Narayan Venkat and Co. Vs. State of Andhra Pradesh - Court Judgment

S. Obul Reddy, C.J.

1. The facts leading to these two tax revision cases are these : The assessee, a firm known as 'M/s. Narayan Venkat & Company' is a waste-paper dealer. The disputed turnover of Rs. 44,690.30 relates to the sales of cloth rags under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as 'the Act'). The other disputed turnover of Rs. 74,864.79 relates to the sales of cotton rags under the Central Sales Tax Act. These two disputed turnovers pertain to the assessment year 1972-73. The only question that is raised and arises in these two cases is, whether cotton rags come within the definition of 'Cotton Fabrics' in Item 5 of the Fourth Schedule to the Act. The plea of the petitioner that they come within the definition of 'cotton fabrics' was negatived by all the lower authorities. Hence these two tax revision cases under Section 22 of the Act. To determine the question involved it is necessary to notice Item 5 of the Fourth Schedule to the Act. It reads thus :

' FOURTH SCHEDULE

(Goods exempted from tax under Section 8)

* * * *5. Cotton fabrics, rayon or artificial silk fabrics and woollen fabrics.

* * * *Explanation. - The expressions in Items 5, 6 and 7 shall have the same meanings assigned to them in the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957)...'.

Under the Central Excises and Salt Act, Item 19 of the First Schedule, 'cotton fabrics' mean 'all varieties of fabrics manufactured either wholly or partly from cotton and include dhoties, sarees, chadars, bed-sheets, bed-spreads, counter-panes and table-cloths but do not include any such fabric....

(a) if it contains 40 per cent or more by weight of wool;

(b) if it contains 40 per cent or more by weight of silk; or

(c) if it contains 60 per cent or more by weight of rayon or artificial silk.'

Mr. P. Venkatrama Reddy, the learned counsel appearing for the petitioner, relying upon the definition of 'cotton fabrics' contends that the rags in question come squarely within the meaning of 'cotton fabrics' and, therefore, the turnover relating to rags is exempt from sales tax under both the Acts. Mr. D.V. Sastry, appearing for the respondent, contends that the rags with which we are concerned are not rags which have freshly come out of the mill but are rags of used or worn out cloth and, therefore, they belong to a different category exigible to tax under the provisions of Section 5(1) of the Andhra'Pradesh General Sales Tax Act.

2. It is not in dispute that agents of the petitioner go round and collect cotton rags from tailor shops and from housewives and the material so collected is sold by the petitioner to paper-mills for manufacture of paper. According to Mr. Sastry, when once cotton fabrics come out of the mill and undergo the process of tailoring, or are used by people, they cease to be cotton fabrics. We are unable to agree with Mr. Sastry that merely because the rags are collected from tailor shops or from households they become something different from 'cotton fabrics'. The rags with which we are concerned have not ceased to be cotton fabrics merely because they. have gone through the tailoring process, or have come out of the torn dhoties, sarees, shirts and the like. It cannot be disputed that the rags are fabrics and they have been manufactured from cotton. What is necessary to make 'cotton fabrics' is the manufacture of all varieties of fabrics wholly or partly from cotton, as stated in Item 19, referred to supra. The fact that subsequently cotton fabrics become rags will not make any difference and a rag will not cease to be a cotton fabric. A rag, no doubt, cannot be used as a dhoti, or a saree, or a chadar, or as a bed-sheet but, nevertheless, it is a cotton fabric.

3. Mr. D.V. Sastry sought to differentiate between a rag which comes freshly from a mill and a rag which comes out after undergoing the tailoring process or after use by people. We do not think that any such distinction can be drawn in so long as a rag does not cease to be a cotton fabric. Merely because there is fading of the colour of a fabric, or there is a change in its size, it cannot be anything other than a cotton fabric, in other words, a mill-made cloth. It does not change the nature or the character of the product, viz., the cotton fabric. The rags are pieces of cloth of varying sizes, some used and some unused, and some rags may be there because of manufacturing defects. It would appear from the order of the Appellate Tribunal that the Board of Revenue had addressed a letter to M/s. Azam Jahi Mills Ltd., Hyderabad, informing the mills that 'chindies' manufactured by them are not taxable under the provisions of the Act, with effect from 14th December, 1957. The Tribunal, however, sought to draw a distinction between 'chindies' and 'rags'. According to the Tribunal, chindies are manufactured as such by the mills, whereas rags are the result of fabrics being used or cut to varying sizes which are left out as of no use by tailors. The question is not whether a cotton fabric has changed hands, and in what form or shape it is ultimately sold, but whether a rag comes within the definition or meaning of a cotton fabric. Rags are of several varieties. They may consist of defectively manufactured cloth by the mills and sold as such, cloth left out after tailoring, used cotton fabrics in households such as torn bed-sheets, sarees, pillow-cases, table-cloths, wearing apparels, etc. If defective fabrics of varying sizes manufactured by the mills come within the meaning of 'cotton fabrics' there is no reason why bits of cloth (cotton fabrics) found in a tailor shop, or torn or used cloth material in the households should be left out of the meaning of 'Cotton fabrics'. The question is not in what shape a cotton fabric ultimately appears, or to what use the cloth has been put, or whether the cloth is still useful for garments or for other household use, but whether it is manufactured out of cotton, as stated in Item 19, referred to supra. The High Court of Bombay in Punjab B. & S. Company Private Ltd. v. State of Maharashtra, (1979) 39 S.T.C. 386 had expressed an identical view that 'merely because cloth is sold in pieces and not in the form of takas or bales manufactured by the mills it does not cease to be manufactured cloth or cotton fabrics. Therefore, although rags and chindies are pieces of irregular shapes and sizes, it cannot be said that they are not manufactured cloth. Rags and chindies also do not cease to be manufactured cloth, merely because the purchaser put them to use as raw material for making paper or paper products...'. The fact that the rags in question are meant for the paper-mills makes no difference so long as they come within the meaning of 'cotton fabrics' as defined in Item 19 of the First Schedule to the Central Excises and Salt Act.

4. We, therefore, set aside the impugned orders and allow these tax revision cases with costs. Advocate's fee Rs. 200/- in each.