The Shulhan Aruch (Orah Haim 153:21) rules that a cloth which had been used for mundane purposes may not be used as an accessory to the Sefer Torah, such as to serve as the Mitpahat which is used to turn the scroll. Thus, for example, if a person has a fine garment, such as a silk scarf, which is very beautiful, and he wants to donate it to give honor to the Sefer Torah, he may not do so. Once the cloth had been used for mundane purposes, and was worn by a person, it may not then be used for the Torah scroll.
However, the Aruch Ha’shulhan (Rav Yechiel Michel Epstein of Nevarduk, 1829-1908) writes that this prohibition applies only if the garment was actually used. If it had never been worn, such as if a person bought it from a store and never wore it, then it may be used for the Sefer Torah, even though it was manufactured for mundane purposes and not specifically for the Sefer Torah. Additionally, even if the garment was worn, it may be used for the Sefer Torah if it undergoes some sort of change, such as if it is stitched anew or redesigned. Once it undergoes some change, it is considered new and may then be used for the Sefer Torah.
This prohibition applies only to something which directly serves the Sefer Torah, such as a Mitpahat. If the cloth serves the Sefer Torah only indirectly (“Tashmish De’tashmish”), then it may be used, even though it had been previously used for mundane purposes. One example would be the Parochet, which covers the Hechal which houses the Sefer Torah. Since the Parochet serves the Sefer Torah indirectly, one may use a cloth that had been worn as a garment for this purpose.
Of course, if a garment is worn out to the point where it would normally be discarded, then it may not be used for the Sefer Torah. Such a cloth would not be given as a gift to a distinguished person, so it is certainly unsuitable as a “gift” for the Sefer Torah.
If one did donate a used garment to the Sefer Torah, and it was used as a Mitpahat, then it may continue being used for this purpose, and, to the contrary, it may not be used for any mundane purposes thereafter. Once it has been elevated to a level of sanctity – even though this was done against Halacha – it may not be lowered to the level of mundane use. This is the ruling of Hacham David Yosef, in his Halacha Berura (Siman 153; listen to audio recording for precise citation).
Summary: A cloth that had been used for a mundane purpose – such as a scarf which had been worn – may not be used as the Mitpahat for the Sefer Torah. If it was used as the Mitpahat, it may continue being used, and it is in fact forbidden for mundane use henceforth. A garment which had never been used may be donated as a Mitpahat, as may a garment that has undergone a substantive change since it was worn. A garment that had been worn may be used for the Parochet.