Filtrco & ANR Vs. Commissioner of
Sales Tax, Madhya Pradesh & ANR [1986] INSC 13 (11 February 1986)
ERADI, V. BALAKRISHNA (J) ERADI, V.
BALAKRISHNA (J) REDDY, O. CHINNAPPA (J) VENKATARAMIAH, E.S. (J) MISRA, R.B. (J)
KHALID, V. (J)
CITATION: 1986 AIR 626 1986 SCR (1) 239 1986
SCC (2) 103 1986 SCALE (1)171
ACT:
Constitution of India - Article 226 and 227
whether the High Court can dismiss a petition in limine on the plea of the
existence of an alternate remedy open to the petitioner Construction of a taxing
statute - The Madhya Pradesh General Sales Tax Act, 1958 - Exemption under
section 10- Whether "Compressed Woollen Felts" constitute
"cloth" so as to fall within the scope of Entry 6 of Schedule I of
the 1958 Act Principle of equitable Estoppel, applicability of- Opinion given
earlier on the basis of only one specimen of the felt that it is
"cloth" (when in fact the assessee manufactures 26 varieties) and non
recovery of tax on that score for twelve years - Principle cannot be attracted.
HEADNOTE:
The appellants M/s. Filtereo manufactures
compressed felt by subjecting the Compressed woollen fibres to heat and
moisture. On March 25, 1971 they addressed a communication to the Commissioner
of Sales Tax forwarding a specimen of the felt manufactured in their factory
and requesting that the same may be treated as exempt from tax under Entry 6 of
Schedule I to the Madhya Pradesh General Sales Tax Act, 1958. This request-was
acceded to through the Commissioner's letter dated 7.8.1971. On the basis of
the said letter the turnover of the company pertaining to the sales of
compressed woollen felt was not subjected to the during the period from 1971 to
1982. However, be a letter dated 4.3.
1982 the Commissioner of Sales The informed
the appellants that "in view of the Judgment of the Supreme Court in the
case of M/s. Gujarat Woollen Mills, (A.I.R. 1977-1548 S.C.) that compressed
woollen felts are not "woollen fabrics", its earlier opinion dt.
7.8.71 to the contrary that the Compressed Woollen Felt manufactured by appellant
will be except under Entry 6 of Schedule I of the Sales Tax Act, 1958 be
treated as cancelled. Aggrieved by the 240 revised stand taken by the
Commissioner of Sales Tax, the appellants filed an application before the
Commissioner of Sales Tax under section 42B of the Act for a determination of
the question of taxability of the goods in question by producing as many as 26
samples of felt of varying hardness, density and thickness alongwith a
statement showing details of each sample. The Commissioner of Sales Tax was of
the view that though the expression "cloth" will take in non- wovan
material inclusive of "felt", pliability is an essential attribute of
"cloth" and only those varieties of felt manufactured by the appellants
which satisfy the test of pliability can be legitimately classified as
"cloth" and applying the said test, by his order dated 25.1.83, held
that only 5 out of the 26 specimens produced by the appellants namely, those
marked by the Commissioner as A-1, A-2, A-3, A-4 and A-19 could be classified
as "cloth" and granted exemption from tax under Entry 6 of Schedule I
of the Act. The remaining 21 samples attracted tax liability at the rate of ten
per cent.
The appellants filed a Writ Petition in the
High Court of Madhya Pradesh challenging the aforesaid order but the High Court
dismissed the Writ Petition without entering into merits by observing that
there was an alternate remedy available to the petitioners under the Act. Hence
the appeal by special leave.
