Holding

The Commissioner’s order that only pliable varieties of compressed woollen felt qualify as "cloth" and are exempt under Entry 6 is correct, the High Court’s dismissal was erroneous, and equitable estoppel does not apply.

Summary

Filterco manufactures compressed woollen felt and, based on a 1971 letter from the Commissioner of Sales Tax, claimed exemption from tax under Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958. In 1982 the Commissioner reversed this view, citing the Supreme Court’s Gujarat Woollen Mills decision, and declared the felts taxable. Filterco sought a determination under Section 42B, producing 26 samples; the Commissioner held only five pliable varieties qualified as "cloth" and were exempt, while the rest were taxable. The High Court dismissed Filterco’s writ petition on the ground that an alternate remedy existed, without addressing the merits. The Supreme Court held that the High Court erred, clarified that "cloth" must be interpreted in its popular sense requiring pliability, affirmed the Commissioner’s classification, and rejected the application of equitable estoppel because only one specimen had been considered initially.

Issues considered

Whether a writ petition under Articles 226/227 can be dismissed on the ground of an alternate remedy without considering the merits.
Whether compressed woollen felts constitute "cloth" within the meaning of Entry 6 of Schedule I of the Madhya Pradesh General Sales Tax Act, 1958.
Whether the principle of equitable estoppel bars the Commissioner from withdrawing the earlier exemption.
How the term "cloth" should be interpreted in a taxing statute – popular versus technical sense.

Legislation cited

Madhya Pradesh General Sales Tax Act, 1958s. 10, s. 38(3), s. 42B, s. 44

Subjects

Sales taxExemptionCloth definitionPopular sense interpretationEquitable estoppelAlternate remedyWrit petitionSection 42BCompressed woollen felt

Judgment

239

A
Fil.Tl!RCO & AHR,
v.
<DllISSIOllEB. OF SALES TAX,
llAIBYA PRAlESB AND AHR.

FEBRUARY 11, 1986, B

[O, CHINNAPPA REDDY, E.S, VENKATARAMIAH, V, BALAKRISHNA
ERADI, R.B. MISRA AND V. KHALID, JJ,]

Constitution of India - Article 226 and 227 whether the
High Court can dismiss a petition in limine on the plea of the
existence of an alternate remedy open to the petitioner - c
Construction of a taxing statute - The Madhya Pradesh General
Sales Tax Act, 1958 - Exemption under section 10 - Whether
"Coqiressed Woollen Felts" constitute "cloth" so as to fall
within the scope of Entry 6 of Schedule I of the 1958 Act -
Principle of equitable Estoppel, applicability of - Opinion
given earlier on the basis of only one specimen of the felt D
that it is "cloth" (when in fact the assessee manufactures 26
varieties) and non recovery of tax on that score for twelve
Years - Principle cannot be attracted •

. The appellants M/s, Filterco manufactures COllPressed
felt by subjecting the Compressed Woollen fibres to heat and E
miature. On March 25, 1971 they addressed a c01lllllllication to
the Comdsaioner of Sales Tax forwarding a specimen of the
felt manufactured in their factory and requesting that the
• - u:y be treated as exempt froa tax under Entry 6 of Sche-
dule I to the Madhya Pradesh General Sales Tax Act, 1958. This
request was acceded to through the Commissioner's letter dated F
7.8.1971. On the basis of the said letter the turnover of the
company pertaining to the sales of compressed woollen felt' was
llOt subjected to tax during the period from 1971 to 1982,
However, by a letter dated 4,3, 1982 the Counissiouer of Sales
Tax informed the appellants that "in view of the judgment of
the Supreme Court in the case of M/s. Gujarat Woollen Mills, G
(A.I.R, 1977-1548 S.C.) that compressed woollen felts are not
"woollen fabrics", its earlier opinion dt. 7.8. 71 to the
contrary that the Compressed Woollen Felt manufactured by
appellant will be exempt under Entry 6 of Schedule I of the
Salee Tax Act, 1958 be treated as cancelled. Aggrieved by the
H
240 SUPRl!ME COURT REPORTS [19861 1 s.c.R.
A
rerlaed stand taken by the Comissioner of Sales Tax, the
appellants filed an application before the Comiasioner of
Sales Tax under section 42B of the Act for a detel'lliliation of
the question of taubility of the goods in question by produc-
ing as many as 26 suples of felt of varying hardness, density
and. thickness alongwith a statement showing details of each
B suple. lbe Coaaiasioner of Sales Tax was of the view that
though the expression "cloth" will take in non-woven material
inclusive of "felt", pliability is an essential attribute of
"cloth" and only those varieties of felt 111111ufactured by the
appellants which satisfy the test of pliability can be legiti-
mately clasaified as "cloth" and applying the said test, by
c his order dated 25.1. 83, held that only 5 out of the 26 speci-
mens produced by the appellants namely, those 111arked by the
Comissioner as A-1, A-2, A-3, A-4 and A-19 could be classi-
fied as "cloth" and granted exemption froa tax under Entry 6
of Schedule I of the Act. The remaining 21 samples attracted
tax liability at the rate of ten per cent.
D
The appellants filed a ,Writ Petition in the High Court
of Madhya Pradesh challenging the aforesaid order but the High
Court dismissed .the Writ Petition without entering into merits
by observing that there was an alternate remedy available to
the petitioners under the Act. Hence the appeal by special
E leave.

