Karnataka Commercial Corporation vs State of Karnataka

Mohan, C.J.—The facts leading to the Writ Appeals are as follows:-

The appellants are dealers of various items of goods, namely, (a) coated cotton fabric leather cloth, (b) coated rayon fabric leather cloth, (c) flocked fabric, (d) canvas fabric and (e) foam bonded fabric. The coated cotton fabric leather cloth is popularly known as PVC leather cloth or PVC rexine cloth. In the course of their trade the appellants have effected entry of PVC leather cloth into local area of Bangalore from outside the local area.

Section 3(1) of the Karnataka Tax on Entry of Goods into Local Area for Consumption, Use or Sale Therein Act, 1979 (hereinafter referred to as the Entry Tax Act) provides for levy and collection of tax on entry of scheduled goods into local area for consumption, use or sale therein. As to what are Scheduled Goods is defined in Section 2(7) of the Entry Tax Act. The Schedule to the Entry Tax Act, specifies the various items of commodities on which the entry tax is sought to be levied and collected. The relevant entry is Entry No. 1. On and with effect from 1-10-1980, Entry No. 1 of the Schedule to the Act reads as under:-

"All varieties of textiles namely; cotton, woollen or artificial silk (including rayon or nylon) whether manufactured in mills, power-looms or handlooms and hosiery cloth in lengths but excluding khadi, cotton handlooms fabrics, silk fabrics and artificial silk handloom fabrics."

However, this Entry was amended on 1-4-1983 which reads thus:-

"All varieties of textiles namely; cotton, woollen or artificial silk (including rayon or nylon and other man-made or synthetic fabrics) manufactured in mills or powerlooms and hosiery cloth in lengths."

The Entry Tax Officer made demands for payment of entry tax on PVC leather cloth also known as PVC Rexine cloth. This was on the ground that PVC rexine leather cloth or rexine cloth is textile and as such it would be exigible to entry tax under Entry No. 1. Accordingly, notices were issued proposing to bring the transactions to tax within the purview of Entry No. 1. They were challenged before this Court in W.P.Nos.3252/1981 and 5162/1981. However, during the pendency of these Writ Petitions a Division Bench of this Court considered the question whether PVC leather cloth would fall within the definition of textile since the process of manufacture of PVC leather cloth is not that of weaving as in the case of textile. Accordingly, this Court declared that the attempt of Entry Tax Officer to levy entry tax on PVC leather cloth or PVC rexine cloth was without jurisdiction. Applying the said decision Writ Petitions filed by the appellants came to be allowed.

While the matter stood thus, the Entry Tax Act was amended by Act 9/1990. By that amendment the Schedule to the Principal Act, was amended by Section 3 of the Amendment Act. The relevant portion of the amendment is as below:-

"AMENDMENT OF THE SCHEDULE - In the Schedule to the Principal Act -

i) For Serial Number 1 and the entries relating thereto, the following shall be and shall be deemed always to have been substituted, namely;

-"All varieties of textiles namely, cotton (including cotton Fabrics coated with or impregnated with PVC or Cellulose derivatives), woollen or artificial silk (including rayon or nylon and other man-made or synthetic fabrics), manufactured in mills or powerlooms and hosiery cloth in lengths."

The amendment was also made retrospective. Based on this amending Act, proposals were made to tax the transaction in relation to PVC rexine cloth. Objecting to the said proposal the appellants filed Writ Petitions challenging the constitutional validity of the Karnataka Act No. 9/1990. This was in W.P.No. 784/1991 and connected petitions. The learned Judge came to the conclusion that what was not originally textile had come to be included by reason of the amendment, and that the proposal was valid. He also discountenanced the plea that the Entry Tax was opposed to Article 304B of the Constitution of India. In the result, he dismissed the Writ Petitions. It is under these circumstances the Writ Appeals have come to be preferred.

Sri S.G. Sundaraswamy, learned Senior Counsel would urge if he may say so with justification that notwithstanding the amendment neither PVC rexine cloth nor PVC rexine leather cloth could ever be considered to be cloth at all. No doubt the definition of textile had come to be enlarged by amending the definition, namely, Entry No. 1. However, still unless and until it is held that this variety of textile is found to be manufactured in mills or powerlooms it cannot be made exigible to entry tax. irrespective of other contentions the appellants are entitled to succeed on this score.

In meeting this argument the learned Government Advocate would submit the present definition of textile is a inclusive definition. Therefore, the moment that inclusive definition says that cotton fabrics coated with or impregnated with PVC or cellulose derivatives, straightaway the tax should be attracted. There is no necessity to bring any further qualification that manufactured in mills or powerlooms. In other words that qualification is independent of the inclusive definition,

We have given our careful consideration to the above arguments. We have already extracted the relevant portion of Section 3 of the Amendment Act, in the earlier part of our Judgment. To our mind it appears that cotton fabrics Coated with or impregnated with cellulose derivatives could not be normally called textiles. Therefore, that definition came to be enlarged stating "including cotton fabrics coated with or impregnated with PVC or Cellulose derivatives." In other words the inclusion is by reason of the words occurring in the first half of the Entry within brackets. However, the definition does not stop there. It goes on to deal with woollen or artificial silk. In stating as to what artificial silk would mean there again an inclusive definition is thought of. This is clear from the words occurring within brackets in the latter half of the definition to the effect:- "Including rayon or nylon and other man-made or synthetic fabrics". All varieties of textiles are comprehended within the definition to all these varieties. There is a further important qualification, namely, manufactured in mills or powerlooms. Therefore, as rightly urged by Sri Sundaraswamy, learned Counsel for the appellants, this qualification satisfies straightaway it cannot be concluded by reason of the inclusive definition with reference to cotton fabrics coated with or impregnated with PVC or cellulose derivatives, that it is exigible to tax. The learned single Judge in dealing with this aspect has observed thus:-

"4. Further, it is urged by the learned Counsel for the petitioner that is not that PVC cloth not being made either in mills or powerlooms, could not fall within the Entry-I. But when the legislature included the item of goods to fall within that Entry, it is unnecessary go behind that and find out whether it is manufactured in a particular manner or not and thereafter to say whether it falls within the Entry or not. The aspect of the matter has been in great detail considered by the Supreme Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others, and it is noted that the purpose of enumeration of goods in a statute would indicate the types of goods each of which would constitute a separate category for purpose of Taxation. In that view of the matter, I do not think there is any infirmity insofar as curing the defect pointed out by this Court in the earlier Judgment."

With great respect we are unable to accept this line of reasoning. It is well settled that an interpretation beneficial to the assessee must be adopted. But we need not go even to this extent. On a plain reading of Entry as amended, we find no scope whatever to bring this PVC cloth within the definition of Entry-I unless and until the qualification, namely, manufactured in powerlooms is satisfied. Therefore, we reject the argument advanced on behalf of the State. In the view we have taken we do not consider it necessary to deal with other points which were raised before the learned Judge. They are left open to be decided in any further proceedings that may arise between the parties. Though what was asked for was prohibition, if pending Writ Petitions or Writ Appeals, any orders of assessment have been passed they will stand quashed in view of the aforesaid observations.

In the result, Writ Appeals stand allowed and the Orders of the learned single Judge set aside. However, there shall be no orders as to costs.