Dismissing the appeal, the Court, ^
HELD : 1. A summary dismissal of the Writ
Petition on the specious plea of availability of alternate remedy without
considering and pronouncing upon the merits of the contentions raised by the
parties, in this case, is not justified, in as much as (a) the order passed by
the Commissioner of Sales Tax was clearly binding on the assessing authority
under section 42B(2); (b) although technically it would have been open to the
appallants to urge their contentions before the appellate authoring , that would
be a mere exercise in futility when a superior officer namely, the
Commissioner, has already passed a well considered order in the exercise of his
statutory jurisdiction under sub- section (1) of section 42-B of the Act
holding that 21 varieties of the compressed woollen felt manufactured by the
appellants are not eligible for exemption under Entry 6 of Schedule I of the
Act; and (c) a substantial 241 portlon of the tas has to be deposited before an
appeal or revision can be flled as required by seetion 38(3) of the Act. [ 246
C-H; 247 A]
2. The legal position is now well settled
that words of everyday use occurring in a dashing statute nust be construed not
ia thelr scientific or technical sense but as understood in common parlance
that is in their popular sense. [ 247 C-Dl In order to attract the benefit of
exemption conferred by Entry 6 of Schedule I of the Act the goods must fall
within the description "all varieties of cloth". Going by the meanlng
glven in Dictionaries as well as by its generally accepted popular ConnotatiQn
"cloth" is woven knitted or felted material which is pliable and is
capable of being wrapped folded or wound around. It need not necessarlly be
uaterlal w ltable for maklng garments because there can be "cloth"
sultable oaly for industrial purposes but nevertheless it must possess the
basic feature of pliability. Hard and thlck material which csnnot be wrapped or
wound around cannot be regarded as "cloth". Therefore only those
varieties of felt manufactured by the appellahts which satisfy the test of
pliablllq will constitute "cloth" so as to fall within the scope of
Entry 6 of Schedule I of the Act. [247 A-B; C-G 248 D-E] Grenfell v. Inland
Revenue Commissioners [1876] 1 Ex.
D. 242 at 248; 200 Cheata of Tea [1824] 9
Wheaton (U.S.) 430 at 438; Motipur Zselodsry Co. Ltt. v. State of Bihar [1962]
13 S.T.C. 1 S.C.; State of West Bengal v. Washi Ahmed [1977] 39 S.T.C. 378 S.C.
referred to.
Porritts snd Spenoer (Aais) Ltd. v. State of
Haryana [1978] 42 S.T.C. 433 S.C. and Union of India and Ors. v.
Gujrat Woollen Felt Mills [1977] 3 S.C.R. 472
esplalnet and distingushed.
3. The princlple of equltable estoppel is not
attractet in the instant case in as much as only one specimen of felt had been
forwarded by the appellants to the Commissioner of Sales Tax along wlth thelr
letter tited March 25 1971 ant lt was only in relation to thaL single specinen
of felt that the Commissioner had expressed the view that it was exempt under
Entry 6 of Schedule I of lts letter dated 242 August 7, 1971, while froo the
saoples protuced later on it was found that the appellants are rsnufacturing as
many as 26 tifferent varieties of coopresset woollen felt of varying hardness,
density and thickness out of which only 5 were eligible for exeoption. [249 E-H;
250 A-B]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
8548 of 1983.
From the Judgment & Order dated 31.3.83
of the Madhya Pradesh High Court in Misc. Petition No. 298 of 1983.
P. Govindan Nair, S.K. Gambhir for the
Appellants.
A.K. Sanghi for the Respondents.
The Judgment of the Court wa3 delivered by
BALAKRISHNA ERADI, J. The short but interesting question that arises for our
consideration in this appeal by special leave is whether the Compressed Woollen
Felts manufactured in the samll-scale industry unit of the appellants can be
said to constitute "cloth" so as to fall within the scope of Entry 6
of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958 (for short 'the
Act'), which is in the following terms:- "All varieties of Cloth manufactured
in mills or on powerlooms or handlooms including processed cloth, but excluding
hessian cloth" - so as to eligible for exemption of sales tax under
Section lO of the said Act.
The process of manufacture of 'felt' adopted
in the appellants' factory has been described in the order of the Coroissioner
of Sales Tax dated January 25, 1983. the raw material consisting of woollen
fibres is first mixed thoroughly and thereafter carded on a carding machine,
which process results in the laying of the fibres in a combed condition in a
uniform direction. me combed fibres in the shape of a web layer are then
subjected to the process of hardening in a machine having an eccentric motion;
the carded webs &re put through two layers of cloth and passed through a steam
chest. m is results in the web/wool layer being converted in the form of a
sheet, which is then subjected to 243 the process of milling to impart to it
necessary tensile strength and shrinkage. For this purpose, the sheet is put in
a machine, which has two rows of contra-rotating rollers to provlde the
necessary felting action to the sheet. The sheets run in the machine till the
desired shrinkage and density are achleved. After this the sheet is dried and
trimmed at the ends and thereafter subjected to the process of calendering and
for this purpose it is passed through steam heated contrarotating rollers. me
resultant product is 'felt'.