Dismissing the appeal, the Court,

lllW> : 1. A summary dismissal of the Writ Petition on
the specious plea of availability of alternate remedy without
F con11idering and pronouncing upon the merits of the contentions
raised by the parties, in this case, is not· justified, in as
mch as (a) the order passed by the Connisaioner of Sales Tax
was clearly binding on the assessing authority under section
42B(2); (b) although technically it llOuld have been open to
the appellant• to urge their contentions before the appellate
G authority, that would 1>e a mere exercise in futility When a
superior officer namely, the Comissioner, has already passed
a well considered order in the exercise of his statutory
jurisdiction under sub-section (1) of section 42-B of the Act
holding that 21 varieties of the C011Preased woollen felt manu-
factured by the appellants .are not eligible for exemption
H under Entry 6 of Schedule I of the Act; and (c) a substantial
FILTERCO v. C.S.T. 241

A
portion of the tax bas to be deposited before an appeal or
> 1 revision can be filed as required by section 38(3) of the Act.
I 246 C-fl; 247 A)
2. The legal position is now well settled that words of
everyday use occurring in a taxing statute: met be coustrued B
not in their scientific or technical seuse but 88 understood
in COllll!Oll parlance, that .is in their popular seuse. [ 247 C-ll)

In order to attract the benefit of exemption conferred
't by Entry 6 of Schedule I of the Act, the gooda 11111St fall
within the description "all varieties of cloth". Going by the
'IE''"1ng given in Dictionaries 88 well as by its generally C
accepted popular connotation "cloth" is woven, knitted or
felted material which is pliable and is capable of being
¥rapped, folded or wound around. It need not necessarily be
material suitable for making garments because there can be
"cloth" suitable only for industrial purposes but nevertheless
it - t poaaeaa the basic feature of pliability. Hard and D
- T thiclt uterial which cannot be. wrapped or wound around cannot
be regarded as "cloth". Therefore only those varieties of felt
lllllWfactured by tha appellants which satisfy the test of
pliability will constitute "cloth" so as to fall within the
scope of Entry 6 of Schedule I of the Act. ( 247 A-B; C-G, 248
HI E

Grenfell .... Inlalld lleftmae ei-<saloaen (1876) 1 Ex. D.
242 at 248; 200 a..ta of Tea (1824) 9 Wheaton (U.S.) 430 at
438; ~ipar 2'MfMary Co. Ltd. v •. Seate of BfUr (1962) 13
s.r.c. 1 s.c.; State of Veet 11eDgaJ .... Vashi .61-1 (19771 39
j S.T.Co 378 S.C. referred to. F

l'orrU;ta ad Spe• cer (Asia) Ltd. y. State of Harym
(19781 42 s.r.c. 433 s.c. and Ua1on of India and 0n • ....
Gnj- WooUa Mt 11U.1a (19771 3 s.c.a~ 472 explained and
distinguished.
G
3. The principle of equitable eatoppel la not
attracted, in the instant !'88e, in aa 1111eh aa only one
speciaen of felt had been forwarded by the appellants to the
eo-issioner of Sales TS¥ .along with their letter dated March
25, 1971 end it was only in relation to that single specimen
_ ,t of felt that the eo..issioner had expressed the view that it H
was uempt under Entry 6 of Schedule I of its letter dated
242 SUPREME COURT REPORTS [1986] 1 S.C.R.

