THE COMMISSIONER, COMMERCIAL TAX, U.P., LUCKNOW versus S/S RUJHAN STUDIO on 2 March 2021

1. Delay condoned.

2. Leave granted.

3. By a judgment and order dated 11 September 2019, a SingleJudge of the High Court of Judicature at Allahabad dismissed a Sales/Trade Tax Revision[1] instituted by the Commissioner of Commercial Taxes.

1 Sales/Trade Tax Revision Defective No 95/2019

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A4. The respondent is a dealer registered under the provisions ofthe Uttar Pradesh Value Added Tax Act 2008 (“UP VAT Act 2008”).The respondent carries on the business of purchasing textiles and sellingdress material for women. A survey was conducted at the establishmentof the respondent on 9 March 2010 by the Special Investigation Branch.During the course of the survey, the statement of a partner of theBrespondent was recorded in which the nature of the business wasdescribed in the following terms:

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“The business of manufacture and unstitched suit, salwar, kameeze,dupatta etc. is carried out. The work of design/embroidery iscarried out on kameeze, Kurta and Dupatta. The sewing processCis carried out in the neck portion of the kameeze/kurta. No stitchingis 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., “KachchiDSilai”.”

5. During the course of the assessment, a similar statement onoath was made by the representatives of the dealer before the AssessingAuthority, which was recorded by the Tax Assessment Officer in thefollowing terms:

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“...Shri Bhushan Kumar Malhotra, authorised the representative,appeared on behalf of the trader and stated on oath that the businessis of unstitched dress material. The cloth is purchased in bulk.Thereafter, by cutting it as per the length of the suit of the ladiesand cutting as per the size of the neck of the shirt, the cutting ofFdifferent sizes of neck is done and thereafter, the embroidery ofthe same is done. The head scarves/chunni, which is made of thethin cloth, the edges of the same are picoed. All the head scarvesare not picoed. No work is done on the lower garment (salwar).The pieces of the same are cut and by matching with the shirt andheadscarf, the set of the same is made out. We do only the cuttingGand embroidery work in the factory. This is the 1st year of thebusiness and even now the business is continuing. From thebusiness year 2008 – 09 till now, the nature has remained thesame.

The cloth, threads, stars, beads are used as the material...”

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6. The dealer was assessed to a tax of Rs 99,42,870 for assessmentyear 2009-2010, by treating the product as an unclassified item underSchedule V of the UP VAT Act 2008, under which the rate of tax is12.5%. The respondent filed an appeal[2] before the AdditionalCommissioner, Gr.-2, (Appeal) IV, Ghaziabad. By an order dated 13February 2013 the first appellate authority partly allowed the appeal andclassified the goods as “textile made ups” which are subject to a duty of4% under Serial Number 16 of Schedule IIA. The order passed by theappellate authority was assailed by the appellant and by the respondentbefore the Commercial Tax Tribunal (“Tribunal”). By an order dated27 April 2019, the Tribunal allowed the appeal filed by the respondentand rejected the appeal of the Revenue. The product sold by therespondent was classified as a ‘textile’ within the meaning of Entry 21of Schedule I and was, therefore, held to be exempt from tax. Theappellant unsuccessfully challenged the decision in a revision before theHigh Court which has been dismissed in limine by the impugned judgmentand order dated 11 September 2019.

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7. Notice was issued in the Special Leave Petition filed by theappellant on 28 August 2020. The Office Report indicates that therespondent has been served. No appearance has been entered on behalfof the respondent.

8. In order to facilitate the disposal of the appeal, it would benecessary to advert to the relevant entries in the Schedules to the UPVAT Act 2008 which have a bearing on the controversy. Schedule Iprovides a list of exempt goods. Serial No 21 of Schedule I is extractedbelow, both in its English and Hindi descriptions:

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Sr. No.Name and description of goodsF21Silk Fabrics; Handloom cloth of all kinds; handloom shawls & lois whether plain, printed, dyed or embroidered; Dhoties and Saris; textiles of following varieties manufactured on power- loom excluding the items described in schedule-II:-G(a) cotton fabrics of all varieties;(b) rayon or artificial silk fabrics, including staplefibre fabrics of all varieties; (c) woolen fabrics of all varieties;2 Appeal No 83/2013H

ABCDESchedule II provides a list of goods which are taxed at 4%, ofwhich Entry 16 is in the following terms:FGH

Finally, it is necessary to advert to Schedule V which furnishes alist of goods which are taxed at 12.5%. The residuary entry in that regardis as follows:

9. The issue which falls for consideration in the present appeal iswhether the commodity which is described as an “embroidered ladiessuit”, which the respondent claims to be unstitched, would fall within thedescription of a ‘textile’ under Entry 21 of Schedule I (as the respondentasserts). The other competing entries are Entry 16 of Schedule II whichis “other textile made ups” and the residuary entry in Schedule V.

10. We would first deal with the question as to whether the productfalls within the description of Entry 21 of Schedule I. Before dealingwith the nature of the product, it would be material to advert to thedefinition of the expression “manufacture” in Section 2(t) which readsas follows:

“2(t) “manufacture” means producing, making, mining, collecting,extracting, mixing, blending, altering, ornamenting, finishing, orotherwise processing, treating or adapting any goods; but doesnot include such manufacture or manufacturing processes as maybe prescribed;”

11. The definition of the expression “manufacture” is in broadand comprehensive terms. The definition, inter alia, includes altering,ornamenting, finishing or otherwise processing, treating or adapting anygoods. The respondent purchases textile material in bulk which is thencut to the length of a salwar kameez suit for women. The work of sewing, A

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Adesign and embroidery is carried out on the neck portion of the kameezor kurta. No stitching is done on the salwar. The dupatta is subjected to‘peco’ work.