From the above description it is clear that
the woollen felt manufactured by the appellants is a material obtained by compressing
woollen fibres and subjecting the same to heat and moisture. It is a non-woven
material.
On March 25, 1971, the appellants addressed a
communicatlon to the Commissioner of Sales Tax forwarding a specimen of the
felt manufactured in their factory and requesting that the same may be treated
as exempt from tax under Entry 6 of Schedule I.
In reply thereto the Commissioner of Sales
Tax sent the following communication (Annexure I) to the appellants:-
"OFFICE OF THE SALES TAX COMMISSIONER MADHYA PRADESH NO.Wick/F/32/71/12317
Indore, dated 7.8.1971 To Filterco Garden 51, Neemuch (Madhya Pradesh).
Sir, With reference to your letter dated
25.3.1971, it is stated thae specimen of felt submitted by you, being woollen
fabric, is exempt under M.P. General Sales Tax Act, 1958, under Entry 6 of its
Schedule I.
Yours faithfully, Sd/- (N.K. PILLAI)
Additional Commissioner for Commissioner of Sales Tax Madhya Pradesh".
244 It is common ground that apparently on
the basis of the said letter of the Commissioner of Sales Tax, the turnover of
the appellants pertsining to the sales of compressed woollen felt was not
subjected to tax during the period from 1971 to 1982.
While matters stood thus, the Commissioner of
Sales Tax, Madhya Pradesh issued the following letter (Annexure II) to the
appellants on March 4, 1982:- "OFFICE OF THE COMMISSIONER SALES TAX MADHYA
PRADESH No.ST/I-310/24(b)79/2872 Indore. dt. 4.3.1982 To M/s Filterco, Garden
51, Neemuch (MP) Sub:- Lew of sales tax on compressed woollen Felt.
In view of the judgment given by the Supreme
Court in the case of M/s Gujarat Woollen Mills (A.I.R.- 1977-1548 SC) that the
compressed woollen felts are not "woollen fabrics", Compressed
Woollen Felt manufactured by you will not be exempt under entry 6 of Schedule I
of the M.P. General Sales Act, 1958 but will be covered under entry 1 of Part
VI of Schedule II appended to the said Act, and will attract tax @ 10%.
Clarification given to you in this office
letter No.I/26/32/71-12317, dated 7.8.1971 is hereby cancelled.
Yours faithfully, Sd/- Asstt. Commissioner
(Tech) for Commissioner of Sales Tax Madhya Pradesh." 245 Feeling
aggrieved by the revised stand taken by the Commissioner of Sales Tax that the
felt manufactured in the appellants factory is not eliglble for exemption and
will attract tax at lO%, the appellants filed an application before the
Commissioner of Sales Tax under Section 42-B of the Act for a determination of
the question of taxability of the goods in question. Section 42-B is in the
following terms:- "Section 42-B. Deter in tion of diaputed question
1. If any question is raised by a dealer in
respect of the rate o tax on any goods, the Commissioner shall, in accordance
with such procedure as may be prescribed, make an order determining the rate of
tax on such goods.
2. Any order passed by the Commissioner under
subsection (1) shall be binding on the authorities referred to in Section 3 in
all proceedings under the Act except appeals." The appellants produced
before the Commissioner as many as 26 samples of felt of varying hardness,
density and thickness along with a statement showing details of each sample.
After affording full hearing to the appellants, the Commissioner of Sales Tax
passed an order dated January 25, 1983 expressing the view that though the
expression "cloth" will take in non-woven material inclusive of
'felt', pliability is an essentlal attribute of "cloth" and only
those varieties of felt manufactured by the appellants which satisfy the-test
of pliability can be legitimately classified as "cloth". Applying the
said test, the Commissioner held that only 5 out of the 26 specimens produced
by the appellants namely, those marked by the Co d ssioner as A-1, A-2, A-3,
A-4 and A-19 could be classified as "cloth" and granted exemption
from tax under Entry 6 of Schedule I of the Act and that the remaining 21
samples would not fall within the scope of the said entrY and are, therefore,
taxable at the rate of lO%.
The appellants filed a Writ Petition in the
High Court of Madhya Pradesh challenging the aforesaid order passed by the
Commissioner in so far as it went against them. The High Court dismissed the
Writ Petition without entering into the merits by stating thus:- 246 "It
is not the case of the petitioners that in passing the impugned order, the
Commissioner, therefore has acted contrary to the procedure pres cribed by the
Act or the Rules made thereunder.
