- Bookmark
- Share
- CaseIQ
British India Corporation Ltd. v. Commissioner Of Sales Tax, U.P
Structured Summary of the Opinion (R.M. Sahai, J.)
Factual and Procedural Background
This revision was filed under section 11 of the Sales Tax Act. The revision raises two specific questions of law: (a) whether the assessee is a dealer in respect of canteen sales made during the year 1973–74 amounting to Rs. 26,647.52 and whether those sales are taxable in its hands; and (b) whether sale of cardigans and pullovers by the assessee during 1973–74 amounting to Rs. 20,14,654.48 is taxable as sale at 3% or as sale of woollen goods at 6%.
The assessee is the Cawnpore Woollen Mills Branch, Kanpur, a branch of British India Corporation, which manufactures woollen goods including cardigans and pullovers. It also maintains a canteen as a labour welfare activity under section 46 of the Factories Act, 1948 read with rule 68 of the U.P. Factories Rules.
The Additional Judge (Revisions) held that (i) canteen sales are sales within the meaning of the Sales Tax Act and the assessee was a dealer liable to pay tax (relying on Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer), and (ii) cardigans and sweaters were taxable at 6% as woollen goods (relying on Ram Lal's decision). Both these findings were challenged in the present revision.
Legal Issues Presented
- Whether, in the facts and circumstances of the case, the assessee is a dealer in respect of the canteen sales made during the year 1973–74 (Rs. 26,647.52) and whether those sales are taxable in its hands.
- Whether, in the facts and circumstances of the case, the sale of cardigans and pullovers by the assessee during the period 1973–74 (Rs. 20,14,654.48) is taxable in the hands of the assessee as sale at 3% or as sale of woollen goods at 6%.
Arguments of the Parties
Assessee's (Appellant's) Arguments
- Canteen sales should not be treated as taxable sales attracting dealer status because such canteen activity is a labour welfare measure maintained under section 46 of the Factories Act, 1948 and rule 68 of the U.P. Factories Rules.
- Cardigans and pullovers are taxable as hosiery under Notification No. ST-334 dated 15th November, 1971. The assessee urged reconsideration of Ram Lal's decision (1969 Law Diary 41) and argued that hosiery should be understood by the dictionary meaning (i.e., knitted garments) and by the test of manufacture (knitted goods), not the narrower test of being "worn next to skin".
- It was further pointed out that Notification No. 1281-A dated 1st October, 1961 included woollen hosiery in woollen goods, which indicated that one category was treated separately from the other and therefore the proper interpretative approach was needed.
- Reliance was placed on Porritts and Spencer v. State of Haryana (Supreme Court) which applied the test of manufacture and treated certain textiles as exempt — suggesting the manufacture/knitting test was appropriate.
Revenue / Lower Authority Position (as reflected in the opinion)
- The Additional Judge (Revisions) held that canteen sales constituted sales within the meaning of the Sales Tax Act, making the assessee a dealer liable to pay tax; this view relied on Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer (1964).
- The Additional Judge held that cardigans and sweaters were taxable as woollen goods at the higher rate (6%), adopting the approach in Ram Lal's case (1969 Law Diary 41) which applied a "worn next to skin" test (based in part on the Hindi version of earlier notifications).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer [1964] 15 STC 505 | Previously relied upon to treat canteen sales as taxable (supporting characterization of canteen sales as sales within Sales Tax Act). | The Additional Judge had relied on this decision to hold canteen sales taxable; the present Court notes that this authority was later overruled by a Full Bench and thus the reliance was displaced. |
| Fertilizer Corporation of India Ltd. v. Commissioner of Sales Tax [1981] 48 STC 531 (FB) : 1980 UPTC 1 (FB) | Full Bench decision overruling Swadeshi Cotton Mills and holding canteen sales exempt and that the assessee cannot be considered a dealer for such canteen sales. | The court applied and followed this Full Bench ruling to conclude that the assessee's canteen sales were not taxable and that the assessee was not a dealer on that account. |
| Ram Lal's case 1969 Law Diary 41 | Adopted the "worn next to skin" test (in part due to the Hindi wording of a notification) and treated certain garments as hosiery confined to underclothing, socks, etc.; used to tax cardigans/pullovers as woollen goods rather than hosiery. | The court considered Ram Lal's approach but declined to follow its narrow interpretation in the present case, distinguishing the notifications then in force and relying on a broader understanding of "hosiery". |
