Bench overturns tax authority's classification, grants exemption to dupatta under specific fabric entries, citing Supreme Court precedent on proper goods classification
In a significant judgment delivered on October 7, 2026, the Division Bench of the Madras High Court, comprising Dr. Anita Sumanth and K. Rajasekar, JJ., set aside the Tamil Nadu Sales Tax Appellate Tribunal's decision which had upheld a 4% VAT demand on dupattas by classifying them under fibres rather than fabric. The petitioner, M/s. Vedant Fashions Pvt Ltd, had challenged the classification, arguing that dupattas are woven fabric and thus fall under specific exempt entries in the Tamil Nadu Value Added Tax Act, 2006.
The dispute arose from assessments conducted for the years 2009-10 to 2011-12, wherein the Assessing Authority classified dupattas under Entry 49 of Part B of the First Schedule, which pertains solely to fibres and their waste. This classification attracted a 4% tax rate. The petitioner contended that the dupatta, being a finished woven fabric, should be classified under Entries 3 to 10 of Part A of the Fourth Schedule, which deals specifically with various types of woven fabrics and is exempt from tax.
The tax authorities' primary contentions were that a dupatta is integrally linked with readymade garments like Chudidar or Salwar Kameez, cannot be sold separately, and is not fabric in the conventional sense due to its fixed length. The Tribunal agreed with this reasoning and confirmed the tax demand.
However, the Madras High Court found the authorities' reasoning fundamentally flawed. The Court observed that a dupatta, by any reasonable interpretation, is woven fabric and cannot be shoehorned into a classification relating exclusively to fibres. The distinction drawn by the Revenue regarding specific length versus unlimited yardage was rejected, emphasizing that classification should primarily consider the nature, functionality, and appearance of the goods.
Relying on the Supreme Court's authoritative ruling in Bharat Forge & Press Industries (P) Ltd v. Collector of Central Excise, Baroda, the Court reiterated the principle that goods should be classified under the most specific entry applicable. The residuary or inappropriate entries can be invoked only when no specific entry covers the item. Since dupattas fall squarely within the fabric entries (Entries 3 to 10 of Part A of Fourth Schedule), the Court held that the 4% tax demand under the fibre entry was unsustainable.
Consequently, the Court allowed the Tax Case Revisions filed by Vedant Fashions Pvt Ltd, holding that dupattas are entitled to exemption under the fabric entries of the Tamil Nadu VAT Act. The judgment provides clarity on classification issues and emphasizes the importance of precise categorization in taxation matters.
Bottom Line:
Tamil Nadu Value Added Tax Act, 2006 - Classification of dupatta - Dupatta, being woven fabric, cannot be classified under Entry 49 of Part B of First Schedule relating to fibres - It is properly classifiable under Entries 3 to 10 of Part A of Fourth Schedule dealing with fabrics - Residuary or inappropriate entry cannot be applied when specific entry covers goods.
Statutory provision(s):
Tamil Nadu Value Added Tax Act, 2006 - Part A of Fourth Schedule (Entries 3 to 10), Part B of First Schedule (Entry 49)
Vedant Fashions Pvt Ltd v. State of Tamilnadu, (Madras)(DB) : Law Finder Doc Id # 2997259
