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2015 (4) TMI 966 - DELHI HIGH COURT

2015 (4) TMI 966 - DELHI HIGH COURT - [2015] 83 VST 264 (Del) - Classification of goods - levy of VAT @ 4% or taxable @ 12.5% in terms of Section 4(1)(e) - Held that:- The expression “Handicrafts”, not specially defined for purposes of DVAT Act, cannot take a meaning other than the one explained by the interpretation given to it in the context of another fiscal statute viz. the Central Excise Act. The tests to be applied, for present purposes, must thus be the same as were evolved in the case of .....

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in-lay or some similar work adding to it elements of artistic improvement.

Expression “Handicrafts” used in entry no.128 of the third schedule to DVAT Act must be construed in its plain lexical sense, without any colour being added by extraneous factors. - The fact that “Baldi” items are imported from Italy seems to have been considered by both authorities, the Commissioner and the Tribunal, as a factor which clinches the issue. There is nothing in the DVAT Act, or the Rules framed t .....

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on the fact that it is imported from Italy) cannot be approved.

The revenue did not refute, either before the Tribunal or before this Court, the claim that the “Baldi” items, in which the appellant deals, are predominantly made by hand. There is no dispute that they are items graced with visual appeal, on account of ornamentation or inlay work carried out skilfully by expert artisans. For these reasons, they do qualify as “Handicrafts” on the twin tests laid down in the case of Louis .....

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of “Handicrafts” within the meaning of the expression used in entry no.128 of the third schedule of DVAT Act and, therefore, chargeable to VAT at the rate applicable to the said third schedule. - Decided in favour of assessee. - ST. APPL. 21/2013 - Dated:- 24-4-2015 - Hon'ble Mr. Justice S. Ravindra Bhat And Hon'ble Mr. Justice R. K. Gauba,JJ. For the Petitioner : Mr.Tarun Gulati, Mr.Sparsh Bhargava and Mr.Shashi Mathews, Advs. For the Respondent : Mr.Sushil Dutt Salwan, ASC for GNCTD an .....

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t-assessee under the brand name of Baldi were held to be such as cannot be categorized as Handicrafts within the meaning of the expression used against entry at serial No.128 in the Third Schedule referable to Section 4(1)(b) of DVAT Act, so as to attract levy of VAT @ 4% at the rate then prevalent, and, instead, held it as unclassified item taxable @ 12.5% in terms of Section 4(1)(e). 2. The appellant claims to be a dealer registered under DVAT Act having its registered office at 323-A, Emporiu .....

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mbling, chiseling and after final product is made the same is subjected to hand polishing, dismantling, pre-gilding and then finally assembled as per the design given by the craftsman. The entire process of manufacture is claimed to engage highly qualified artisans who make the individual pieces by hand with no two pieces resembling each other. Claiming that these goods having decorative visual appeal are made as a result of process which involves substantial use of hands, as against being manuf .....

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aterial thus submitted explained the productive process as under: "Crystal blowing : The raw piece of lead glass gets formed Engraving : The craftsmen carves parallel lines into the crystal Polishing : The object is deepened in acid to clear its surface Assembling : The crystal piece is assembled with bronze components (they can be dozens) that were previously designed by Baldi and cast for the specific piece Chiselling : The metal pieces are refined carefully with a chisel Hand polishing : .....

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written submission that when semi-precious stones or marbles are used, the product goes through following three main stages : Cutting raw stone : The raw stones are cut in 0.12 inches slices Mosaic work : After being designed the pieces are perfectly assembled Polishing : The surface is made smooth and shining 4. It may be added here that the ware in which the appellant deals also includes stained glass articles made by firstly creating a design on paper which is then cut out into shapes to form .....

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on was submitted on 27.1.2009 by the assessee before the Commissioner under Section 84(4) of DVAT Act praying for following questions to be determined : a. Whether the said goods, viz,. stained glass lamps and hand crafted decorative articles of glass including the goods sold under the brand name of Baldi are classifiable as Handicrafts under Entry 128 of Schedule III of the said Act. b. Whether the said goods are chargeable to VAT @ 4% ad valorem instead of 12.5% under the residual category as .....

