1996 (4) TMI 427 - SC - Service Tax

Whether cycle rims are declared goods or not? Held that - Appeal allowed. Applying the test of common parlance, a rim which is admittedly round and an essential part of the wheel of the cycle would come within the said entry (xiv) and being declared goods the same cannot be taxed at the rate in excess of 4 per cent. The view taken by the single Judge of the Allahabad High Court in the judgment under appeal gives a very narrow meaning to the said entry and cannot be upheld. Thus the judgment of the High Court is set aside and it is held that the appellant is only entitled to be taxed at 4 per cent on the sale price of the cycle rims.

Summary

Issues:
1. Whether cycle rims are declared goods under the Central Sales Tax Act.
2. Interpretation of sub-clause (xiv) of sub-section (iv) of section 14 of the Act.
3. Application of tax rate on the sale of cycle rims.

Analysis:
The appellant, engaged in manufacturing and selling cycle rims, contested the provisional assessment by the assessing officer under the Uttar Pradesh Sales Tax Act, which taxed the rims at 8%. The appellant argued that cycle rims were declared goods under the Central Sales Tax Act, limiting the tax to 4% as per section 15 and preventing multiple tax stages. The Deputy Commissioner (Appeals) agreed with the appellant, but the Tribunal overturned this decision, leading to an appeal to the Allahabad High Court.

The High Court, dissenting from a Rajasthan High Court judgment, held that a rim is not synonymous with a wheel and cannot revolve independently, thus not meeting the definition of a wheel. Consequently, the cycle rim was deemed taxable at 8% under the U.P. Sales Tax Act, as it was not considered a declared good.

The core issue revolved around whether cycle rims qualified as declared goods under sub-clause (xiv) of sub-section (iv) of section 14 of the Act. The Supreme Court analyzed the entry which included "wheels, tyres, axles, and wheel sets." It was established that a rim is an integral part of a wheel and falls within the ambit of this entry, as interpreted by the Rajasthan High Court in a similar case. The Court endorsed the broad interpretation that included rims in the definition of wheels, affirming that rims are declared goods subject to a maximum tax rate of 4%.

The Court concluded that the narrow interpretation adopted by the High Court was incorrect, emphasizing that rims, being essential components of wheels, were covered under the declared goods category. Consequently, the judgment of the High Court was set aside, and the appellant was entitled to be taxed at 4% on the sale price of cycle rims, with costs awarded in favor of the appellant.