2014 (4) TMI 756 - SC - VAT and Sales Tax

Rate of Tax Exemption Notification - Transformers Classification - Whether the transformer purchased by the assessee at the concessional rate of tax falls under the category of accessories and component parts required for use in the manufacture of notified goods under the U.P. Act - Held that - Judgment in Annapurna Carbon Industries Co. vs. State of Andhra Pradesh 1976 (3) TMI 156 - SUPREME COURT OF INDIA followed - Accessories are an object or device that is not essential per se but that is supplementary or secondary to another object of greater or primary importance which assists in operating or controlling or may serve as aid - The meaning ascribed to the term accessory was followed in Mehra Brothers vs. Joint Commercial Officer, Madras 1990 (11) TMI 144 - SUPREME COURT OF INDIA - Car seat covers are accessories as an addition; an adjunct; an accompaniment for comfortable use of the motor vehicles or for adding elegance to the seat. Purpose of transformer in the manufacturing unit - Whether it is an accessory to the manufacture of the goods so as to claim concessional rate of tax Held that - In the manufacturing process transformer serves the purpose of modifying or controlling the voltage supplied by the utility to the manufacturing unit according to its specific requirements - The transformer installed in the unit would ensure that the electricity is supplied to the unit so as to ensure its optimal performance - The transformers that are purchased by the respondent/assessee would act to the effective functioning of the machinery installed in the unit used for the purpose of manufacture of urea and fertilizers and hence are accessories to the manufacture of urea and fertilizers - Therefore, assessee would certainly fall within the meaning of the expression goods required for use in the manufacture appended as explanation to Section 4-B(2) Therefore, impugned judgment and order does not suffer from any error whatsoever and therefore, no need to interfere with the findings and conclusion reached by the High Court - The appeals are dismissed Decided in Favour of Assessee.

Issues Involved:
1. Eligibility of transformers for concessional tax rate under the U.P. Trade Tax Act.
2. Interpretation of "accessories and component parts" in the context of manufacturing.

Detailed Analysis:

1. Eligibility of transformers for concessional tax rate under the U.P. Trade Tax Act:

The appeals were directed against the judgment of the High Court of Judicature at Allahabad, which concluded that transformers purchased by the respondent-dealer were eligible for a concessional rate of tax for the relevant assessment years. The respondent, a public limited company engaged in the manufacture and sale of Urea Fertilizer, had filed Form No. 18 under Rule 25(2) of the U.P. Trade Tax Rules for a recognition certificate to purchase raw materials, fertilizers, and component parts at a concessional rate of tax. The recognition certificate was issued in Form No. 19 on 04.11.1977.

The respondent purchased spare valves, cables, pumps, and transformers at a concessional rate of tax for manufacturing urea fertilizer. However, the assessing authority issued notices stating that transformers were not covered under the exempted items in the Recognition Certificate. The respondent argued that transformers were covered under "accessories and component parts" as per the Recognition Certificate. The assessing authority rejected this argument, levying tax and penalty.

The First Appellate Authority upheld the assessing authority's decision. The respondent then appealed to the Sale Tax Tribunal, which concluded that transformers were essential for the effective functioning of machinery used in manufacturing urea fertilizer and thus fell under "accessories and component parts" in the Recognition Certificate. The Tribunal set aside the assessment orders for the years 1979-80 and 1980-81 regarding the levy of sales tax on transformers.

The Revenue's revision petition to the High Court was dismissed, affirming that transformers were covered under "accessories" in the Recognition Certificate and eligible for a concessional tax rate. The Revenue then appealed to the Supreme Court.

2. Interpretation of "accessories and component parts" in the context of manufacturing:

The Supreme Court examined whether the transformer purchased at a concessional rate of tax fell under "accessories and component parts" required for manufacturing notified goods under the U.P. Act. Section 4-B of the U.P. Act provides special relief to certain manufacturers, allowing a concessional rate of tax on goods used in manufacturing if the dealer holds a recognition certificate. The explanation to Section 4-B(2) includes "accessories" as goods required for manufacturing.

The term "accessory" was defined broadly as something contributing to or aiding an activity or process. The Court referenced previous judgments, including M/s. Annapurna Carbon Industries Co. vs. State of Andhra Pradesh and Mehra Brothers vs. Joint Commercial Officer, Madras, which defined "accessory" as an object or device supplementary or secondary to another object of greater importance, aiding in its operation or control.

Applying these definitions, the Court found that transformers in the manufacturing unit modify or control voltage to ensure optimal performance, acting as adjuncts to the efficient use of the manufacturing unit. Thus, transformers purchased by the respondent were deemed essential for the effective functioning of machinery used to manufacture urea and fertilizers, qualifying as "accessories" under the U.P. Act.

Conclusion:

The Supreme Court concluded that the High Court's judgment did not suffer from any error and upheld the decision that transformers were eligible for a concessional tax rate as "accessories" required for manufacturing under the U.P. Act. The appeals were dismissed with no order as to costs.

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