12. The respondent contended before the Tax Assessment Officerthat it carries on the work of cutting and embroidery in its factory. OnBthe basis of the description which was indicated by the respondent, it isdifficult to accede to the view of the Tribunal that the product will fallwithin the description contained in the list of exempt goods in Schedule I,more particularly, Entry 21. Entry 21 deals with silk fabric, handloomcloth of all kinds and textiles of several varieties manufactured on powerloom excluding items which are described in the Second Schedule. ThisCincludes cotton fabric of all varieties, rayon or artificial silk fabric, woolenfabric made of a mixture of two or more of the listed fabrics and canvasscloth. It is evident from the work which is carried on by the respondentin its factory that the textile material which is purchased in bulk is cut tothe size of a salwar kameez. The court must have regard to the commonDparlance meaning and understanding of the expression ‘textile’. Evidently,the respondent cuts the textile material which is then subjected to thework of embroidery on the neck portion. The textile material which iscut may not assume the character of a final article of apparel which canbe worn by the consumer because the final work of stitching is notcarried out by the respondent. This is done to ensure that the ultimateEconsumer may get the salwar kameez stitched to their specificationsand 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 iscarried out by the respondent in the factory, the material ceases to betextile within the meaning of Entry 21 and assumes the character of anFarticle which has a distinct meaning and description.

13. This leaves the Court with the issue as to whether the view ofthe Assessing Authority was correct or whether the order of the firstappellate authority should be maintained. The Assessing Authority taxedthe product under the residuary entry in Schedule V and subjected it toGat the rate of duty of 12.5%. The First Appellate Authority on the otherhand took the view that the product should be classified under Entry 16of Schedule II and would be subject to the rate of 4%. The residuaryentry would be attracted if no other specific entry applies. The appellanthad also challenged the order of the first appellate authority before theCommercial Tax Tribunal. Entry 16 of Schedule II refers to bedsheetsH

(other than unstitched bedsheets), pillow covers and “other textile madeups”. This description in the English version is also in accordance withthe text in Hindi.

14. Mr R K Raizada, learned senior counsel appearing on behalfof the appellant submits that the expression “other textile made ups” isnot a stand-alone entry, but occurs in the same entry together withbedsheets (other than unstitched bedsheets) and pillow covers. Hence,the learned counsel submitted that the expression “other textile madeups” should be read in conjunction with the other goods which arespecified in Entry 16. There is merit in the submission which has beenurged, for two reasons. Firstly, the expression in Entry 16 of Schedule IIis “other textile made ups”. A textile made up is an article which ismanufactured or stitched from any type of cloth. In the present case,going by the case of the respondent, the product is unstitched becausethe ultimate work of stitching the salwar kameez is yet to be performedand is not carried out by the respondent. In the circumstances, the productcan 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 isused in conjunction with the expression “bedsheets and pillow covers”.The expression “other textile made ups” must be read ejusdem generiswith the articles which precede it and should hence comprehend goodsof the same class and description. The general entry “other textile made ups” must receive a meaning and connotation bearing in mind thepreceding items of Entry 16. Hence, it is not possible to accept the viewof the first appellate authority that the product falls within the purview ofEntry 16 of Schedule II.

15. In view of the above discussion, the product would fall forclassification under Serial 1 of Schedule V which is a residuary entrywhich covers all goods except those which are mentioned and describedin Schedules I, II, III and IV.

16. The High Court declined to exercise its jurisdiction in therevision which was filed by the Department. The High Court was of theview that the factual findings of the Tribunal did not warrant interference.The High Court has manifestly erred in ignoring the plain meaning of theentries in the Schedules to the UP Vat Act 2008 which have beendiscussed earlier in the course of this judgment.

17. For the above reasons, we allow the appeal and set aside theimpugned judgment and order of the Single Judge of the Allahabad High AB

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ACourt dated 11 September 2019. For the reasons which we have indicated,we are also of the view that the judgment of the Tribunal as well as ofthe first appellate authority would have to be set aside. The order of theAssessing Authority would stand restored.

18. The appeal shall stand disposed of in the above terms. ThereBshall be no order as to costs.

19. Pending applications, if any, stand disposed of.

Civil Appeal No 794 of 2021 [Arising out of SLP(C) No3886 of 2021] &

CCivil Appeal No 795 of 2021 [Arising out of SLP(C) No3887 of 2021]

1. Leave granted.

2. These appeals arise from a judgment and order of the AllahabadHigh Court dated 11 September 2019 in a batch of three Sales/Trade taxDrevisions. The High Court has disposed of the revisions by a commonjudgment and order. For the reasons which are indicated above whileallowing the appeal filed by the Department against the judgment of theHigh Court, the present appeals shall stand disposed of in terms of thejudgment in Civil Appeal No 793 of 2021.

E3. Pending applications, if any, stand disposed of.

Devika Gujral

Appeals disposed of.

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