The Andhra Pradesh High Court ruled that emery cloth qualifies as cotton-coated fabric and therefore should be exempt from taxation.

The bench, consisting of Justice Ravi Nath Tilhari and Justice Harinath Nunepally, has affirmed the Tribunal's decision, stating that emery cloth falls under Item-59.03 of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Consequently, it is exempted under the Fourth Schedule to the APGST Act because it is subject to additional duties of excise according to the Additional Duties Act.

The court concluded that emery cloth qualifies as cotton-coated fabric and should therefore be exempt from taxation. Concerning the taxation of tarpaulins, the Appellate Tribunal determined that tarpaulins with a waterproof base made of cloth are classified as cotton fabrics under item-5 of the Fourth Schedule to the APGST Act.

The respondent is a taxpayer registered under the Commercial Tax Officer, Kurupam Market, Visakhapatnam, and engaged in the trading of hardware, electrical goods, pipes, and similar items. The Commercial Tax Officer, Kurupam Market, Visakhapatnam, conducted the final assessment of the taxpayer for the fiscal years 1994-95 under the provisions of the Andhra Pradesh General Sales Tax Act (APGST Act) in Assessment No. 881/94–95.

The Assessing Authority categorized the turnover associated with the sale of emery cloth as an unclassified item and imposed tax accordingly under the Seventh Schedule to the APGST Act. Additionally, it evaluated the turnover linked to the sales of tarpaulins and imposed tax at a rate of 9%, considering it covered by item-174 of the First Schedule to the APGST Act.

The assessee filed an appeal, which was partially dismissed, partially remanded, and partially allowed by the Appellate Deputy Commissioner, Kakinada. Regarding emery cloth, the contention of the assessee was rejected, with the ruling stating that the commodity should not be classified as cotton fabric.

The appeal concerning this item was dismissed. However, regarding other items like tarpaulins, the assessee's claim was partially accepted, leading to a reduction in the tax rate to 4%. As for the remaining items addressed in the appellate order, there are no disputes raised in the current petition.

The Appellate Tribunal framed the issue to determine whether the initial sales of emery cloth and tarpaulins are not subject to taxation under the APGST Act. It concluded that tarpaulin, akin to rexine cloth, falls under item-174 and is treated similarly to rexine cloth, which was deemed entirely exempt from taxation.

The department lodged a revision petition challenging the tribunal's decision.

The department argued that emery cloth, being embedded with sand, cannot be considered as cloth. They emphasized that emery cloth serves the purpose of polishing wood and other items, rendering the cloth itself insignificant and of no value. Regarding tarpaulin, since it falls under item No. 174 of the First Schedule, the department asserted that it is subject to taxation and was appropriately taxed at 4% by the Deputy Commissioner. The department contended that the Appellate Tribunal overstepped its bounds by intervening in the Deputy Commissioner's decision.

Section 3 of the Additional Duties Act 1957 serves as the charging section, outlining the imposition and collection of additional duties on goods listed in the First Schedule of the Act at the prescribed rates. It clarifies that the headings, sub-headings, and chapters mentioned within the Schedule refer to the corresponding headings, sub-headings, and chapters in the schedule of the Central Excise Tariff Act 1985.

Section 5 of the APGST Act mandates that every dealer must pay tax based on the amount of their turnover at the rates outlined in the schedule attached to the Act. On the other hand, Section 6 pertains to the sales tax on declared goods and stipulates that it should be paid at the rates specified in the Third Schedule of the Act. Furthermore, it facilitates the reimbursement of tax in instances of interstate sales where tax has already been paid under the Central Sales Act 1956.

The court observed that according to the ruling of the Appellate Tribunal, emery cloth fell under item-59.03 and was exempted from taxation because it was subject to additional duties of excise under the Additional Duties of Excise (Goods of Special Importance) Act 1957.

The court found no irregularity in the decision of the Appellate Tribunal. There was no basis for intervention since the Tribunal neither neglected to address any legal issue nor made any erroneous legal determinations.

The court dismissed the Tax Revision Case filed by the department.

Counsel For Petitioner: S. A. V. Sai Kumar

Counsel For Respondent: A. Sarveswara Rao

Case Title: The State of Andhra Pradesh Versus Mohsin Brothers

Case No.: Tax Revision Case No. 168 Of 2003