2014 (9) TMI 30 - HC - VAT and Sales Tax

Levy of entry tax on twist drills, cutters, reamers, taps, etc. - scope of the words parts and accessories - Taxability of goods covered under entry 52 of Schedule I to the Karnataka Tax on Entry of Goods Act, 1979 - Held that - Scope of entry 52 of the First Schedule to the Act cannot, in our understanding, be understood or explained with reference to an entry occurring in the KST Act, assuming that it is a like entry or analogous to an entry in the KST Act, but even if the argument is to be accepted to this extent, condition or further condition which occurs in an entry in another enactment to be imported into the Act is, in our considered opinion, not permitted by any principle of law. There is no denial in all these cases that the particular product with which the assessee is dealing is one which has been used in combination with other machinery part and has no use of by itself. It obviously amounts that it becomes a tool for the working of another machinery or an accessory because of the enhanced utility of another machinery or machinery with which in combination with its use enhanced or even that it can be such a tool without which the main machinery may even become disfunctional, as in the case of a drilling machine, which is not of much use without a drilling bit. In a situation of such nature, drilling machine or drilling bit or blade or any other such accessory may even assume the role of being a part of the main machinery. It is, therefore, we are of the opinion that there cannot be a generalization or an examination de hors the particular product in combination with the machinery with which makes use of the goods or product. - Order of tribunal set aside - Decided in favor of Revenue. Levy of entry tax on drill-bits which are also called as machinery tools and wear parts such as drill-bits, reamers, cutters, etc. - Held that - The fact of the notified goods coming into local area and the purpose for which it is brought are both significant and it is a combined operation of the two, which completes the charges in respect of the specified goods. Therefore, assuming that use, application or consumption, etc., takes places not at the entry point but later cannot make any difference to the charge so long as the purpose for which the goods have been brought into the local area is for one of the three enumerated purposes such as use, consumption or sale by the dealer which manner of application of goods may occur later. - Decided in favor of revenue. Levy of entry tax on movement inside the local area, namely, fly knives and Chainin saw chains - Held that - The limited understanding of what constituted component part or a part in the wake of a specified type of machinery may not necessarily be useful or applicable in understanding the scope of the words parts and accessories of all types of machinery. - If the arguments addressed on behalf of the assessee are to be accepted, then the levy of tax under the entry in respect of parts and accessories virtually becomes redundant or impossible. No redundancy can be attributed to the Legislature and it has to be effectuated and purposive interpretation has to be attempted in harmonizing the conflict, if any. The argument to the effect that at the entry point it was not identified as a part of the particular machinery, but it was known otherwise, etc. rejected - In the hands of the assessee-dealer, it was very well known and does become a part or component in the combination with type of machinery employed or used by the assessee - Decided in favour of Revenue.

Summary

Issues Involved:
1. Justification of the Tribunal's decision in allowing the appeal of the respondent.
2. Determination of whether the parts and accessories are consumables contrary to the Supreme Court's view in Addison & Co.
3. Legality of rectifying assessment orders.
4. Taxability of goods under entry 52 of the First Schedule to the Karnataka Tax on Entry of Goods Act, 1979.

Analysis:

1. Justification of the Tribunal's Decision:
The Tribunal allowed the appeals of the assessee, concluding that the goods such as twist drills, cutters, reamers, taps, etc., brought into the local area by the assessee for use, consumption, or sale, did not attract tax under entry 52 of the First Schedule to the Act. This decision reversed the orders of the assessing authority and the first appellate authority. The Tribunal based its decision on the judgment of the Supreme Court in Rewa Coal Fields Ltd., which it interpreted as binding.

2. Determination of Consumables:
The Tribunal held that the goods in question were consumables and not parts or accessories of machinery, thus not taxable under entry 52. This interpretation was challenged by the State, which argued that the Supreme Court's judgment in Addison & Co. had already affirmed that such goods are taxable as parts or accessories of machinery. The State contended that the Tribunal misapplied the judgment of Rewa Coal Fields Ltd., which was not relevant to the present case.

3. Legality of Rectifying Assessment Orders:
The legality of rectifying the assessment orders for the years in question was not a central issue before the High Court, as the Tribunal had already affirmed the correctness of the rectification orders. The primary focus was on the taxability of the goods under the Act.

4. Taxability under Entry 52:
The High Court examined whether the goods in question fit within the scope of entry 52 of the First Schedule to the Act. The court noted that the Supreme Court's judgment in Addison & Co. was binding and concluded that the goods were indeed taxable as parts or accessories of machinery. The court rejected the Tribunal's reliance on the Rewa Coal Fields Ltd. case, which pertained to a different context and was not applicable to the present situation.

Conclusion:
The High Court allowed the revision petitions filed by the State, set aside the Tribunal's orders, and restored the orders of the assessing authority and the first appellate authority. The court held that the goods in question were taxable under entry 52 of the First Schedule to the Karnataka Tax on Entry of Goods Act, 1979, and rejected the argument that these goods were consumables not subject to tax. The court emphasized that the Supreme Court's judgment in Addison & Co. was conclusive and binding in this matter.