A
August 7, 1971, while from the samples produced later on it
was found that the appellants are manufacturing as many as 26
different varieties of compressed woollen felt of varying
hardness, density and. thickness out of which only 5 were
eligible for exemption. [249 E-H; 250 A-BJ

B CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8548 of
1983.

From the Judgment & Order dated 31.3.83 of the Madhya ._ 1
Pradesh High Court in Misc. Petition No. 298 of 1983. .

c P. Govindan Nair, S.K. Gambhir for the Appellants.

A.K, Sanghi for the Respondents.

The Judgment of the Court was delivered by

D BALAKRISHNA ERADI, J, The short but interesting question
that arises for our consideration in this appeal by special Y ._
leave is whether the Compressed Woollen Felts manufactured in
the samll-scale industry unit of the appellants can be said to
constitute "cloth" so as to fall within the scope of Entry 6
of Schedule I of the Madhya Pradesh General Sales Tax Act,
E 1958 (for short 'the Act'), which is in the following terms:-

"All varieties of Cloth manufactured in mills or on
powerlooms or handlooms including processed cloth,
but excluding hessian cloth" - so as to eligible
for exemption of sales tax under Section. 10 of the
F said Act.

The process of manufacture of 'felt' adopted in the
appellants' factory has been described in the order of the
Commissioner of Sales Tax dated January 25, 1983. The raw
material consisting of woollen fibres is first mixed
G thoroughly and thereafter carded on a carding machine, which
process results in the laying of the fibre• in a · combed
condition in a uniform direction. The combed fibres in the
shape of a web layer are then subjected to the process of
hardening in a machine having an eccentric motion; the carded
webs lire put through two layers of cloth and passed through a1-
1
H steam chest. This results in the web/wool layer being '
converted in the form of a sheet, which is then subjected to
FILTERCO v. c.s.T. [ERADI, J,] 243

A
1 the process of milling to impart to it necessary tensile
strength and shrinkage. For this purpose; the sheet is put in
a machine, which has two rows of contra-rotating rollers to
provide the necessary felting action to the sheet. The sheets
run in the machine till the desired shrinkage and density are
achieved. After this the sheet is dried and tri11111ed at the B
ends and thereafter subjected to the process of calendering
and for this purpose it is passed through steam heated contra-
rotating rollers. The resultant product is 'felt'.

From the above description it is clear that the woollen
felt manufactured by the appellants is a material obtained by
compressing woollen fibres and subjecting the same to heat and c
moisture. It is a non-woven material.

On March 25, 1971, the appellants add.reseed a colllllUili-
cation to the Commissioner of Sales Tax forwarding a specimen
of the felt manufactured in their factory and requesting that
l the same may be treated as exempt from tax under Entry 6 of D
Schedule I.

In reply thereto the Commissioner of Sales Tax sent the
following cOlllllllllication (Annexure I) to the appellants:-

"OFFICE OF THE SALES TAX COMMISSIONER MADHYA PRADESH E

NO,Wick/F/32/71/12317 Indore, dated 7.8.1971
To
Filterco
Garden 51,
NeE!llllch (Madhya Pradesh). F
Sir,
With reference to your letter dated 25·.3.1971, it
is statE!!I. t.hst specinien of felt submitted by you,
being woolten fabric, is exempt under H.P. General
Sales Tax Act:. 1958, under Entry 6 of its Schedule
I. G
Yours faithfully,
Sd/-
(N.K. PILLAI)
Additional Commissioner
for Comrlssioner of Sales Tax
Madhya Pradesh". H
244 SUPREME COURT REPORTS [1986 J 1 s.c.R.
A
It is COlllllOn ground that apparently on the basis of the
said letter of ~he Commissioner of Sales Tax, the turnover of
the appellants pertaining to the sales of compressed woollen
felt was not subjected to tax during the period from 1971 to
1982,
B While matters stood thus, the Conmissioner of Sales Tax,
Madhya Pradesh issued the following letter (Annexure II) to
the appellants on March 4, 1982:-

"OFFICE OF THE COMMISSIONER SALES TAX MADHYA PRADESH
c
No,ST/I-310/24(b)79/2872 Indore, dt. 4.3.1982

To

M/ s Fil terco,
D Garden 51,
Neemuch (MP)

Sub:- Levy of sales tax on compressed woollen Felt.

