1985 (5) TMI 209 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether electric motors other than those of 3 to 7.5 horsepower fall within the ambit of entry No. 17 to the Third Schedule of the Delhi Sales Tax Act, 1975, and are exempt from sales tax.
2. If electric motors other than those of 3 to 7.5 horsepower are not covered by entry No. 17, whether they fall under entry No. 15 to the First Schedule or are parts of industrial machinery as per entry No. 27 of the notification dated 21st October, 1975.

Issue-wise Detailed Analysis:

1. Exemption of Electric Motors under Entry No. 17 of the Third Schedule:

The primary issue was whether electric motors other than those of 3 to 7.5 horsepower are exempt from sales tax under entry No. 17 of the Third Schedule of the Delhi Sales Tax Act, 1975. The Tribunal had initially interpreted that the words "3 to 7.5 h.p." qualified only monoblock pump-sets and not electric motors, thus exempting all electric motors. However, the High Court disagreed, stating that the qualification of "3 to 7.5 h.p." applies to electric motors as well. The Court reasoned that the legislative intent was to exempt electric motors used for agricultural purposes, typically those within the 3 to 7.5 horsepower range. Therefore, electric motors outside this range do not qualify for the exemption under entry No. 17.

2. Classification of Electric Motors under Entry No. 15 of the First Schedule or Entry No. 27 of the Notification:

The second issue revolved around the classification of electric motors that do not fall under entry No. 17. The Court examined whether these motors should be classified under entry No. 15 of the First Schedule, which pertains to "all electronic and electrical goods," or under entry No. 27 of the notification dated 21st October 1975, which covers "parts of industrial machinery and plant."

The Court concluded that electric motors are indeed "electrical goods" as per entry No. 15 of the First Schedule. This conclusion was supported by the fact that electric motors are inherently electrical in nature and are used to convert electrical energy into mechanical energy. Therefore, they fit within the general description of electrical goods.

However, the Court also considered the alternative contention that electric motors used in industrial settings could be classified as "parts of industrial machinery and plant" under entry No. 27 of the notification. The Court agreed that electric motors used in industries are integral to industrial machinery and plant. Hence, when sold for industrial purposes, these motors should be taxed at the reduced rate applicable to industrial machinery and plant, as specified in entry No. 27.

Conclusion:

The High Court ruled that:
- Only electric motors of 3 to 7.5 horsepower are exempt from sales tax under entry No. 17 of the Third Schedule of the Delhi Sales Tax Act, 1975.
- Electric motors not falling under entry No. 17 are classified as "electrical goods" under entry No. 15 of the First Schedule, subject to a sales tax rate of 10%.
- Electric motors used for industrial purposes are considered "parts of industrial machinery and plant" under entry No. 27 of the notification dated 21st October 1975, and are subject to a reduced sales tax rate of 5%.

The Court ordered that the parties bear their own costs.