1991 (4) TMI 411 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the purchase turnover of Vee belts can be subjected to levy of entry tax under entry 7 of the Schedule.

Analysis:
The judgment revolves around the interpretation of entry 7 of the Schedule regarding the levy of entry tax on Vee belts. The petitioners challenged the proposition notices proposing the levy of entry tax on Vee belts, arguing that Vee belts are not component parts or accessories of industrial machinery under entry 7. The petitioners contended that they exclusively deal with Vee belts and not machinery. The Commissioner's clarification dated January 19, 1988, stating that Vee belts are taxable under entry 7 from April 1, 1982, played a crucial role in the case.

The petitioners relied on the interpretation of similar entries in the Karnataka Sales Tax Act to support their argument against the levy. They highlighted the historical taxation of Vee belts under section 5(1) of the Karnataka Sales Tax Act and the subsequent insertion of entry 141(v) specifically for Vee belts. The petitioners argued that Vee belts cannot be considered parts or accessories of industrial machinery, citing various decisions of the Supreme Court and other High Courts for support.

The judgment also delves into the distinction between Vee belts and industrial machinery, emphasizing that Vee belts are not integral parts of machinery. The court considered precedents where similar items were not treated as components of machinery, such as rubber beltings and gramophone needles. The court rejected the argument that Vee belts are essential for machinery operation based on the user test, asserting that the user test cannot be the sole criterion for levying tax on Vee belts.

Ultimately, the court declared the Commissioner's clarification as not binding and quashed the proposition notices and assessment orders related to the levy of entry tax on Vee belts. The judgment ruled in favor of the petitioners, directing the refund of tax paid pursuant to any interim orders.