| Porritts and Spencer v. State of Haryana [1978] 42 STC 433 (SC) : (1979) 1 SCC 82 : AIR 1979 SC 300 : 1979 UPTC 866 (SC) | Affirmed that entries in sales tax should be understood in popular parlance; applied the test of manufacture (textile/dry felt held exempt as textile by applying manufacture test). | The assessee's counsel relied on this Supreme Court authority to urge the adoption of the manufacture/knitting test for hosiery; the court cited it as supportive of considering manufacture in understanding tax entries. |
| Jaipur Hosiery Mills v. State of Rajasthan [1967] 19 STC 416 | Held that "hosiery" means machine-knitted garments (a wider meaning of hosiery). | The court cited this Rajasthan High Court view as an authority supporting a broader meaning of the term "hosiery". |
| Commissioner Of Sales Tax, Lucknow v. Verma Hosiery, Rakabganj, Lucknow [1972] 30 STC 606 : 1972 UPTC 258 | Considered items (mufflers and topas) that satisfied both "worn next to skin" and knitted-goods tests and treated them as hosiery; Bench was inclined to accept the extended meaning of hosiery as knitted goods. | The court noted Verma Hosiery as showing a judicial inclination towards a broader, knitted-goods meaning of hosiery but observed that case did not fully decide the wider question because the items satisfied both tests. |
Court's Reasoning and Analysis
The court examined two separate points (canteen sales; classification of cardigans/pullovers) and analysed them on textual, historical and purposive bases.
Canteen sales:
- The court observed that a Full Bench of the Court in Fertilizer Corporation of India Ltd. v. Commissioner of Sales Tax had overruled Swadeshi Cotton Mills (on which the Additional Judge relied) and had held that canteen sales are exempt from payment of tax and that the assessee cannot be considered to be a dealer on that account. On this basis the court concluded that canteen sales were not taxable and the assessee was not a dealer in respect of those canteen sales.
Cardigans and pullovers — classification as hosiery or woollen goods:
- The court commenced with dictionary and encyclopaedic definitions of "hosiery" (Webster's Third New International Dictionary; Mercury Dictionary of Textile Terms; Encyclopaedia Britannica; New Universal Encyclopaedia) and found that the term in common usage is broad and essentially denotes knitted goods — not confined to underclothing. The basic common characteristic identified was that hosiery articles are knitted.
-
The court reviewed the historical pattern of statutory notifications (from 1948 onwards) dealing with woollen goods and hosiery. The notifications showed shifting formulations, but one consistent feature was that "hosiery" was treated as a distinct entry for tax purposes rather than simply being subsumed by "woollen goods":
- 1948 Notification No. 117: entries included both "woollen goods and knitting wool" and "hosiery of all kinds".
- 1956 Hindi notification (ST-905) used words such as "moze, baniyain" alongside "hosiery".
- 1961 Notification No. 1281 substituted wording to refer to "hosiery of all kinds other than woollen hosiery", and Notification No. 1281-A on the same date included "woollen hosiery" within the woollen goods entry.
- 1962 modifications (ST-4562): adjustments to which hosiery was covered.
- 1969 Notification No. 3613 (1 July 1969) excluded hosiery from woollen goods again; subsequent 1971 notifications continued hosiery as an independent entry (with a separate notification ST-334 dated 15 Nov 1971 specifying hosiery of all kinds other than pure cotton).
- The court observed that in Ram Lal's case (1969) this Court relied heavily on the Hindi formulation that included specific words for "moze" and "baniyain" and adopted a "worn next to skin" test for hosiery; however, the court in the present case noted that later notifications reverted to using the word "hosiery" broadly (including in Hindi) and that Ram Lal omitted to consider that the Hindi notifications also employed the word "hosiery" alongside the specific items.
- Considering the dictionaries and the notifications together, the court determined that the word "hosiery" in the notifications should be understood in its wider sense — encompassing knitted garments generally — and not confined to underclothing next to the skin.
- Applying this wider meaning, the court held that sweaters, cardigans and pullovers (which are manufactured by knitting) fall within the entry "hosiery" and are therefore not to be treated as woollen goods for the purposes of the notifications then in force.
- The court also noted supporting authority (Jaipur Hosiery Mills and Verma Hosiery) where courts had taken a wider meaning of hosiery or had been inclined to do so; and it acknowledged Porritts and Spencer as authority for applying manufacture-based considerations in tax classification.
Holding and Implications
The revision succeeds and is allowed. The specific legal conclusions are:
- Canteen sales were not taxable as the assessee was not a dealer.
