2006 (10) TMI 416 - HC - VAT and Sales Tax

Gujarat Sales Tax Act 1969 - Classification of product - Sales of tool-bits and jobber drills (drill panna) - HELD THAT - It is to be noted that the orders passed by the Deputy Sales Tax Commissioner (Law) Gujarat State on an application submitted by M/s. BPCO Industries Ltd. for determination of tax payable on tool-bits and yet another order passed on a similar application filed u/s 62 of the Act by the learned Deputy Sales Tax Commissioner (Law) Gujarat State have yet not been challenged by the Department before any appellate forum. Thus the orders would not only bind the applicant who made the reference but would also bind the State Sales Tax Department which was a party before the Commissioner of Sales Tax. Hence we must hold that the Tribunal was justified in holding that tool-bits would be taxable under entry 3(ix) of Schedule II Part A of the Act. In our opinion the Tribunal was not unjustified in holding that jobber-drills would be worth-nothing unless it is used as part of the machinery. When speed drills or jobber s drills are used with the help of the machinery then they would become part of the said machinery. It is also to be noted that without the said jobber-drills neither the machine would be complete nor the driller would be worth any use in absence of its use in the machinery. Entry 36 of the Government notification dated June 20 1970 issued u/s 49(2) says that sales of spare parts and accessories (excluding ball bearing) of machinery which is covered by sub-entry (1) of entry No. 16 in Part A of Schedule II would enjoy exemption to the extent to which the amount of sales tax exceeds (3 paise in rupee) and whole of the general sales tax. If jobber-drill is taken to be a spare part of the machinery or as an accessory of the machinery then entry No. 36 which relates to exemption to a particular item would come into play to assist the case in cause of the present assessee. In our opinion the Tribunal was absolutely justified in deciding the questions in favour of the assessee. The reference is answered in affirmative in favour of the assessee and against the Revenue. It accordingly stands disposed of.

Summary

Issues:
Classification of "tool-bits" and "jobber-drills" for sales tax purposes under the Gujarat Sales Tax Act, 1969.

Analysis:
The Gujarat Sales Tax Tribunal initially classified "tool-bits" under entry No. 3(ix) and "jobber-drills" under entry No. 16(1) of Schedule II, Part A of the Act. However, the Revenue challenged this classification, leading to a reference to the High Court. The key question was whether these items should be classified differently under entry No. 13 of Schedule III. The Tribunal's decision was based on the interpretation of the relevant entries and government notifications.

The dispute centered on whether "tool-bits" and "jobber-drills" qualified as machinery parts or accessories under the Act. The Revenue argued that these items did not fit the specified categories and should be considered under a residuary entry. The assessee contended that the Department itself had previously classified "tool-bits" under entry 3(ix), which should be upheld. The Tribunal's decision was influenced by past orders and the integral role of "jobber-drills" in machinery.

Regarding "tool-bits," previous orders by the Deputy Sales Tax Commissioners determined their taxability under entry 3(ix). These orders, unchallenged by the Department, were deemed binding and supported the Tribunal's classification. For "jobber-drills," the Tribunal emphasized their essential function in machinery and their inclusion as spare parts or accessories under entry No. 36 of the Government notification.

Ultimately, the High Court upheld the Tribunal's decision, affirming that "tool-bits" fell under entry 3(ix) and "jobber-drills" under entry 16(1) with exemption under entry No. 36. The Court reasoned that the Tribunal's interpretation was justified based on the items' characteristics and usage within machinery. The reference was answered in favor of the assessee, concluding the matter without costs.