In view of the judgment given by the Supreme Court
E in the case of M/s Gujarat Woollen Mills (A,I,R.
-1977-1548 SC) that the compressed woollen felts
are not "woollen fabrics", Compressed Woollen Felt
manufactured by you will not be exempt under entry
6 of Schedule I of the M,P, General Sales Act, 1958
but will be covered under entry 1 of Part VI of
F Schedule II appended to the said Act, and will
attrl!Ct tax @10%,

Clarification given to you in this office letter
No.I/26/32/71-12317, dated 7,8,1971 is hereby can-
celled.
G
Yours faithfully,
Sd/-

Asstt. Commissioner (Tech)
for Commissioner of Sales Tax 't
H Madhya Pradesh," ., -
FILTERCO v. C.S.T. [ERADI, J.] 245

A
Feeling aggrieved by the revised stand taken by the
Commissioner of Sales Tax that the felt manufactured in the
appellants factory is· not eligible for exemption and will
attract tax at 10%, the appellants filed ancapplication before
the Commissioner of Sales Tax under Section 42-B of the Act
for a determination of the question of taxability of the goods B
in question. Section 42-B- is in the following termg :-

"Section 42-B. lleterllfllation of disput:ed question

1. If any question is raised by a dealer in respect
of the rate of tax on any goods, the Commissioner
shall, in accordance with such procedure as may be C
prescribed, make an order determining the rate of
tax on such goods.

2. Any order passed by the Commissioner under sub-
section (1) shall be binding on the authorities
referred to in Section 3 in all proceedings under D
the Act except appeals."

The appellants produced before the Commissioner as many
as 26 samples of felt of varying hardness, density and thick-
ness along with a statement showing details of each sample.
After affording full hearing to the appellants, the Comnis- E
sioner of Sales Tax passed an order dated January 25, 1983
expressing the view that though the expression "cloth" will
take in non-woven material inclusive of 'felt', pliability is
an essential attribute of "cloth" and only those varieties of
felt manufactured by the appellants which satisfy the- test of
_., pliability can be legitimately classified as "cloth" •. Applying F
• the said test, the Comnissioner_ held that only 5 out of the 26
specilllens produced by the appellants namely, those marked by
the Co!llnissioner as A-1, A-2, A-3, A-4 and A-19 could be
classified as "clqth" and granted exemption from tax under
Entry 6 of Schedule I of the Act and that the remaining 21
saaples would not fall within the scope of the said entry and G
are, therefore, taxable at the rate of 10%.

The appellants filed a Writ Petition in the High Court of
Ms;dhya Pradesh ch8llenging the aforesaid order passed by the
+Comnissioner in so far as it went against them. The High Court
~ '' dismissed the Writ Petition without entering into ·the merits H
by stating thus:-
246 SUPREME COURT REPORTS [1986] 1 s.c.R.

A
"It is not the case of the petitioners that in I .._
passing the impugned order, the Collllllissioner,
therefore has acted contrary to the procedure pres-
cribed by the Act or the RuleSo made thereunder. The
petitioners having referred the dispute to the
Collllllissioner, he had jurisdiction to pa.as the
B impugned order. At this stage, we refrain from
expressing any opinion regarding the correctness of
the impugned order because that order would not be
binding on the appellate authorities under the Act, •
which would, no doubt, examine the question afresh
if raised before them by the petitioners, If the
c petitioners are aggrieved by the decision of the
appellate authorities, a reference to this Court
under Section 44 of the Act can be made. As a
remedy is available to the petitioners under the
Act, it is not necessary to invoke the extraordi-
nary powers of this Court under Articles 226 and
D 227 of the Constitution of India." ~

Aggrieved by the said decision of the High Court the appel-
lants have filed this appeal after obtaining special leave.

