State Taxation Tribunal - Tamil Nadu
Hindustan Paper Products vs Commercial Tax Officer-Ii on 23 September, 2003
Equivalent citations: [2004]135STC365(TRIBUNAL)
ORDER O.M. Chandrasekar, Member (J)
1. The prayer in the Original Petition No. 569 of 2003 is to quash the revised order of assessment dated March 13, 2003 made in TNGST No. 6060579/1999-2000, wherein the respondent has assessed the transactions in respect of sale of paper cones against form XVII, under Section 3(2) of the TNGST Act, 1959 under entry 76, Part B of the First Schedule to the TNGST Act at four per cent. The petitioner claims that the sale of paper cones to spinning mills for winding of yarn on it, is eligible for concessional levy at three per cent as packing material. Against this impugned order, the petitioner has also preferred an appeal and the same is pending.
2. The prayer in the Original Petition No. 649 of 2003 is to quash the order of assessment made in TNGST No. 2020320/2001-2002 dated May 16, 2003, wherein the respondent has assessed the transactions pertaining to sale of paper cones against form XVII, under Section 3(2) of the TNGST Act at four per cent. In this case also, the petitioner claims that the sale of paper cones to spinning mills for winding of yarn on it, is eligible for concessional levy at three per cent as packing material.
3. Since the question involved in these cases are common and arguments have been advanced by both the counsels in common, the original petitions are disposed of by this common order.
4. With reference to the O.P. No. 649 of 2003, the learned counsel for the petitioner argued that the petitioner is engaged in the manufacture and sale of paper cones and paper tubes and they are used by the textile mills to wind the yarn as a primary packing material. Paper cone is essential to hold the yarn wound on it and sold in the cone form only and paper tube is used by the paper mills for rolling the paper and by the pump manufacturer for packing submersible pumps. Paper cones were sold as packing materials taxable at the concessional rate of 3 per cent under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959 against issue of form XVII. Earlier, by notification issued in G.O.P. No. 1316 dated October 7, 1988, the tax payable on the sale of textile machinery spares, which included cones and tubes, was reduced from eight per cent to four per cent and this was also clarified by the Commissioner of Commercial Taxes in his clarification dated November 19, 1990. Subsequently, the paper cones were treated as packing materials in the clarifications issued on October 8, 1992, January 25, 1993, December 3, 1996 and March 27, 1997. With reference to the notification issued on October 7, 1988, this Special Tribunal has already decided the similar issue in T.C. (A). No. 18 of 1996 dated September 17, 1996 (Lena Paper Tubes and Cones v. State of Tamil Nadu) that paper cones were to be treated as textile machinery spares entitled to concessional levy at four per cent, as there was no restriction in the said Government notification to treat metallic cones alone as parts of textile machinery, as held by the Joint Commissioner in that case. A further appeal to the Supreme Court by the State was also dismissed on August 4, 1997. ([1997] 107 STC (Journal) 3). But, in the clarification issued on January 10, 2002, paper cones were clarified by the Commissioner as textile machinery spare parts taxable at four per cent, falling under entry 76 in Part B of the First Schedule to the TNGST Act. In such circumstances, when the petitioner is claiming concessional levy at three per cent under Section 3(3) of the TNTST Act on the sale of paper cones to the spinning mills as primary packing materials for their use in the manufacture of yarn wound on it, against issue of form XVII, based on the earlier various clarifications issued by the Commissioner of Commercial Taxes that paper cones would be the packing materials eligible for concessional levy, the respondent has passed the impugned assessment order treating the paper cones sold to spinning mills against issue of form XVII as parts of textile machinery liable to tax at four per cent under Section 3(2) of the Act read with entry 76, Part B of the First Schedule to the Act.
5. The learned counsel for the petitioner, referring to the decision reported in Kunhayammed v. State of Kerala [2000] 119 STC 505 (SC) ; [2000] 245 ITR 360, further argued that where the order of the Supreme Court was a non-speaking order, all that it meant was that the Supreme Court was not inclined to exercise its discretion so as to allow the appeal being filed and no declaration of law flows from the order of the Supreme Court dated August 4, 1997 ([1997] 107 STC (Journal) 3) and, therefore, the order of this Special Tribunal in T.C. (A). No. 18 of 1996 dated September 17, 1996 requires to be reconsidered with regard to correct rate of taxation on the ground that paper cones are used as and when yarn is to be wound and as such, the placing of this paper cones over a metallic cone does not per se become an accessory or a component of a textile machinery.
6. The learned Government Advocate argued supporting the stand taken by the authorities that the "paper cones" would be classified as spares of textile machinery under entry 76, Part B of the First Schedule to the TNGST Act taxable at 4 per cent under Section 3(2) of the Act.
