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Judgment
Justice K. Vinod Chandran
The Revenue has filed the above revisions, raising an issue of classification of one commodity dealt with by the assessee being "cotton yarn in hanks". The assessee/respondent is a dealer in Cotton Yarn, Readymade and Textiles. The assessments completed for the years 2006-07 and 2007-08 were challenged unsuccessfully by the assessee before the first appellate authority. On second appeal, the Appellate Tribunal having accepted the classification adopted by the assessee, found the product to be coming within the exempted goods enumerated in the First Schedule. The issue of classification arises with respect to the "cotton yarn" dealt with by the assessee. The relevant entries, being entry 14 of First Schedule and entry 143(6) of the Third Schedule of the Kerala Value Added Tax Act (hereinafter referred to as "the Act"), have been extracted in the Tribunal''s order. Entry 14 of the First Schedule contains the description "cotton and silk yarn in hank" and does not contain any HSN Code. Entry 143 of the Third Schedule deals with "yarn of all kinds other than cotton and silk yarn in hank and sewing thread", while clause (6) thereof specifically deals with cotton yarn, (a) ''containing 85% or more by weight of cotton'' and (b) ''containing less than 85% by weight of cotton''. While the First Schedule enumerates the exempted goods, the Third Schedule levies tax at 4%.
The assessee filed returns, contending that the commodity sold by them falls under the First Schedule and thus claimed the same to be exempted from tax. The assessee contended before the assessing officer as also the appellate authorities that the yarn in hanks were purchased by them and sold as such to handloom weavers for being used in weaving. The assessing officer, however, found that entry 14 of the First Schedule refers to only cotton and silk yarn in hank form, and sub-entries (6) and (7) of entry 143 of Third Schedule refers to cotton and silk yarn containing less than and more than 85% by weight of cotton and held the commodity of the assessee to be covered under entry 143(6) of the Third Schedule. The purchase bill produced by the dealer was said to contain the HSN Code - "5205.11" and the entry under 143(6)(a) also was noticed as containing HSN Code "5205" and on that premise the commodity was classified under Schedule-III and tax demanded at the rate of 4%.
The Appellate Tribunal extracted the entries and examined the same with reference to the Rules of Interpretation of the Schedules in the Appendix to the Act and found that the product dealt with by the assessee is "cotton yarn in hanks'' coming within the First Schedule of exempted goods. The Appellate Tribunal also had the benefit of examining the product which was produced before them and also relied on the invoices of the supplier in Tamil Nadu showing that the goods supplied are "cotton yarn in hanks".
The learned Government Pleader would take us to the Rules of Interpretation of Schedules and contend that since the bill shows the HSN Code "5205.11" and entry 143(6)(a) of the Third Schedule also shows the HSN Code "5205", the commodity can only be held to be falling under entry 143(6)((a) of Third Schedule and taxable at 4%. The learned Government Pleader also would urge before us that but for a single invoice nothing was produced by the assessee to support the claim of the assessee and that the particular commodity dealt with cannot be on that solitary evidence be said to come within the exempted goods.
It is settled law that the burden of showing correct classification lies on the Revenue. When the Revenue disputes the claim of the assessee regarding the classification of a commodity, then it is for the Revenue to establish the same by sufficient materials. In the instant case, the Revenue has not produced any material to show that the commodity falls within the Third Schedule. The Revenue does not have a case that it had conducted any inspection in the premises of the assessee or had recovered or detected any material to classify the commodity under entry 143(6)(a) of the Third Schedule.
Be that as it may, even going by the Rules of Interpretation of Schedules, we notice that under guideline vi.8 clarification is provided as under:
"8. Entry 14 of the First Schedule means only cotton and silk yarn in hank form and does not include goods given under sub-entries (6) and (7) of entry 143 of Third Schedule" Obviously what was intended was to exclude "cotton and silk yarn in hank" from the general entry 143(6) of the Third Schedule and include the same in the First Schedule as exempted goods. The dictionary meaning of "hank" is "a long piece of wool, thread, rope, etc. that is wound into a large loose ball". The commodity dealt with by the assessee would definitely answer the description under entry 143(6)(a) of the Third Schedule and irrespective of the percentage composition of cotton, when the same is sold in the form of "hank" or as "large loose balls", the same is specifically taken out from the said entry and included in the exempted goods under the First Schedule. There cannot be any other finding or conclusion going by the specific words of the entry as also the findings of fact of the Tribunal.
The other contention with respect to HSN Code has to be looked at with specific reference to the commodity covered under HSN Code "5205.11" in the Customs Tariff Act. The Customs Tariff Act shows the commodity:Tariff Item Description of goods Unit Rate of duty Standard Preferential area 5205 Cotton yarn (other than sewing thread), containing 85% or more by weight of cotton, not put up for retail sale - Single yarn, of uncombed fibres: 5205 11 -- Measuring 714.29 decitex or more (not exceeding 14 metric number):
As noticed earlier, the commodity is definitely one included under the said HSN Code, as is revealed from the Customs Tariff Act as also entry 143(6)(a) of the Third Schedule to the Kerala Value Added Tax Act. But the legislature had intended that when such commodity is sold in "hanks" or in the "form of hanks", the same should be included in the entry of exempted goods under the First Schedule. Entry 14 of the First Schedule to the Act would demonstrate that both cotton and silk under different HSN Codes under the Customs Tariff Act are specifically exempted by the said entry; when the same is sold in hanks and the absence of HSN Code against the entry is due to the fact that cotton and silk are given different HSN Codes under the Customs Tariff Act. In commodity taxation, the Court necessarily has to be guided by the manner of classification of the goods which are brought to tax on the background of the intendment of the Legislature. On the above findings, we are of the view that the order of the Tribunal is unassailable and the claim of the assessee is very much in accordance with the entries in the Schedule and the same is to be sustained. The questions of law raised by the Revenue, hence, has to be answered against the Revenue and in favour of the assessee and both the revisions are rejected in limine.