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The Commissioner, Commercial Tax, U.P., Lucknow v. S/s Rujhan Studio

Civil Appeal · 2021 INSC 138Decided 2 Mar 2021
Civil Appeal No. 793 of 2021
Dr. Justice D.Y. Chandrachud · Justice M.R. Shah

Background

The respondent dealer purchased textile cloth in bulk, cut it to the size of ladies' salwar-kameez suits, and carried out embroidery and "peco" work on the edges, selling the result as an unstitched "suit" without doing the final stitching. A tax survey led the Assessing Authority to tax this product at the higher 12.5% residuary rate as an "unclassified" item, rather than treating it as tax-exempt "textile" or taxing it at the lower 4% rate for "textile made ups." The dealer's appeals succeeded before the first appellate authority (4% rate) and then before the Commercial Tax Tribunal (fully tax-exempt as "textile"), and the Allahabad High Court dismissed the Department's revision petition in limine. The Commissioner of Commercial Tax then appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that once the purchased textile material is cut to size and embroidered, it ceases to be a mere "textile" under the exemption entry and becomes a distinct commercial article, so the Tribunal was wrong to treat it as fully exempt. It also rejected the first appellate authority's classification of the product as a "textile made up" taxable at 4%, reasoning that this entry must be read together with the similar items listed alongside it (bedsheets, pillow covers) and that a "made up" article is one that has actually been stitched into a final product, which this unstitched suit was not. Since the goods did not fit any specific exemption or lower-rate entry, the Court held they correctly fell under the residuary entry taxed at 12.5%, restoring the original assessment order and setting aside both the Tribunal's and the High Court's rulings.

Lesson Learnt

When interpreting tax schedules, a general or residuary entry applies only after ruling out all more specific entries, and words in a tax schedule must be read in their ordinary, common-parlance sense and in the context of the words immediately surrounding them (the principle of "ejusdem generis"), not viewed in isolation.

Official source (sci.gov.in)View Judgment (PDF)

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