unconditional exemption from central sales taxunconditional exemption from sales tax granted on the sale of rayon fabrics, that is to say, without the condition that additional excise duty was paid by the manufacturer, was withdrawn by a notification dated 5th March, 1973 made by the Rajasthan State Government under S.4(2) of the Rajasthan Sales Tax Act. The notification provided that in the case of unprocessed rayon and artificial silk fabrics the exemption from sales tax would apply only if the additional duty is leviable on them under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and such goods had not specifically bee n exempted from the said duty and the dealers thereof furnished proof to the satisfaction of the assessing authority that such duty had been paid. Therefore, as from 5th March, 1973 the exemption from tax under the Rajasthan Sales Tax Act was available only if additional excise duty was leviable and the dealer had established that he had paid such duty. About the same time, the Rajasthan Taxation Laws (Amendment) Act, 1973 deleted Item 18 in the Schedule to the Rajasthan Sales Tax Act wit h effect from 5th March, 1973. It is evident, therefore, that a dealer was entitled to exemption from sales tax up to 4th March, 1973 without the requirement of payment of the additional excise duty. The conclusion is inescapable that even if the appellant did not pay additional excise duty, he was exempt from sales tax on the turnover of rayon tyre cord fabric for the assessment years under consideration.We are unable to agree that the question is one of fact. It is a question which concerns the consideration of Item 22 of the Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. If the rayon tyre cord fabric manufactured by the appellant is recovered by that item it is exempt from sales tax and there is no jurisdiction in the sales tax authorities to assess the appellant on its turnover. The question is one of substantial importance, and having regard to the circumstances there is good reason for entertaining the appeals and deciding them on thewe have already pointed out, the item refers to "all varieties of fabrics" and it will be noticed that Item 22(3) speaks of fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials which, we are told, would include rubberized cloth, tarpaulin cloth, P.V.C. cloth, water proof cloth and tent cloth. A whole range of fabric isthe tyre manufacturing industry is of growing importance and has an increasingly import ant role to play in everyday life. That is evident from the overwhelming expansion of automobile traffic prompted by the complex needs of a constantly enlarging economy. The daily life of the average citizen is profoundly effected by the automobile, be it passenger bus or a goods truck or the ubiquitous scooter. Tyres are needed for all. In rural areas tyres are now coming into use for bullock carts. It is futile to suggest that the tyre plays a less substantial role than other popular commodities in modern life. And, therefore, it is but a short step to recognising the status of what goes into the manufacture of arayon tyre cord fabric as "goods of special importance". It may be that unlike the cotton, silk, woollen and rayon fabrics used as wearing apparel or furnishing material the rayon tyre cord fabric is not directly employed for the satisfaction of a domestic need. Nonetheless, as an integral and vital constituent of an automobile tyre it is intimately involved in the diurnal activity of humanour mind, the view taken by the Revenue Board cannot be regarded as resolving the question before us. Whether Parliament understood the word "fabric" to include tyre cord fabric must be gathered from all the relevant material and with reference to tests and criteria accepted in law rather on the basis of a singleare unable to agree that the question is one of fact. It is a question which concerns the consideration of Item 22 of the Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. If the rayon tyre cord fabric manufactured by the appellant is recovered by that item it is exempt from sales tax and there is no jurisdiction in the sales tax authorities to assess the appellant on its turnover. The question is one of substantial importance, and having regard to the circumstances there is good reason for entertaining the appeals and deciding them on the