7. I heard the rival contentions and perused the records. On seeing the decision of this Special Tribunal in T.C. (A) No. 18 of 1996 dated September 17, 1996, I could see that the controversy in that case that paper cones and tubes manufactured and sold to textile mills would attract concessional levy of four per cent or at the rate of eight per cent, was only with reference to the Notification in G.O. P. No. 1316 dated October 7, 1988. A perusal of the said notification dated October 7, 1988 shows that reduction in rate of tax from eight per cent was ordered in respect of tax payable by any dealer on the sale of textile machinery spares listed therein and the textile spares mentioned therein included cones and tubes also. Therefore, based on the notification dated October 7, 1988 which includes cones and tubes as textile spares, on September 17, 1996, this Special Tribunal made the following order allowing concessional levy for paper cones and tubes also : (see at page 364 supra) "Having considered the rival submission, it is held that since 'cones and tubes' have been included in the notification granting concession and there is no restriction that the cones and tubes should be made of metals or that the cones and tubes should be made permanently embedded in the machinery, there is no justification for agreeing with the conclusion of the Joint Commissioner that metallic cones and tubes alone will be eligible for concessional rate of tax and not paper cones and tubes. The order of the Joint Commissioner is set aside and order of the Appellate Assistant Commissioner is restored."
8. Subsequently, the State's special leave petition to appeal against the judgment and order dated September 17, 1996 of this Special Tribunal in T.C. (A) No. 18 of 1996 was dismissed by the Supreme Court on August 4, 1997 without expressing any opinion on the said judgment. It was later clarified by the Special Commissioner and Commissioner of Commercial Taxes in D. Dis. Acts Cell-II/65807/ 2001 dated January 10, 2002, See [2002] 125 STC (Journal) 41, Sl. No. 19 (Clarification No. 7 of 2002) that the sale of new paper cones to spinning mills is liable to tax at four per cent vide entry No. 76 in Part B of the First Schedule to the TNGST Act, 1959. Further, it was clarified in D. Dis. Acts Cell-II/59861/2002 dated December 3, 2002 See [2003] 130 STC (Journal) 10, Sl. No. 20 (Clarification No. 318 of 2002) that paper cones are taxable as textile machinery spares at four per cent from July 17, 1996, the date of inception of the entry in the Schedule, due to dismissal of State's Special Leave Petition by the Supreme Court. Based on the above decisions and the clarifications, the sale transactions of the petitioner in respect of sale of paper cones and tubes to spinning mills for winding yarn on it, were subjected to tax at four per cent under entry 76, Part B of the First Schedule to the TNGST Act, which reads as "textile machinery, parts and accessories thereof. But, the petitioner says that paper cones are used for packing of yarn only, that for using paper cones as textile machinery spares, it could not be sold without functional capability as a textile machinery, that paper cone as such are placed over a metallic cone holder which is attached to a cone lever and with every winding of yarn in the cone to the desired length, the wound up yarn on the paper cone is taken out of the cone holder for sale in this packed condition, that winding is nothing but packing the yarn for sale in the market and the cone loses its shape and usage once the yarn is taken out of the cone, that placing of the paper cones over a metallic cone does not per se become an accessory or a component of a textile machinery and because of this, the petitioner is eligible for concessional levy at three per cent under Section 3(3) of the TNGST Act as packing material. Therefore, the decision of this Special Tribunal in T.C. (A). No. 18 of 1996 dated September 17, 1996, which was issued based on the Notification in G.O.P. No. 1316 dated October 7, 1988, requires reconsideration by this Special Tribunal with reference to the present entry 76, Part B of the First Schedule to the TNGST Act.
9. Since this Special Tribunal had already dealt with the paper cones and tubes only with reference to the notification issued in G.O.P. No. 1316 dated October 7, 1988, in T.C. (A). No. 18 of 1996 dated September 17, 1996 and no general discussion was made as to whether paper cones and tubes used in the spinning mills to wind yarn on it would fall as textile machinery spares or packing material, now, the petitioner has made out a case for reconsideration of the issue and the question for consideration by this Special Tribunal is whether the "paper cones and tubes" sold to spinning mills for winding yarn on it, are "parts and accessories of textile machinery" taxable at four per cent as per entry 76, Part B of the First Schedule to the TNGST Act or "packing material" entitling concessional levy at three per cent under Section 3(3) of the TNGST Act, as claimed by the petitioner.
10. To find out whether the paper cones and tubes utilised for winding yarn on it and sale of such yarn with paper cones and tubes, would fall as parts and accessories of textile machinery, I referred to the dictionary meaning of "part" and "accessory", which are :
The Concise Oxford Dictionary--Ninth Edition Part--".........3. a component of a machine, etc. (spare parts ;
needs a new part), ......."
Accessory--"1. an additional or extra thing. 2.(usu.in pl.) a, a small attachment or fitting. .......... adj. additional, contributing or aiding in a minor way ; dispensable......"