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i items were admittedly articles of handicraft art popular in Italy , directly imported and sold by the dealer but did not fulfill the essential criteria for being treated as Handicrafts . 7. While accepting the claim with regard to the stained glass items, the contention of the assessee vis-à-vis Baldi items was rejected by the Commissioner, through reasoning, the relevant portion whereof may be extracted as under :- 9. Handicrafts have been given specific concession for sole purpose of .....

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le, and encouraging their export market through various incentives and schemes by the Government of India. xxxx 13. From the above, it is appreciated for an article to be produced and marketed as Handicrafts , for it to attract inclusion under schedule III and therefore, to be charged 4% VAT instead of 12.5% under residual category. Presently what is being marketed is an object d art, and not merely an handicraft , even if it is produced locally and handcrafted, would have no different connotati .....

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nclassified items at the rate of 12.5%. ..... 8. Feeling aggrieved, the assessee took out appeal No. No.379/ATVAT/06-07 contending that the Commissioner had fallen into error for the reasons , inter alia, that the entry Handicrafts as included in the schedule to DVAT Act was not qualified by the words made in India , improperly denying the benefit of the entry after concluding that the process of manufacture involved substantial use of hand. It was submitted that the goods in question are covere .....

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d from Italy, could be classified as Handicrafts under entry 128 of the third schedule . Rejecting the case of the appellant , inter alia, based on the tests laid down in the case of Collector of Central Excise V. Louis Shoppe (1996) 83 ELT 13 (SC) and the ruling of Oswal Agro Mills Ltd. V. Collector of Central Excise (1993) 66 ELT 37 (SC), the Tribunal observed as under : 19. ..... It is to be noted that from the preface of the copy of the printed material pertaining to Baldi filed with this ap .....

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xpression has been defined in the enactment than it must be understood in the sense in which it is defined but in absence of any definition being given in the enactment, the meaning of the term in common parlance or commercial parlance has to be adopted. ......for determining the purpose or object of legislation, it is permissible to look into the circumstances which prevailed when the law was made, the statement of objects and reasons for the bill which actuated the step to provide a remedy for .....

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at appeal at the time when this entry was inserted in the third schedule . The question for consideration is whether the legislature while inserting this entry w.e.f. 11.05.2005 could have item being marketed as Baldi after importing from Italy in contemplation as Handicrafts . For answering this question the literature/printed material submitted by the appellant along with this appeal has to be considered. Page 35 of the appeal file shows that the present target of the Italy Manufacturer of Bal .....

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tatute or erred in classifying Baldi under the residuary entry and relying on the cases of Atul Glass Industries P. Ltd. V. Collector of Central Excise 63 STC 322 (SC), Delhi Cloth and General Mills Co. Ltd. V. State of Rajasthan (1980) 46 STC 256, State of Kerala V. N D Narayanan Nambiar (2008) 11 VST 380 (Ker) and Commissioner V. Kohinoor Glass House (2009) 26 VST 135 (All), the Tribunal proceeded to apply common parlance theory as well as the functional test for observing that an item is to b .....

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f the following tests are satisfied :- (1) It must be predominantly made by hand. It does not matter if some machinery is also used in the process. (2) It must be graced with visual appeal in the nature of ornamentation or in-lay work or some similar work lending it an element of artistic improvement. Such ornamentation must be of a substantial nature and not a mere pretence. 12. It was ruled that whenever the above question arises, the authorities shall examine the matter from the above stand-p .....

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glish language defines Handicrafts as a skill and expertness in working with the hand or as a Trade calling for such skill. Similarly, the Concise Oxford English Dictionary explains the expression as a particular skill of making decorative domestic or other objects by hand or as an object made using a skill of this kind . 14. In the Encyclopaedia Britannica, the word handicraft is defined as follows : Occupation of making by hand usable products grade with visual appeal. Handicrafts encompass ac .....

