1990 (1) TMI 274 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Classification of sewing machines as "industrial machinery" for the purposes of entry tax.
2. Use of sewing machines as domestic appliances versus industrial machinery.
3. Authority of the Commissioner to issue clarifications under the Act.
4. Interpretation and application of Explanation III to entry 7.
5. Validity of the clarification issued by the Commissioner.

Detailed Analysis:

Issue 1: Classification of Sewing Machines as "Industrial Machinery"

The petitioners argue that sewing machines cannot be classified as "industrial machinery" under entry 7 of the Schedule to the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979 ("the Act"). They contend that sewing machines sold by them are meant for domestic use and small-time tailors, not for industrial applications. The court notes that the Act's Schedule initially did not include sewing machines under entry 7, and the attempt to classify them as such was based on a clarification issued by the Commissioner in 1987.

Issue 2: Use of Sewing Machines as Domestic Appliances

The petitioners assert that sewing machines are used as domestic appliances and do not satisfy the description of industrial machinery by their characteristics, purpose, design, and use. The court agrees, stating that sewing machines used by housewives and tailors cannot be classified as industrial machinery. The court references the ordinary and general construction and use of sewing machines, emphasizing that they should not be ignored while interpreting the entry.

Issue 3: Authority of the Commissioner to Issue Clarifications

The petitioners challenge the Commissioner's authority to issue clarifications and direct the levy of tax on sewing machines as industrial machinery. The court finds that the Commissioner's clarification was issued without proper application of mind and misinterpreted the entry. The court emphasizes that the machinery referred to in the explanation must be generally used by an industrial unit for manufacturing or processing goods.

Issue 4: Interpretation and Application of Explanation III to Entry 7

Explanation III, inserted by Act 18 of 1989, defines "industrial machinery" for the purpose of entry 7 as machinery generally used by an industrial unit for manufacturing or processing goods. The court finds that sewing machines do not meet this definition. The court references various judicial decisions to support the argument that the ordinary and general meaning of terms should be adopted in the absence of technical definitions. The court also notes that subsequent amendments can aid in interpreting prior enactments.

Issue 5: Validity of the Clarification Issued by the Commissioner

The court concludes that the clarification issued by the Commissioner, which directed the levy of tax on sewing machines as industrial machinery, is contrary to the Act and not binding. The court finds that the explanation inserted by Act 18 of 1989 should be applied to all cases, even those arising before its insertion, to avoid inconsistent views and discrimination in tax levies.

Conclusion:

The writ petitions are allowed, and the show cause notices and assessments based on the Commissioner's clarification are quashed. The court awards costs of Rs. 1,000 to the petitioners, represented by Sri Indrakumar and Sri K.R. Prasad.