Case: Commissioner Of Sales Tax, U.P Vs. M/S. Sarin Textiles Mills

2. M/s. Sarin Textile Mills, Agra is a manufacture of and dealer in "woollen carpet yarn", popularly known as "kati" . The relevant assessment years are 1959-1960 and 1961-62. The only dispute is whether such kati should be taxed as "yarn" at 3% or as woollen goods" at one anna per rupee, under the relevant notification issued under Section 3-A or as an unclassified item at 2% under Section 3 of the Act.3. The Sales Tax Officer by his order dated 6-10-1965, regarded it as a kind if yarn covered by Entry No. 4, Notification No.ST-907/X, dated 31-3 1956, and so taxed it at six pies per cent for the year 1961-1962 in view of subsequent notification St- 1365/X dated 1-4-1960.4. On appeal by the assessee, the Assistant Commissioner (Judicial) reversed that interpretation and held that woollen carpet kati was an unclassified item taxable at the rate of 2 per cent.5. The Commissioner of Sales Tax moved the Revisional Authority under Section 10 of the Act against the order of the Assistant Commissioner (Judicial). The Judge (Revisions) agreed with the interpretation adopted by the Assistant Commissioner (Judicial) and dismissed the revision application.6. On applications filed by the Commissioner under Section 11 (3) of the Act, the Judge (Revisions), referred the aforesaid question to the High Court.7. The High court also held that the woollen carpet kati is not yarn since it is unspun fibre not used in weaving, and, as such, it is not taxable as a kind of yarn under the aforesaid notifications. It further rejected the alternative contention of the Revenue that "woollen carpet kati" is taxable under the Notification No. ST-905/X as "woollen goods". In the result ,the High Court answered the questions against the Revenue. Hence these appeals.

Court's reasoning:
14. Thus, a fibre in order to answer the description of "yarn" in the ordinary commercial sense, must have two characteristics. Firstly, it should be a spun strand. Secondly, such strand should be primarily meant for use in weaving, knitting or rope-making.15. Now, it is an undisputed fact, in the instant case that "woollen carpet kati" is unspun fibre. It lacks the first characteristic of "yarn". It is therefore possible to say that by itself, the expression "yarn of all kinds" in the notifications, quoted above, would not cover unspun fibres. But the succeeding phrase "including unspun fibre used in weaving" qualifies the preceding expression "yarn of all kinds". This phrase, which, in one sense, extends the connotation of "yarn" by including in it unspun fibre, pinpoints and highlights, on the other hand, the usability of such unspun fibre in weaving as a determinative circumstance.Thus "weaving" is the process of combining warp and weft components. (respectively lengthwise and cross- wise) to make a woven structure.n view of these primary facts found by the taxing authorities, the conclusion is inescapable, that woolen carpet kati is neither "yarn" nor "unspun fibre used in weaving" withing the contemplation of the aforesaid notifications issued under Sectionalso, we find ourselves in agreement with the Division Bench of the High Court that woollen carpet kati is only raw material from which "woollen goods" are prepared. In this connection it is to be noted that yarn used in weaving the warp and weft of carpets, or woollen fibre used in weaving has been made taxable at a far lower rate than "woollen goods" under the notifications. It could never be the intention that a mere component or raw material used in the manufacture of woollen goods by a manual process not being a process of weaving, should be taxed at a far higher rate, by treating the same as a finished "woollen goods."23. For the foregoing reasons, we are of the opinion that woollen carpet kati" is neither "yarn" nor "woollen good" falling under the aforesaid notifications issued under Section 3-A. It is an unclassified item and its turnover is liable to tax at the rate of 2% under Section 3 of the Act.