- Cardigans and sweaters were not taxable as woollen goods but are to be classified as hosiery.
Consequences and immediate effects on the parties:
- The assessee's challenge to the Additional Judge's findings was allowed.
- The assessee is entitled to its costs assessed at Rs. 300.
- The fee of the standing counsel is assessed at Rs. 100.
Broader implications as discussed in the opinion: the court concluded that the term "hosiery" in the relevant notifications should be understood in the wider sense of knitted articles. The opinion relied on a Full Bench decision to displace earlier authority (Swadeshi Cotton Mills) as regards canteen sales. The court did not expressly state that it was laying down a binding new precedent for all future cases but did resolve the legal questions for the purposes of this revision by adopting the broader meaning of "hosiery" and by following the Full Bench authority on canteen sales.
Source: Opinion by R.M. Sahai, J. (as provided). This summary reproduces only the information contained in the provided opinion and does not add any external facts or inferences beyond that text.
R.M Sahai, J.:— In this revision filed under section 11 of the Sales Tax Act, the following questions of law have been raised:
“(a) Whether, in the facts and circumstances of the case, the assessee is a dealer in respect of the canteen sales made by it during the year 1973-74 amounting to Rs. 26,647.52 and as such these are taxable in its hands?
(b) Whether, in the facts and circumstances of the case, the sale of cardigans and pullovers by the assessee during the period 1973-74 amounting to Rs. 20,14,654.48 is taxable in the hands of the assessee as sale at 3 per cent or as sale of woollen goods at 6 per cent?”
2. The assessee, Cawnpore Woollen Mills Branch, Kanpur, one of the branches of British India Corporation, manufactures woollen goods and yarn, etc., woollen cardigans and pullovers. It also maintains a canteen as a measure of labour welfare activity under section 46 of the Factories Act, 1948, read with rule 68 of the U.P Factories Rules. It has been held by the Additional Judge (Revisions) that canteen sales are sales within the meaning of the Sales Tax Act and the assessee was a dealer liable to pay tax. Reliance for this proposition was placed on Swadeshi Cotton Mills Co. Ltd. v. Sales Tax Officer [1964] 15 STC 505. In respect of cardigans and sweaters it was held that they were taxable at 6 per cent as held in Ram Lai and v. Commissioner of Sales Tax 1969 Law Diary 41.
3. Both these findings have been challenged. So far as canteen sales are concerned suffice it to say that in Fertilizer Corporation of India Ltd. v. Commissioner of Sales Tax [1981] 48 STC 531 (FB) : 1980 UPTC 1 (FB), a Full Bench of this Court has overruled Swadeshi Cotton Mills [1964] 15 STC 505 and has held that such sales are exempt from payment of tax and the assessee cannot be considered to be a dealer.
4. As regards cardigans and sweaters the learned counsel urged that they were taxable as hosiery under Notification No. ST-334 dated 15th November, 1971. He pleaded for reconsideration of Ram Lal's decision 1969 Law Diary 41 on the strength of the dictionary meaning of hosiery. It was also urged that woollen hosiery was included in woollen goods by Notification No. 1281-A dated 1st October, 1961. This indicated that one was not part of the other and but for inclusion it would not have been taxable as woollen goods. The learned counsel pleaded for adopting test of manufacture to decide whether sweaters and cardigans were hosiery or not instead of “worn next to skin” as laid down in Ram Lal's case 1969 Law Diary 41. It was urged that in Porritts and Spencer v. State of Haryana [1978] 42 STC 433 (SC) : (1979) 1 SCC 82 : AIR 1979 SC 300 : 1979 UPTC 866 (SC), the Supreme Court while reiterating the principle that entries in sales tax should be understood in popular parlance yet held dryer felt to be exempt being textile applying the test of manufacture. According to the learned counsel sweaters and cardigans are manufactured by knitting and as knitted goods are considered to be hosiery they should be held to be taxable as hosiery.
5. In Webster's Third New International Dictionary “hosiery” has been defined:
“Hose which in its turn has been defined as cloth leg covering that reaches down to the ankle and sometimes covers the foot: stockings, socks. In Britain/it is applied to additional knitwear.”
