1991 (4) TMI 389 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of whether super enamelled copper winding wire falls under entry 16(2) or entry 41 of Schedule II, Part A to the Gujarat Sales Tax Act, 1969.

Detailed Analysis:

In Sales Tax Reference No. 6 of 1983, the issue involved a manufacturer-seller of super enamelled copper winding wire (SECW wire) challenging the tax levied on the sale of the wire. The Deputy Commissioner and Assistant Commissioner held that the SECW wire should be taxed as electric goods under entry 41 of the Act. The Tribunal rejected the appeal, stating that the wire needed further processing before being used in an electric motor, thus not qualifying as a spare part. The Tribunal's decision was appealed, leading to a reference to the High Court.

In Sales Tax Reference No. 17 of 1983, a distributor of SECW wire challenged the tax assessment under entry 16(2) of the Act. The Assistant Commissioner held that the wire should be taxed under entry 41. The Tribunal upheld this decision, stating that the wire, requiring winding before use, did not qualify as a spare part. The distributor appealed, leading to a reference to the High Court.

The crux of the issue revolved around whether SECW wire qualifies as a spare part of an electric motor. The assessees argued that the wire is specially adapted for use in electric motors, serving a distinct purpose. They contended that the wire, when converted into a coil, is a replaceable component of an electric motor, akin to a spare part. The department argued that the wire loses its identity after being wound into a coil and inserted into a motor, thus not qualifying as a spare part.

The High Court analyzed previous case law and definitions to determine the nature of a spare part. It was argued that SECW wire retains its essential character even when converted into a coil, making it a spare part of an electric motor. The Court highlighted that the wire is specifically designed for use in electric motors, with a distinct commercial identity and purpose, differentiating it from general-use materials like copper wire.

Ultimately, the High Court ruled in favor of the assessees, holding that SECW wire qualifies as a spare part of an electric motor under entry 16(2) of the Act, not entry 41. The Court emphasized the wire's specialized use and distinct identity, contrary to the department's argument that it loses its identity after being wound into a coil. The references were answered in the negative, favoring the assessees, with no order as to costs.