We are of opin!.on that the High Court should have
E examined the merits of the case instead of dismissing the Writ
Petition in limine in the manner it has done. The order passed
by the Collllllissioner of Sales Tax was clearly binding OL the
assessing authority under Section 42B(2) and although techni-
cally it would have been open to the appellants to urge their
contentions before the appellate authority namely, the Appel-
F late Assistant Collllllissioner, that would be a mere exercise in >--
futility when a superior officer namely, the Collllllissioner, has •
already passed a well considered order in the exercise of his
statutory jurisdiction under sub-section (1) of Section 42-B
of the Act holding that 21 varieties of the compressed woollen
felt manufactured by the appellants are not eligible for
G exemption under Entry 6 of Schedule I of the Act. Further
Section 38(3) of the Act requires that a substantial portion
of the tax has to be deposited before an appeal or revision
can be filed. In such circumstances we consider that the High
Court ought to have considered and pronounced upon the merits
.
J, ....
H
....
FILTERCO v. c.s.T. [ERADI, J.] 247

A
of the contentions raised by the parties and the suonnary dis-
'- missal of the Writ Petition was not justified. In such a
situation, although we would have, ordinarily, set aside the
judgment of the High Court and remitted the case to that Court
for fresh disposal, we consider that in the present case it
would be in the interests of both sides to .have the matter B
finally decided by tMs Court at the present stage itself
especially since we have had the benefit of elaborate and
learned arguments addressed by the counsel appearing on both
sides.

In order to attract the benefit of the exemption confer-
red by Entry 6 of Schedule I of the Act, the goods must fall C
within the description "all varieties of cloth". The legal
position is now well settled that words of everyday use
occurring in a taxing statute must be construed not in their
scientific or technical sense but as understood in common
parlance, that is, in their "popular sense". As succinctly
stated by Pollock, B., in Grenfell v. Inland Revenue D
~ Comllssioners, [1876] 1 Ex.D. ·242 at 248, "if a statute
contains language which is capable of being construed in a
popular sense, such ' a statute is not to be construed accord-
ing to the strict or technical meaning of the language
contained in it, but is to be construed in its popular sense,
meaning of course, by the words "popular sense", that sense E
which people conversant with the subject:..,,,,,tter with which the
statute is dealing would attribute to it"'. The same principle
was expressed in a slightly different language by Story J., in
200 Chests of Tea, [1824] 9 Wheaton (U.S.) 430 at 438, where
the learned Judge said that "the particular words used by the
legislature in the denomination of articles are to be under- F
,--' stood according to the common commercial understanding of the
terms used, and not in their scientific or technical sense,
'for the legislature does not suppose our merchants to be
naturalists, or geo1ogiste, or botanists'"• This Court haS
reiterated the said position in Motipar Z!!Jlfndary Collpanr Ltd.
v. State of Bihar, (1962) 13 S.T.C. 1 (S.C.), State of Weat G
Bengal v. Wasbi ~. (1977) 39 S.T.C. 378 (S.C.) and
Porritts and Spencer (Asia) Ltd. v. State of Baryana, (1978)
42 S.T.C. 433 (S.C.).

According to Oxford English Dictionary - "cloth means-
H
248 SUPREME COURT REPORTS [1986] 1 s.c.R.

A
"A piece of pliable woven or felted stuff, suitable ...
for wrapping or winding around, spreading or fold-
ing over, drying, wiping or other purpose; a
swaddling or winding cloth, wrap, covering, veil,
curtain, handkerchief, towel etc." • • . • •

B (underlining ours)

In Webster's New International Dictionary "cloth" is
stated to mean:-

"A pliable fabric, woven, felted or knitted from
c any filament, comn>:mly -fabric or woven cotton,
woollen, silk, rayon or linen fabric, used for
garments etc."
(underlining ours)

