2008 (9) TMI 909 - AT - VAT and Sales Tax

Scope of WB VAT - diesel engine, diesel engine generator set and spares as well as accessories - sales of diesel engine and diesel engine generator set

Issues Involved:
1. Classification of diesel engine, diesel engine generator set, and their spares and accessories under the West Bengal Value Added Tax Act, 2003.
2. Applicability of item Nos. (xxviii) and (xxix) of serial No. 54B of Schedule C, Part I of the WB VAT Act, 2003.
3. Impact of the introduction of serial No. 54C from April 1, 2007.
4. Application of common parlance test and judicial precedents in determining the classification.

Issue-wise Detailed Analysis:

1. Classification of Diesel Engine and Diesel Engine Generator Set:
The Tribunal examined whether diesel engines and diesel engine generator sets fall under item No. (xxviii) of serial No. 54B of Schedule C, Part I of the WB VAT Act, 2003. The Tribunal referred to previous judgments, including the case of *Kasaban Services v. C.S.T.*, which emphasized that diesel engines and generator sets should be considered as "plant and machinery" for tax purposes. The Tribunal noted that if these items are treated as "plant and machinery," their spare parts, accessories, and components should also be covered under item No. (xxix) of serial No. 54B.

2. Applicability of Item Nos. (xxviii) and (xxix) of Serial No. 54B:
The Tribunal highlighted that the list under item No. 54B is illustrative, not restrictive, implying that other goods with general likeness should come under this heading. However, the introduction of item No. (xxviii) ("all other machinery not specified") indicates a legislative intention to restrict the meaning of "plant and machinery" within the specified items. The Tribunal concluded that diesel engines and generator sets used in commercial activities fall under item No. (xxviii), and their spare parts, accessories, and components fall under item No. (xxix) as it stood before April 1, 2007.

3. Impact of the Introduction of Serial No. 54C from April 1, 2007:
With the amendment effective from April 1, 2007, item No. (xxix) of serial No. 54B was omitted, and the spare parts, accessories, and components of the plant and machinery specified in item Nos. (i) to (xxvii) of serial No. 54B were included in serial No. 54C. The Tribunal upheld the Commissioner's determination that spare parts, accessories, and components of diesel engines and generator sets, which do not fall within item Nos. (i) to (xxvii) of serial No. 54B, would attract a sales tax of 12.5%.

4. Application of Common Parlance Test and Judicial Precedents:
The Tribunal directed the application of the common parlance test to determine whether diesel engines and generators are "machineries" under item No. (xxviii). The Tribunal referred to various judicial precedents, including *Scientific Engineering House (P) Ltd. v. Commissioner of Income-tax*, *Commissioner of Income-tax v. Sri Krishna Bottlers Private Limited*, and *Venkateshwara Engineering Works v. Additional Commissioner of Commercial Taxes*, which supported the classification of diesel engines and generators as machinery. The Tribunal concluded that diesel engines and generators used in commercial activities are considered machinery under item No. (xxviii) of serial No. 54B, and their spare parts, accessories, and components fall under item No. (xxix) as it stood before April 1, 2007.

Conclusion:
The application was allowed in part. The Tribunal modified the Commissioner's determination, directing that diesel engines and diesel engine generators used in commercial activities fall under item No. (xxviii) of serial No. 54B, and their spare parts, accessories, and components fall under item No. (xxix) as it stood before April 1, 2007. However, from April 1, 2007, these items would attract a sales tax of 12.5% as they do not fall under serial No. 54C. Diesel engines and generators designed exclusively for domestic use do not fall under serial Nos. 54B and 54C.

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