The petitioners having referred the dispute
to the Commissioner, he had jurisdiction to pass the impugned order. At this
stage, we refrain from expressing any opinion regarding the correctness of the
impugned order because that order would not be binding on the appellate
authorities under the Act, which would, no doubt, examine the question afresh
if raised before them by the petitioners.
If the petitioners are aggrieved by the
decision of the appellate authorities, a reference to this Court under Section
44 of the Act can be made. As a remedy is available to the petitioners under
the Act, it is not necessary to invoke the extraorti nary powers of this Court
under Articles 226 and 227 of the Constitution of India." Aggrieved by the
said decision of the High Court the appellants have filed this appeal after
obtaining special leave.
We are of opinion that the High Court should
have examined the merits of the case instead of dismissing the Writ Petition in
limine in the manner it has done. The order passed by the Commissioner of Sales
Tax was clearly binding ol the assessing authority under Section 42B(2) and
although technically it would have been open to the appellants to urge their
contentions before the appellate authority namely, the Appellate Assistant
Commissioner, that would be a mere exercise in futility when a superior officer
namely, the Commissioner, has already passed a well considered order in the
exercise of his statutory jurisdlction under sub- section (1) of Section 42-B
of the Act holding that 21 varieties of the compressed woollen felt
manufactured by the appellants are not eligible for exemption under Entry 6 of
Schedule I of the Act. Further Section 38(3) of the Act requires that a
substantial portion of the tax has to be deposited before an appeal or revision
can be filed. In such circumstances we consider that the High Court ought to
have considered and pronounced upon the merits 247 of the contentions raised by
the parties and the summary dismissal of the Writ Petition was not justified.
In such a situation, although we would have, ordinarily, set aside the judgment
of the High Court and remitted the case to that Court for fresh disposal, we
consider that in the present case it would be in the interests of both sides to
have the matter finally decided by this Court at the present stage itself
especially since we have had the benefit of elaborate and learned arguments
addressed by the counsel appearing on both sides.
In order to attract the benefit of the
exemption conferred by Entry 6 of Schedule I of the Act, the goods must fall
within the description "all varieties of cloth".
The legal position is now well settled that
words of everyday use occurring in a taxing statute must be construed not in
their scientific or technical sense but as understood in common parlance, that
is, in their "popular sense". As succinctly stated by Pollock, B., in
Grenfell v. Inland Revenue Commissioners, [1876] 1 Ex.D. 242 at 248, "if a
statute contains language which is capable of being construed in a popular
sense, such ' a statute is not to be construed according to the strict or
technical meaning of the language contained in it, but is to be construed in
its popular sense, meaning of course, by the words "popular sense",
that sense which people conversant with the subject- matter with which the
statute is dealing would attribute to it"'. The same principle was
expressed in a slightly different language by Story J., in 200 Chests of Tea,
[1824] 9 Wheaton (U.S.) 430 at 438, where the learned Judge said that "the
particular words used by the legislature in the denomination of articles are to
be understood according to the common commercial understanding of the terms
used, and not in their scientific or technical sense, 'for the legislature does
not suppose our merchants to be naturalists, or geologists, or
botanists"'. m is Court has reiterated the said position in Motipur
Zamindary Company Ltd. v. State of Bihar, (1962) 13 S.T.C. 1 (S.C.), State of
West Bengal v. Washi Abmed, (1977) 39 S.T.C. 378 (S.C.) and Porrltts and
Spencer (Aala) Ltd, v. State of Hhryana, (1978) 42 S.T.C. 433 (S.C.).
According to Oxford English Dictionary -
"cloth means- 248 "A piece of pliable woven or felted stuff, suitable
for wrapping or winding around, spreading or folding over, drying, wiping or
other purpose;
a swaddling or winding cloth, wrap, covering,
veil, curtain, handkerchief, towel etc." . . . . .
(underlining ours) In Web fiter's New
International Dictionary "cloth" is stated to mean:- "A pliable
fabric, woven, felted or knitted from any filament, commonly fabric or woven
cotton, woollen, silk, rayon or linen fabric, used for garments etc.