Going by the meaning given in Dictionaries as well as by
D its generally_ accepted popular connotation "cloth" is woven, 'I
knitted or felted material which is pliable and is capable of
being wrapped, folded or wound around. It need not necessarily
be material suitable for making garments because there can be
"cloth" suitable only for industrial purpose; but nevertheless
it must possess the basic feature of pliability. Hard and
E thick material which cannot be wrapped or wound around cannot
be regarded as "cloth", We are, therefore, of opinion that the
Commissioner was perfeiotly right in his view that only those
varieties of felt manufactured by the appellants which satisfy
the test of pliability will conatitute "cloth" so as to fall
within the scope of Entry 6 of Schedule I of the Act.
F
Counsel for the appellants submitted before us that there >-,
is a conflict between Lhis Court's decisions in Porritts and
Spencer (Asis) Ltd. v. Stste of Baryana (supra) and the
earlier ruling of this Court in Union of India and Ora. v.
Gujarat Woollen Felt Mills, [1977] 3 S.C.R, 472, We see no
G conflict at all between these two decisions. However, neither
of those rulings is of any assistance in deciding the present
case though both of them dealt with certain varieties of
'felt', In the Gujarat Woollen Felt Mills case, the question
before this Court was whether non-woven felts manufactured out
of woollen fibres by machine-pressing were "woollen fabrics"-~
H for the purpose of levy of excise duty under entry 21 in '·· •
Schedule I to the Central Excises and ·salt Act, 1944. It was
FILTERCO v._ c.S.T. [ERADI, J,] 249

A
held that the expression "fabric" took in only woven material
I- and hence non-woven felts made out of wooll~n fibres were not·
"woollen fabrics".

The question that arose before this Court in the_ subse-
quent case - Porritt& and Spencer (Asia) Ltd. "'• State of B
Baryana (supra) was - wholly different. In that case it was
contended that 'dryer felts' made out of cotton or woollen
yarn by the process of weaving according to the wrap and woof
pattern and comoi:ily used as absorbents of moisture :f.n paper
manufacturing units fell within the · ordinary and common
parlance sense of the word "textiles" in item 30 of Schedule B
to the Punjab General Sales Tax Act, 1948 and were, therefore, c
exempt from tax. Upholding the said contention this Court held
that expression "textiles" interpreted according to its
popular sense has only one meaning, namely a woven fabric and
since the dryer felts were manufactured out of cotton, woollen
or synthetic y~rn by the process of weaving according to the
wrap and woof pattern, they were undoubtedly "textiles" within D
the meaning of that expression in item 30 of Schedule B. The
subject matter of the case before us being admittedly felt
manufactured by a totally different process .and the wording of
the Entry 6 in Schedule I of the statute, with which we are
concerned being also wholly different, these two decisions are
of no assistance to us. E

Counsel appearing on behalf of the appellants relied
strongly on the letter of the Commissioner of Sales Tax dated
August 7, 1971 - Annexure I and sought to invoke to the
principle of equitable estoppel as debarring the respondents
from contending that the goods in question are ineligible for F
the benefit of the exemption conferred by Entry 6 of Schedule
I. We do not- find it possible to uphold this contention. It is
seen from the appellants' letter dated August 7, 1971, which
we have extracted above that only one specimen of felt had
been forwarded by the appellants to the Commissioner of Sales
Tax along with their letter dated March 25, 1971 and it was G
only in relation to that single specimen of felt that the
Commissioner had expressed the view that it was exempt under
Entry 6 .of Schedule I. From the samples produced in this case
it is found that the appellants are manufacturing as many as
+- 26 different varieties of compressed woollenfelt of varying
hardness, density and thickness. There is absolutely no H
250 SUPREME COURT REPORTS [19861 l s.c.R.

A
material on the record to show which out &f ~hese 26 varieties
was sent as specimen to the ColllIDissioner -in 1971. In these 1
circumstances the principle of equitable estoppel i~ not
attracted.

In the light of the foregoing discussion, we hold that
B the view taken by the ColllIDissioner of Sales Tax in his order
dated January 25, 1983 is perfectly legal and correct and the
said order does not call for any interference.

However, before we part with the case we may observe that
having regard to the fact that the appellants industry is one
c in the small-scale sector and the appellants appear to have
been lulled into a false sense of security by the impression
gathered by them from the Commissioner's letter dated August
7, 1971 that the 'felt' manufactured in their factory is not
liable to tax by reason of which impression the appellants had
desisted from collecting any sales tax from the customers
D during the period between 1971 and January, 1983, this is a V
fit case where the State Government should sympathetically
consider the question whether the whole or at least a
substantial portion of the sales tax payable in respect of the
turnover of the goods during the aforesaid period should not
be waived for the sake of saving the industry from financial
E ruination. With these observations, we dismiss this appeal but
direct the parties to bear their respective costs.

F S.R. Appeal dismissed.
•