6. “Mercury Dictionary of Textile Terms” published by Textiles Mercury Limited, Manchester, describe hosiery thus:
“(Hosiery Nonneterrie, French), —Hose originally denoted a pair of close fitting breaches reaching to the knee. The application of the term to garments covering the legs below the knee was later when power driven machinery created a great trade in knitted goods and a general term being desired, the/word ‘hosiery’ was adopted. The hosiery department today includes jerseys, knickers, bathing costumes, coats, sports-wear combinations, pants, vests, gloves, waist-coats, sports-wear as well as socks and stockings. The term ‘knitted texture’ is more descriptive.”
7. In Encyclopaedia Britannica the history of hosiery has been traced and it is pointed out that:
“Hosiery is covering for the feet and legs designed to be worn inside the shoes and other outer foot coverings.”
8. Then it is pointed out:
“that the term is so understood in most countries particularly United States of. America, but in Great Britain it is taken to include machine-knitted garments of all types (vide page 740, Vol. II).”
9. The New Universal Encyclopaedia, Vol. 5, defines “hosiery” as under:
“Knitted goods of all kinds In addition to hose, knitted coats, sweaters, jerseys, gloves, necktie, caps, shawls and waist coats”
10. According to the dictionary the meaning of the word “hosiery”, therefore, is quite extensive. It applies as much to upperclothing as to underclothing. The basic characteristic however is that it should be knitted.
11. In Ram Lal's case 1969 Law Diary 41 this Court accepted the test of “worn next to skin” mainly because of the Hindi version of Notification No. ST-905 dated 31st March, 1956. It was held:
“The admitted case of the parties is that whereas the reduced rate for woollen hosiery is one paisa per rupee, for the woollen goods, it is one anna per rupee. In the Hindi notification, entry No. 17 reads: (sabhi prakar ke moje va baniyain addi).
12. The question requiring consideration is whether woollen pullovers and woollen cardigans would fall in the category of woollen goods or in the category of hosiery. The word “hosiery” has been given the following meaning in Shorter Oxford English Dictionary:
“Hose collectively, extended to the whole class of goods in which a hosier deals, the business of hosier and factory where hose is woven.”
13. The meaning given to the word “hosiery” in the same dictionary is, one who makes or deals in hose (stocking and socks) and underclothing generally. It is therefore indicated that hosiery means underwear or underclothing or socks, etc. The words “moje va baniyain addi” in the notification show that what is covered by entry No. 17 are articles of the nature of underwear or those next to skin. A cardigan is used almost as a coat and so is a pullover. They are not used next to skin. In common parlance and in business terminology cardigans and pullovers are treated as woollen goods and not as hosiery. Their essential mature is different from underwear, socks, banian, etc., and they conform more to entry No. 46 where the Hindi words used are:
“Uni saman jiske antargat kalinen nahi hain lekin bunne ka oon hai.”
14. In our opinion, therefore, the pullovers and the cardigans should be treated as woollen goods and not as a woollen hosiery. If knitting wool is considered to be woollen goods and not an article, i.e, cardigans or pullovers would not more appropriately fall under entry No. 46 as woollen goods rather than as hosiery under entry No. 17.
15. The Rajasthan High Court on the other hand in Jaipur Hosiery Mills v. State of Rajasthan [1967] 19 STC 416 held that hosiery means machine knitted garments. The question again arose before this Court in Commissioner Of Sales Tax, Lucknow v. Verma Hosiery, Rakabganj, Lucknow [1972] 30 STC 606 : 1972 UPTC 258 and it was held that as mufflers and topas satisfied both tests they were hosiery.
16. The question is whether hosiery under the Sales Tax Act should be understood in wider sense of being applicable to knitted goods of all kinds as held by the Rajasthan High Court or it should be confined to underclothing, socks and stocking only as held by this Court in Ram Lal's case 1969 Law Diary 41. This necessitates an examination of notifications issued from time to time as in such circumstances the legislature's intent discerned from these notifications can be the best guide.
17. The first Notification No. 117 was issued on 8th June, 1948, under section 3-A and entries 3 and 4 read as under:
“3. Woollen goods and knitting wool.
4. Hosiery of all kinds.”
18. In Hindi the entry read as under:
“3. Uooni mal aur hath se bunney ka uoon.
4. Sab prakar ke hosiery.”
19. In 1956 the Hindi notification of hosiery in ST-905 dated 1st April, 1956, read.:
“Sabhi prakar ke mose, baniyain, hosiery, aadi.”
20. The entry in respect of hosiery continued except for change of rate and point of tax till 1961 when by Notification No. 1281 dated 1st October, 1961, the entry was substituted and it read in English and Hindi as under:
“Hosiery of all kinds other than woollen hosiery.”