(underlining ours) Going by the meaning given
in Dictionaries as well as by its generally accepted popular connotation
"cloth" is woven, knitted or felted material which is pliable and is
capable of being wrapped, folded or wound around. It need not necessarily be material
suitable for making garments because there can be "cloth" suitable
only for industrial purpose; but nevertheless it must possess the basic feature
of pliability. Hard and thick material which cannot be wrapped or wound around
cannot be regarded as "cloth". We are, therefore, of opinion that the
Commissioner was perfectly right in his view that only those varieties of felt
manufactured by the appellants which satisfy the test of pliability will
constitute "cloth" so as to fall within the scope of Entry 6 of
Schedule I of the Act.
Counsel for the appellants submitted before
us that there is a conflict between this Court's decisions in Pbrritts aod
Spencer (Asia) Ltd. v. State of Haryaos (supra) and the earlier ruling of this
Court in Unioo of India and Ors. v. Gujarat Woollen Felt Mills, [1977] 3 S.C.R.
472. We see no conflict at all between these two decisions. However, neither of
those rulings is of any assistance in deciding the present case though both of
them dealt with certain varieties of 'felt'. In the Gujarat Woollen Felt Mills
case, the questlon before this Court was whether non-woven felts manufactured
out of woollen fibres by machine-pressing were "woollen fabrics" for
the purpose of levy of excise duty under entry 21 in Schedule I to the Central
Excises and Salt Act, 1944. It was 249 held that the expression
"fabric" took in only woven material and hence non-woven felts made
out of woollen fibers were not "woollen fabrics".
The question that arose before this Court in
the subsequent case - Porritts and Spencer (Asia) Ltd. v. State of Haryana
(supra) was wholly different. In that case it was contended that 'dryer felts'
made out of cotton or woollen yarn by the process of weaving according to the
wrap and woof pattern and commonly used as absorbents of moisture in paper
manufacturing units fell within the ordinary and common parlance sense of the
word "textiles" in item 30 of Schedule to the Punjab General Sales
Tax Act, 1948 and were, therefore, exempt from tax. Upholding the said
contention this Court held that expression "textiles" interpreted
according to its popular sense has only one meaning, namely a woven fabric and
since the dryer felts were manufactured out of cotton, woollen or synthetic
yarn by the process of weaving according to the wrap and woof pattern, they
were undoubtedly "textiles" within the meaning of that expression in
item 30 of Schedule B. The subject matter of the case before us being
admittedly felt manufactured by a totally different process and the wording of
the Entry 6 in Schedule I of the statute, with which we are concerned being
also wholly different, these two decisions are of no assistance to us.
Counsel appearing on behalf of the appellants
relied strongly on the letter of the Commissioner of Sales Tax dated August 7,
1971 - Annexure I and sought to invoke to the principle of equitable estoppel
as debarring the respondents from contending that the goods in question are
ineligible for the benefit of the exemption conferred by Entry 6 of Schedule I.
We do not find it possible to uphold this contention. It is seen from the
appellants' letter dated August 7, 1971, which we have extracted above that
only one specimen of felt had been forwarded by the appellants to the
Commissioner of Sales Tax along with their letter dated March 25, 1971 and it
was only in relation to that single specimen of felt that the Commissioner had
expressed the view that it was exempt under Entry 6 of Schedule I. From the
samples produced in this case it is found that the appellants are manufacturing
as many as 26 different varieties of compressed woollen felt of varying
hardness, density and thickness. There is absolutely no 250 material on the
record to show which out of these 26 varieties was sent as specimen to the
Commissioner in 1971.
In these circumstances the principle of
equitable estoppel is not attracted.
In the light of the foregoing discussion, we
hold that the view taken by the Commissioner of Sales Tax in his order dated
January 25, 1983 is perfectly legal and correct and the said order does not
call for any interference.
However, before we part with the case we may
observe that having regard to the fact that the appellants industry is one in
the small-scale sector and the appellants appear to have been lulled into a
false sense of security by the impression gathered by them from the
Commissioner's letter dated August 7, 1971 that the 'felt' manufactured in
their factory is not liable to tax by reason of which impression the appellants
had desisted from collecting any sales tax from the customers during the period
between 1971 and January, 1983, this is a fit case where the State Government
should sympathetically consider the question whether the whole or at least a
substantial portion of the sales tax payable in respect of the turnover of the
goods during the aforesaid period should not be waived for the sake of saving
the industry from financial ruination. With these observations, we dismiss this
appeal but direct the parties to bear their respective costs.
S.R. Appeal dismissed.
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