Dupattas Made Of Woven Fabric Exempt From Tax As Fibres Under TNVAT Act: Madras High Court
The Madras High Court on 7 October held that dupattas made of woven fabric fall under the exemption for textile fabrics under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006, and cannot be classified as fibres for taxation.
A Division Bench comprising Justices Anita Sumanth and K. Rajasekar allowed three tax case revisions filed by Vedant Fashions Pvt. Ltd., and set aside the 4% tax levy on dupattas for the assessment years 2009-10, 2010-11 and 2011-12. The judges held:
“A dupatta cannot, by any stretch of imagination, fall into an Entry encompassing only fibres as it comprises woven fabric.”
The dispute arose after the Assessing Authority rejected Vedant Fashions' claim for exemption and imposed tax at 4% on its dupattas. The Appellate Assistant Commissioner upheld the assessments and classified the goods under Entry 49 of Part B of the First Schedule, which covers fibres of all types and their waste, subject to specified exceptions. The Sales Tax Appellate Tribunal subsequently affirmed the classification and tax levy through orders dated 30 November 2018.
The tax authorities also reasoned that a dupatta was integrally connected with readymade garments, such as a chudidar or salwar kameez, and could not be treated as a separate fabric. After the Tribunal upheld the assessments for all three years, Vedant Fashions approached the High Court.
The Court noted that the original assessment orders did not specify the entry under which the authorities taxed the dupattas. Although the appellate authorities relied on Entry 49, the Court held that the entry covered fibres and their waste, whereas a dupatta comprised woven fabric.
Further, it observed that if the Department intended to classify dupattas as readymade garments, it should have relied on Entry 115 of Part B of the First Schedule, which covers readymade garments. However, the Department had consistently relied on Entry 49 and had not advanced that classification.
Rejecting the Department's argument that a dupatta differed from fabric because it had a specific length, unlike fabric sold in unlimited lengths, the Bench held that the distinction lacked merit. It observed that classification must place goods under the entry that most appropriately describes them, considering their functionality and appearance.
It also held that Entries 3 to 10 of Part A of the Fourth Schedule, which cover different categories of woven fabrics, including silk, wool, cotton and synthetic fabrics, were the appropriate entries for classifying dupattas made from such materials.
Relying on the Supreme Court's decision in Bharat Forge & Press Industries (P) Ltd. v. Collector of Central Excise, Baroda, the judges reiterated that authorities can invoke a residuary entry only when goods do not fall under any other applicable entry. Applying this principle, they held that dupattas made of woven fabric fell under the specific entries for textile fabrics rather than Entry 49.
Accordingly, the High Court allowed all three tax case revisions in favour of Vedant Fashions and set aside the disputed classification, making no order as to costs.
For Petitioner: Mrs. Radhika Chandrasekar, Advocate
For Respondent: Mr. I. Dinesh, AGP (Taxes)