Longman Dictionary of Contemporary English--New Edition--1998 Part--"Machine/Object--One of the separate pieces that something such as a machine, object, etc., is made of : I've glued it back together, but this part won't fit properly. (They send you the parts and you build it yourself.) Spare part (=kept for when a part breaks, needs replacing, etc.)"
Accessory--"Something that you add to a machine, tool, car, etc., so that it can do other things or in order to make it look attractive: Accessories include a CD player and alloy wheels......"
11. As the learned counsel for the petitioner argued that as soon as winding of yarn in the cone to the desired length is over, the wound up yarn on the paper cone is taken out of the cone holder for sale, I could come to a conclusion from the dictionary meaning of the words "part and accessory" given in the above dictionaries that paper cones and tubes used in the spinning mills for winding yarn on it and sale of such yarn with paper cones and tubes, are neither parts of the textile machinery nor accessories of the textile machinery, since paper cones and tubes are neither components nor attachment or fitting to the textile machinery.
12. The contention of the learned counsel for the petitioner that the paper cones and tubes are packing material, is also not accepted. In common parlance, to pack means to pack a thing or that the thing should be wrapped or tied together for carrying. So, to become a packing material, the material should be used for packing a thing or wrapping a thing. But, in the present case, yarn is the main product and that is not wrapped or tied or packed with the paper cones supplied by the petitioner, but yarn is wound on paper cones properly to the required size, so that yarn is not clustered and the same is sold in the market. In that context, paper cones and tubes are also not a packing material for the yarn.
13. To ascertain the correct rate of tax on the paper cones and tubes sold to spinning mills for its use, I referred to the provisions in Section 3. The relevant Section 3(3) of the TNGST Act, 1959 reads as under :
"(3) Notwithstanding anything contained in Sub-section (2), but subject to the provisions of Sub-section (1), the tax payable by a dealer in respect of sale of any goods including consumables, packing material and labels, but excluding plant and machinery, to another dealer for use by the latter in the manufacture, and assembling, packing or labelling in connection with such manufacture inside the State, for sale by him of any goods other than ethyl alcohol, absolute alcohol, methyl alcohol, rectified spirit, neutral spirit and denatured spirit, goods falling under Part A of the Third Schedule, goods falling under item 1 of the Sixth Schedule and arrack, shall be at the rate of only three per cent on the turnover relating to such sale :.........."
A careful reading of the above provision shows that emphasis has to be made for the words, "in respect of sale of any goods including consumables, packing material and labels, but excluding plant and machinery" and "in connection with such manufacture inside the State". In this case, paper cones and tubes have been sold to the spinning mills in connection with manufacture of yarn by the spinning mills inside the State for sale by him. The wordings "sale of any goods" do not restrict the sale so as to include only consumables, packing material and labels, but extend to any goods which are used in connection with manufacture and the exception is only with respect to plant and machinery. In the spinning mills, the process of manufacture of yarn would be complete only when the yarn is wound on paper cones and tubes to the required size, otherwise, yarn in clusters would be of no help to buyers. Therefore, if the paper cones and tubes are sold to spinning mills for use by the spinning mills in manufacture of yarn, by the process of winding yarn on the paper cones and tubes, for sale by the spinning mills, then the sale of paper cones and tubes to the spinning mills are said to be in connection with manufacture inside the State and the tax payable by the seller of any goods (paper cones and tubes) shall be at the rate of only three per cent on the turnover relating to such sale. However, the "metallic cones" fitted to the textile machinery would be a component of the textile machinery or part or accessory of the textile machinery and that would fall under entry 76, Part B of the First Schedule to the TNGST Act. The question of considering the paper cones and tubes as machinery and to treat the transaction as falling under Section 3(5) of the Act, as argued by the learned counsel for the petitioner, would not arise.
14. Therefore, I have no hesitation to hold that "paper cones and tubes" sold by the petitioner to spinning mills for use by the spinning mills in manufacture of yarn, by the process of winding yarn on the paper cones and tubes supplied by the petitioner for sale, would neither be "parts and accessories" of textile machinery to fall under entry 76, Part B of the First Schedule to the TNGST Act nor a packing material as claimed by the petitioner, but to classify the "paper cones and tubes" as falling under caption "any goods" used in connection with manufacture inside the State under Section 3(3) of the TNGST Act, entitling three per cent concessional levy.
15. In this view of the matter, both the impugned orders levying tax at four per cent on the sale of paper cones and tubes to spinning mills against form XVII, are set aside the matter is remitted back to the respondent/assessing authority for redoing the assessment afresh. With respect to other levies, it is open to the petitioners to contend before the appropriate appellate forums on receipt of the revised orders of assessment from the respondent.
16. In fine, both the original petitions are disposed of as above. Consequently, the stay petitions in O.M.P. Nos. 580 and 664 of 2003 do not survive.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 23rd day of September, 2003.