The Commissioner, Commercial Tax, U.P. Lucknow vs S/S Rujhan Studio

Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

Civil Appeal No 793 of 2021 (Arising out of SLP(C) No 3885 of 2021 @ SLP(C) D No 12951 of 2020)

The Commissioner, Commercial Tax, Appellant U.P., Lucknow

Versus

S/s Rujhan Studio Respondent

WITH

Civil Appeal No 794 of 2021 (Arising out of SLP (C) No 3886 of 2021 @ SLP(C) D No 12953 of 2020)

Civil Appeal No 795 of 2021 (Arising out of SLP (C) No 3887 of 2021 @ SLP(C) D No 12962 of 2020)

JUDGMENT

Signature Not Verified Digitally signed by Chetan Kumar Date: 2021.03.08 16:59:58 IST Reason: CA 793/2021 2 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 1 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

1 Sales/Trade Tax Revision Defective No 95/2019 CA 793/2021 3

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 2 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

2 Appeal No 83/2013 CA 793/2021 4

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:

Sr. No. Name and description of goods

21 Silk 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 CA 793/2021 5

items described in schedule-II:-

(a) cotton fabrics of all varieties;

(b) rayon or artificial silk fabrics, including staple fibre fabrics of all varieties;

(c) woolen fabrics of all varieties;

(d) fabrics made of a mixture of any two or more of the above fibres, viz. cotton, rayon, artificial silk, staple fibre or wool, or of a mixture of any one or more of the said fibres with pure silk fibre;(e) canvas cloth.

The Hindi Text of the said entry is also reproduced hereunder:

िस� फ़ैिब्रक, सम� प्रकार का ह� डलूम कपड़ा, शाल एवं लोई, चाहे सादी, छपी �ई, रं गी �ई अथवा कढ़ी हो; धोती और साड़ी,

पावरलूम पर िनिम�त िन� प्रकार के कपड़े िजसके अं तग�त अनु सूची दो म� विण� त व�ुए नहीं ह� –

1) सभी प्रकार का सू ती कपड़ा;

2) रे यन या कृित्रम रे शम का कपड़ा िजसके अं तग�त सभी िक़�

का �े िपल फ़ाइबर फ़ािब्र� भी है ;

3) सभी िक़� का ऊनी कपड़ा;

4) उपयु� � फ़ाइबस� अथा� त् सू ती, रे यन, कृित्रम रे शम, �े िपल

फ़ाइबर या ऊन के िकसी भी दो या अिधक के िमश्रण या शु �

िस� के साथ उपयु� � फ़ाइबस� के िकसी एक या एकसे अिधक के िमश्रण से बना कपड़ा;

5) कैनवास का कपड़ा CA 793/2021 6

Schedule II provides a list of goods which are taxed at 4%, of which Entry 16 is

in the following terms:

Sr. No. Name and description of goods

List of goods taxed at 4%

16 Bed sheets (other than unstitched bed sheets), pillow cover & other textile made ups.

The Hindi Text of the said entry is also reproduced hereunder: बेडशीट (अन��चड बेडशीट को छोड़कर), तिकया का िगलाफ एवं कपड़े की बनी अ� व�ुय�

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:

SCHEDULE - V

List of goods taxed at 12.5%

Sr. No. Name and description of goods

1 All goods except goods mentioned or described in CA 793/2021 7

Schedule-I, Schedule-II, Schedule-III and Schedule-IV of this Ordinance.

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 CA 793/2021 8

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 CA 793/2021 9

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 CA 793/2021 10

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.

CA 793/2021 11

17 For the above reasons, we allow the appeal and set aside the impugned judgment and

order of the Single Judge of the Allahabad High Court 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 of the first appellate authority would have to be set aside. The order

of the Assessing Authority would stand restored.

18 The appeal shall stand disposed of in the above terms. There shall 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) No 3886 of 2021] & Civil Appeal No 795 of 2021 [Arising out of SLP(C) No 3887 of 2021]

1 Leave granted.

2 These appeals arise from a judgment and order of the Allahabad High Court dated 11

September 2019 in a batch of three Sales/Trade tax revisions. The High Court has

disposed of the revisions by a common judgment and order. For the reasons which are

indicated above while allowing the appeal filed by the Department against the CA 793/2021 12

judgment of the High Court, the present appeals shall stand disposed of in terms of the

judgment in Civil Appeal No 793 of 2021.

3 Pending applications, if any, stand disposed of.

……………..….....…...….......……………………......J. [Dr Dhananjaya Y Chandrachud]

…………………...…....…........……………….…........J. [M R Shah]

New Delhi;

March 02, 2021 CKB