1998 (11) TMI 626 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Levy of entry tax on computers.
2. Interpretation of "machinery" under tax law.
3. Validity of notifications issued under the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979.

Issue-wise Detailed Analysis:

1. Levy of Entry Tax on Computers:
The primary controversy in these writ petitions revolves around the levy of entry tax on computers. By a notification dated April 30, 1992, tax was levied on various items, including "electrical and electronic goods, appliances, instruments and apparatus and parts and accessories thereof" and "machinery (all kinds) and parts and accessories thereof but excluding agricultural machinery." The dispute is whether the term "machinery (all kinds) and parts and accessories thereof" includes computers within its ambit.

2. Interpretation of "Machinery" Under Tax Law:
The petitioners argued that computers should not be classified as machinery for tax purposes but should fall under the category of electronic goods. They contended that a specific notification under section 3(1) was required for electronic goods, and since no such notification was issued, the respondents lacked the jurisdiction to levy the tax on computers as machinery. The respondents, however, maintained that computers are machines and thus fall under the general category of machinery.

3. Validity of Notifications Issued:
The legislative history and the sequence of notifications were crucial in determining the validity of the tax levy. The notification dated April 30, 1992, was rescinded on March 30, 1994, and a new notification was issued on the same date, which only mentioned machinery (all kinds) and parts and accessories thereof, excluding agricultural machinery. This created a gap from April 1, 1994, to March 31, 1997, during which there was no specific notification for the levy of entry tax on electrical and electronic goods, including computers.

Analysis of Relevant Judgments:
Several judgments were referenced to interpret the term "machinery." The Bombay High Court in Tata Sons Ltd. v. Union of India held that a computer is a machine and not merely an electrical instrument or appliance. Similarly, in Bhuji Products v. State of Gujarat, xerox machines were classified under duplicating machines rather than photocopying cameras, emphasizing the functional aspect of machinery. The Gujarat High Court in Rashmi Enterprises v. State of Gujarat provided a detailed definition of machinery, highlighting that it involves mechanical contrivances generating power or directing natural forces to produce specific results.

Conclusion and Order:
The court concluded that while computers could be considered machinery, they fall under a special category of electronic goods. Applying the principle of "generalia specialibus non derogant," the special entry for electrical and electronic goods takes precedence over the general entry for machinery. Since there was no effective notification from April 1, 1994, to March 31, 1997, for the levy of entry tax on electronic goods, no tax liability could be imposed on computers during this period. The court quashed any assessment or penalty orders for taxes levied on electronic goods within this timeframe and allowed the petitioners to file objections to any notices issued, with the assessing authority required to consider these objections in light of the court's observations.

Final Disposition:
The petitions were disposed of with the observations that no entry tax could be levied on electrical and electronic goods, including computers, from April 1, 1994, to March 31, 1997, due to the absence of a valid notification.