2016 (7) TMI 119 - HC - VAT and Sales Tax

Classification of the product Wire Mesh - whether the Tribunal is right in holding that the product Wire Mesh cannot be considered as article of Stainless Steel (covered by entry 182(iv) nor can it be considered as accessory or spare part of machinery as mentioned in entry 55 but it can be considered as hardware item for which there is no specific entry and therefore the same is covered by residuary entry 195 of Schedule II Part A of the G.S.T. Act 1969? Held that - an article manufactured to serve as a part of a particular kind of apparatus would not cease to be covered by the intended entry simply because it is capable of being used for any other purpose. In the present case the product in question is of stainless steel and shall fall under Entry 132(iv). We are of the view that the Tribunal has erred in classifying the product in question in the residuary clause i.e. Entry No. 195. Considering the customized manufacturing undertaken by the assessee the product could not be put to any other use. Decided in favor of assessee.

Summary

Issues:
Classification under Gujarat Sales Tax Act, 1969 based on the nature of the product.

Detailed Analysis:

Issue 1: Classification under Gujarat Sales Tax Act, 1969
The case involved determining the correct classification of products manufactured by the applicant under the Gujarat Sales Tax Act, 1969. The main question of law was whether the impugned order was based on irrelevant material and ignored relevant evidence for the purpose of classification. The applicant contended that the products in question, namely wire mesh, demister pads, and knitnesh column packaging pads made of stainless steel wire, should be classified under specific entries related to stainless steel or spare parts and accessories of machinery. On the other hand, the Tribunal had classified the products under the residuary entry, causing the applicant to challenge this classification.

Issue 1.1: Tribunal's Decision and Applicant's Appeal
The applicant, a manufacturing company, had initially applied under Section 62 of the Act to determine the tax rate applicable to their products. The Deputy Commissioner classified the items under the hardware category, leading to an appeal by the applicant to the Tribunal. The Tribunal upheld the Deputy Commissioner's decision, prompting the applicant to seek a reference to the High Court regarding the classification issue.

Issue 1.2: Arguments and Submissions
During the proceedings, the applicant argued that the products were specifically designed for industrial use, such as in air pollution control and refinery towers, and should be classified under entries related to stainless steel or machinery parts. The applicant relied on a Supreme Court decision to support their stance that accessories could serve multiple kinds of instruments. Conversely, the respondent, representing the State, supported the impugned order, asserting that it was legally sound and did not warrant interference.

Issue 1.3: High Court's Decision
After considering the evidence and submissions, the High Court opined that the products were meant solely for industrial purposes, as demonstrated by their specialized applications. Citing the Supreme Court's interpretation of entries related to accessories and parts, the High Court concluded that the products, being of stainless steel, should fall under the specific entry for utensils and articles made of stainless steel. The Tribunal's classification under the residuary clause was deemed erroneous, especially considering the customized manufacturing undertaken by the applicant. Consequently, the High Court ruled in favor of the applicant, directing that the products be classified under the specific entry for stainless steel articles and allowing the appeals accordingly.

In conclusion, the High Court's judgment clarified the correct classification of the applicant's products under the Gujarat Sales Tax Act, emphasizing the importance of considering the nature and intended use of the items in question for accurate classification under the relevant statutory provisions.