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r for purposes of gain in or incidental to the making of any Article or part of an Article, or in or incidental to the altering repairing, ornamenting finished or otherwise adapting for sale, any Article. handicraft means any manual labour exercised by way of trade or for purposes of gain in or incidental to the making any article or part of an article, or in or incidental to the altering, repairing, ornamenting, finishing, or otherwise adapting for sale, any article. 16. In a case reported as P .....

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the Court subjected to scrutiny the process of manufacture of the items in question, inter alia, in light of the dictionary meaning of the expression Handicrafts as provided in the Concise Oxford English Dictionary and Encyclopaedia Britannica as indeed the distinction between Handicrafts and goods which are machine made as explained in the definition adopted by UNCTAD as follows :- Some goods may be produced partly by machine and partly by hand : (i.e. a dress made up by hand from machine made .....

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Handicrafts stating as follows : "Articles which are classifiable elsewhere in this policy will be deemed to be 'handicrafts' falling in this group only if such articles, besides being made by hand, have some artistic or decorative value; they may or may not possess functional utility value in addition. Artistic or decorative value of the article exported need not necessarily come out of any art work, engraving or decoration done on the articles but the very form, shape or design o .....

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ase of Louis Shoppe (supra). 19. In above view, we have no hesitation in concluding that a product in order to qualify as Handicrafts for the purposes of application of entry no.128 of the third schedule to DVAT, must have been made predominantly by hand and it would be inconsequential if some part of the process involves use of some machinery. Needless to add, such product must be one graced with artistic visual appeal resultant upon substantial (not a mere pretence) ornamentation or in-lay or .....

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nclude. 21. To illustrate the above, we may refer to entry at serial no.117 in the third schedule of DVAT Act. It relates to imported textiles and fabrics . Necessarily, such textile and fabrics as are indigenously produced cannot take the cover of entry no.117. Similarly, entry No.22 in the first schedule to DVAT Act, which relates to sales which are exempt from such tax in terms of Section 6, concerns indigenous handmade musical instruments . Obviously, the benefit of such exemption cannot be .....

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aid schedule, pots which are metallic, bangles which are made of precious metals like gold or silver, or safety matches produced with the help of machinery would not qualify for exemption under Section 6 of DVAT Act. 23. It, thus, clearly emerges that the expression Handicrafts used in entry no.128 of the third schedule to DVAT Act must be construed in its plain lexical sense, without any colour being added by extraneous factors. 24. In our opinion, the approach of both the Commissioner and the .....

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ocument on the subject. Therefore, the said considerations cannot be adopted as a touchstone. 26. The fact that Baldi items are imported from Italy seems to have been considered by both authorities, the Commissioner and the Tribunal, as a factor which clinches the issue. There is nothing in the DVAT Act, or the Rules framed therein or, for that matter, any other instruction, notification etc. to require that a commodity in order to be accepted as Handicrafts must be one indigenously made or, to .....

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observing that the legislature could not have conceivably intended such an item to be covered in the category of Handicrafts while inserting such category into the third schedule w.e.f. 11.5.2005 since this commodity entered the Indian market only later. To put it very mildly, we find the reasoning to be baseless and bordering on absurdity. There is no substance in the approach that the scope and width of a legislative entry of such nature is to be understood with reference to the commodities kn .....

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living . It seems to have taken a cue from the observations of the Commissioner who pointedly described Baldi items as object d art , and not merely a handicraft as if to say that a handicraft cannot be object d art. Reference to the high price (at which these items seem to be selling in Indian market), also has been made in the same context. We are unable to subscribe to this kind of syllogism. It is not proper to reject a commodity from the category of Handicrafts only because it is also an ob .....

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ent sponsorship or supportive policy for Handicrafts industry may have evolved from the idea of promoting traditional arts and crafts with added objective of generating employment in (generally rural) areas connected thereto. But this would definitely not mean that the items sold as Handicrafts must be inexpensive. Whether or not the price is high or low is a relative issue to determine which there is no known or bright live benchmark. For such purposes as at hand, the price of the commodity, ev .....

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