2007 (9) TMI 569 - HC - VAT and Sales Tax

Whether the Tribunal was right in holding that the subject tools were in the nature of accessories to machinery and therefore liable to entry tax, Differing from its previous order rendered in the petitioner s case for the earlier assessment years on ex facie wrong premise and in any case, in violation of regulation 54 of the regulations and Altogether ignoring the settled position of law that if a particular practice or position had been accepted by the Revenue for a long number of years, the same cannot be departed from more so when there is no change in the legal position or classification of goods and the Tribunal s later order for 1997-98 and 1998-99 has been accepted by the Revenue? Held that - In the backdrop of the observations made by this court in the order referred to supra passed in the writ petitions filed by the assessee, the assessing officer should have recorded a finding whether the accessories are goods manufactured by the assessee and would fall within entry No. 52 machinery of the KTEG Act and that has not been done by the assessing officer. Therefore, the orders passed by the assessing officers for the years 1982-83 to 1996-97 is not only erroneous but the same are prejudicial to the Revenue as held by the Supreme Court in a catena of cases. Reliance placed by the learned Senior Counsel upon the decision of the Supreme Court with reference to the earlier assessment orders and the order of the KAT had not been followed by the Revenue. Therefore questions at 1 and 3 do not arise to answer the same in favour of the assessee. In view of the aforesaid reasons recorded in this judgment, on the basis of the decisions of the Supreme Court and two decisions of this court referred to supra, we answer the questions referred to supra against the assessee. Revision dismissed.

Issues Involved:
1. Whether the subject tools were in the nature of accessories to machinery and therefore liable to entry tax.
2. Whether the Tribunal erred in differing from its previous order for earlier assessment years and violated regulation 54 of the regulations.
3. Whether the Tribunal ignored the settled position of law that a long-accepted practice by the Revenue cannot be departed from without any change in the legal position or classification of goods.

Issue-wise Detailed Analysis:

1. Nature of Subject Tools and Entry Tax Liability:
The primary issue was whether the tools in question, such as twist drills, reamers, cutters, and taps, were accessories to machinery and thus liable to entry tax under the Karnataka Tax on Entry of Goods Act, 1979 (KTEG Act). The assessee argued that these tools were consumables due to their frequent replacement and short life span, and thus should not be classified as machinery parts or accessories. Historically, the Revenue had not considered these tools as machinery parts or accessories from 1982-83 to 1996-97. However, the assessing officer later classified them as machinery parts and levied a 2% entry tax. The Tribunal, in its order, upheld this classification, relying on entry No. 1(iii)(e) of Part M of the Second Schedule to the Karnataka Sales Tax (KST) Act, which defined parts of machinery. The Tribunal concluded that the tools were indeed accessories to machinery, thus liable to entry tax, aligning with the legal position that accessories are integral to the operation of machinery.

2. Tribunal's Departure from Previous Orders and Regulation 54 Violation:
The assessee contended that the Tribunal's decision for the assessment year 2000-01 differed from its previous orders for 1997-98 and 1998-99, where it had ruled that the tools were consumables and not machinery parts. The assessee argued that this departure violated regulation 54(a)(i) of the Karnataka Appellate Tribunal Regulations, 1979, which mandates referring the matter to a larger Bench if a co-ordinate Bench intends to differ from an earlier decision. The Tribunal, however, did not follow this procedure. The court noted that the Tribunal should have referred the matter to the Chairman for placing it before a Full Bench, thus acknowledging the procedural lapse.

3. Ignoring Settled Position of Law and Long-Accepted Practices:
The assessee argued that the Revenue had accepted the classification of these tools as non-accessories for over 20 years, and there was no change in the legal position or classification of goods to justify the new stance. The court examined the principle that while the doctrine of res judicata does not apply to tax proceedings, consistency should be maintained unless there is a material change in facts. However, the court found that the earlier assessments were erroneous and prejudicial to the Revenue. The court emphasized that the settled legal principles laid down by the Supreme Court regarding the definition of "accessories" should have been applied by the assessing officers, which they failed to do.

Conclusion:
The court concluded that the tools in question were indeed accessories to machinery and liable to entry tax under entry 52 of the First Schedule to the KTEG Act. The Tribunal's departure from its previous orders without referring the matter to a larger Bench was procedurally incorrect. However, the long-accepted practice by the Revenue was found to be erroneous and prejudicial. Thus, the court answered the questions of law against the assessee, dismissing the revision petition.

← Previous Next →