“Upyukt vigyapat mey shabd ‘yeoparyon’ tatha ‘shabd sabhi prakar’ ke beech mey shabd ‘uooni chizon se baney’ rakh diya jay.”
21. By Notification No. 1281-A issued on the same date woollen hosiery was included in woollen goods. The entry read:
“Woollen goods excluding carpets but including knitting wool, woollen hosiery and readymade garments made out of woollen cloth.”
22. In 1962 Notification No. 1973 dated 30th June, 1959, modified by ST-1281 dated 1st October, 1961, was superseded by Notification No. 4562 dated 1st October, 1962, and it was provided that turnover in respect of hosiery made of pure cotton or silk shall be taxable at one naya paisa per rupee at all points of sale.
23. Notification No. 1281-A was modified by ST-4562 dated 1st October 1962, as under:
“Woollen goods excluding carpets and hosiery other than pure woollen hosiery, but including knitting wool and readymade garments made of woollen cloth.”
24. In 1969 hosiery was excluded altogether from woollen goods. Notification No. 3613 dated 1st July, 1969, read as under:
“In exercise of the powers under section 3-A the Governor is pleased to make, with effect from 1st July, 1969, the following amendment in the schedule to Notification No. ST-1365 dated 1st April, 1960.
“Woollen goods excluding carpets and hosiery, but including knitting wool and readymade garments made out of woollen cloth.”
25. The same entry continued in Notification No. 332 dated 15th November, 1971, except for change of rate. Another Notification No. 334 was issued on same day and entry in respect of hosiery read as under:
“Hosiery of all kinds other than that made of pure cotton.”
26. It shall be seen that from 1948 to 1961 woollen hosiery was taxable as “hosiery of all kinds”, but from 1961, it became taxable as woollen goods for a brief period as from 1962 it was again excluded except pure woollen hosiery and that also was taken out in 1969 and all woollen hosiery became taxable once again as hosiery of all kinds.
27. One of the outstanding features that stands out clearly from these notifications is that hosiery has been treated from the very beginning as separate item for taxability. And it has not been deemed to be included in the general entry of woollen goods. It is true that inclusion or exclusion of an item is not decisive whether the article which is included is part of it or its inclusion is by way of abundant caution yet from the entire pattern it appears reasonable to infer that woollen hosiery has not been treated as part of woollen goods. The question then is what meaning should be ascribed to the word “hosiery”, the narrow or limited sense in which it was understood in Ram Lal's case 1969 Law Diary 41 or the broader and wider meaning extending to all knitted apparels as was given to it by the Rajasthan High Court. For this also it may be useful to look to the notifications quoted earlier. It shall be seen that in the notification issued in 1948 the word “hosiery” was used both in Hindi and English notifications. This indicates that the intention was to cover in the word “hosiery” all that which was included in it. In 1956 no doubt the words “socks and banian” had been used yet the word “hosiery” had also been mentioned. From 1961 onwards even the notification issued in Hindi used the word “hosiery”. In Ram Lal's case 1969 Law Diary 41, the Bench while quoting the Hindi notification omitted to consider that along with the words “baniyain, mose” the word “hosiery” was also mentioned. In any case in subsequent notification the words “baniyain” and “mose” having been dropped and the word “hosiery” having been used as was done in 1948, it was clear indication of extending the entry and granting benefit of lower rate of tax to those goods which could be considered to be hosiery or knitted garments. In this light, the controversy becomes quite simple as the word “hosiery” used in various notifications for purposes of taxability has to be understood in the wider sense in which it applies to all knitted articles instead of confining it to underclothing. On this view, sweaters, cardigans and pullovers which are manufactured by knitting are covered in the entry “hosiery”. Even in Verma Hosiery [1972] 30 STC 606 : 1972 UPTC 258, the Bench was inclined to accept the recent and extended meaning of hosiery in the sense of knitted goods but as the items for consideration were mufflers and topas which were both knitted and, worn next to skin, it did not go into the question. As the notification which came up for consideration in Ram Lal's case 1969 Law Diary 41 was different than that with which the present revision is concerned it is not necessary to refer this case to a larger Bench.
28. For reasons stated above this revision succeeds and is allowed. The question of law raised by the assessee is decided as under:
(i) that canteen sales were not taxable as the assessee was not a dealer.
(ii) that cardigans and sweaters were not taxable as woollen goods but hosiery.
29. The assessee shall be entitled to its costs which is assessed at Rs. 300. The fee of the standing counsel is assessed at Rs. 100.
Alert