2014 (4) TMI 842 - HC - VAT and Sales Tax

Scope of term Goods u/s 2 (d) of the Act - Taxation of Transfer of Right to use goods - plant and machinery attached to earth Movable Property or not - Claim for exemptions - rent received for plant and machinery immovable property Rent Agreement - Whether machinery can be held to be goods so as to attract tax liability under Act, 1948 - Absence of intention to severe plants and machinery - Held that - For a property and to be regarded as attached property, it must become attached to immovable property as permanently as a building or a tree is attached to earth - If, in the nature of things, the property is a movable property and for its beneficial use or enjoyment, it is necessary to embed it or fix it on earth, though permanently, that is, when it is in use, it may not be regarded as immovable property, but not otherwise Here, besides plants and machinery, entire land and building was leased out and there was no provision/agreement that plants and machinery shall be severed or removed from earth - Removal of plants and machinery would not have allowed the factory to run - There is no agreement between parties that plants and machinery shall be severed or removed from earth - Even according to definition of goods under Section 2(d) in view of this Court, it cannot be included therein. The term goods is defined under Section 2(d) and this is in conformity with definition of immoveable property as contained in Section 3(26) of General Clauses Act 1897 - Items, which are fastened to or attached to earth or something attached to earth are not included in the definition of goods unless there is an agreement between the parties that those items etc. would be severed pursuant to contract of sale between the parties, which is not the case here - It is not the case of the Revenue that there was any intention of parties to severe plants and machinery attached to earth - In fact, there was a lease to run entire factory and not to remove or severe plant and machinery attached or fastened to earth, which are installed in the aforesaid factory to make it functional - In view thereof and considering judgment of Tribunal, this Court do not find that plants and machinery in the case in hand can be treated to be goods within the meaning of Section 2(d) so as to attract and taxability - Therefore, revision is dismissed Decided against Revenue.

Summary

Issues:
1. Whether plant and machinery attached to earth are moveable property for taxing under U.P. Trade Tax Act?
2. Whether Trade Tax Tribunal can allow dealer's claim for exemptions based on rent for plant and machinery?
3. Whether machinery attached to earth can be considered immovable property for exemption claims?
4. Whether the location of agreement affects tax jurisdiction?

Analysis:

Issue 1:
The case involved a dispute regarding the taxability of plant and machinery attached to earth under the U.P. Trade Tax Act. The Tribunal reversed the view taken by the lower authorities, leading to a revision by the Revenue. The definition of "goods" under the Act was crucial, which includes movable property but excludes items permanently attached to earth unless agreed to be severed under a contract of sale. Previous court decisions highlighted the importance of the intention of parties and the permanent attachment of machinery to determine its classification as movable or immovable property.

Issue 2:
Regarding the dealer's claim for exemptions based on rent for plant and machinery, the Tribunal's decision was influenced by the permanent attachment of machinery to the earth for the efficient operation of the factory. The judgment distinguished a previous Supreme Court case where the specific facts led to a different conclusion. The necessity of attachment for beneficial enjoyment and the absence of any agreement to sever the machinery supported the Tribunal's decision to consider the machinery as immovable property.

Issue 3:
The question of whether machinery attached to earth can be classified as immovable property was extensively discussed. The court emphasized the degree and permanency of attachment, as well as the purpose of attachment for beneficial use. The judgment cited a similar case where the entire factory premises, including land, building, and machinery, were leased out, indicating that the attachment of machinery to earth was essential for the beneficial enjoyment of the lease.

Issue 4:
The issue of the location of the agreement impacting tax jurisdiction was also raised. The court focused on the definition of "goods" under the Act and the absence of any intention to sever the attached machinery. The judgment highlighted that the machinery's attachment to earth was necessary for its functional use, and the lease agreement was for running the factory as a whole, not for removing or severing the machinery. Consequently, the court ruled in favor of the assessee, dismissing the revision by the Revenue.

In conclusion, the judgment analyzed the legal aspects of the taxability of plant and machinery attached to earth, emphasizing the definitions of movable and immovable property under the relevant statutes and previous court decisions. The decision rested on the permanency of attachment, the intention of parties, and the necessity of attachment for beneficial use, ultimately leading to the dismissal of the Revenue's revision.