The Madras High Court has held that dupattas fall within the entries covering exempt fabrics under the Tamil Nadu Value Added Tax Act, 2006, rejecting their classification as taxable fibres. The Court allowed three tax revision cases challenging the levy of 4% VAT for the assessment years 2009–10 to 2011–12.
The Bench of Justice Dr. Anita Sumanth and Justice K. Rajasekar ruled that a dupatta comprises woven fabric and cannot be brought within an entry covering fibres. It also rejected the State’s argument that a dupatta should be distinguished from fabric because it has a specified length.
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The dispute arose from assessments against M/s. Vedant Fashions Pvt. Ltd. concerning the classification of dupattas sold during the relevant assessment years.
Following pre-assessment notices issued on July 5, 2013, the assessing authority passed assessment orders on January 2, 2014, imposing tax at 4%. The company had claimed exemption under Part A of the Fourth Schedule to the TNVAT Act.
The High Court observed that the assessment orders were cryptic. Although the assessing authority rejected the exemption claimed by the company, it did not identify the competing statutory entry under which the goods were taxable.
The Appellate Assistant Commissioner subsequently upheld the assessments through orders dated July 24, 2014, classifying the goods under Entry 49 of Part B of the First Schedule, which concerns fibres. The Tamil Nadu Sales Tax Appellate Tribunal affirmed the classification and the levy on November 30, 2018.
The reasoning underlying the assessments was that a dupatta could be worn only with a main garment, such as a churidar or salwar kameez, and could not be sold separately. The authorities also proceeded on the basis that it could not be used as fabric capable of being lined or embellished with beads, embroidery or similar work.
The company challenged these findings before the High Court through tax revision cases filed under Section 60 of the TNVAT Act.
The Bench framed substantial questions of law concerning whether the Tribunal was justified in treating a dupatta as integrally connected with readymade garments and whether it could be classified under the taxable entry for fibres instead of the exemption entries in Part A of the Fourth Schedule.
Entry 49 of Part B of the First Schedule covers fibres of all types and their waste, other than those specified in the Fourth Schedule.
The Court found that this description could not accommodate a dupatta, which is made of woven fabric.
“A dupatta cannot, by any stretch of imagination, fall into an Entry encompassing only fibres as it comprises woven fabric,” the Bench observed.
It consequently held that the authorities’ approach suffered from a fundamental flaw and rejected the basis on which the assessments had been sustained.
The Court also identified an inconsistency in the Department’s position. If the authorities intended to treat dupattas as readymade garments, the relevant entry would have been Entry 115 of Part B of the First Schedule. However, that had never been the Department’s classification case; both appellate authorities had consistently relied on Entry 49 relating to fibres.
On behalf of the State, the Additional Government Pleader argued that a dupatta differed from fabric because it had a specific length, whereas fabric was available as yardage of unlimited length.
The Bench rejected that distinction.
It explained that classification requires goods to be placed under the entry that most appropriately describes them, taking their functionality and appearance into account.
The company had claimed exemption under Entries 3 to 10 of Part A of the Fourth Schedule, depending on the material comprising the dupatta. These entries cover various fabrics, including silk, wool, cotton, synthetic and artificial fabrics, as well as specified other textile fabrics.
On a plain reading of those provisions, the Court concluded that they were the appropriate entries for dupattas made from different materials.
The Bench relied on the Supreme Court’s decision in Bharat Forge & Press Industries (P) Ltd. v. Collector of Central Excise, Baroda, reported in 84 STC 414.
That case concerned whether pipe fittings fell within the entry for pipes and tubes or under a residuary entry. The Supreme Court held that pipe fittings were covered by the entry for pipes and tubes, explaining that a residuary entry applies only where an article cannot be covered by another entry in the schedule.
Applying that reasoning, the High Court held that a dupatta, being primarily fabric, falls within the fabric entries under Entries 3 to 10 of Part A of the Fourth Schedule.
The High Court answered the substantial questions of law in favour of the company and allowed all three tax revision cases without costs.
The ruling rejects the 4% VAT classification sustained by the authorities and recognises the applicability of the exemption entries for fabrics to the dupattas in dispute. The decision concerns the TNVAT Act and the assessment years before the Court.
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