2016 (10) TMI 786 - HC - VAT and Sales Tax

Classification of goods - Out Board Marine Engine - classified under residuary entry and taxed at 12.5% or would fall under entry-42A as agricultural inputs and taxed at 4% - Whether on the facts and circumstances of the case, the Tribunal has rightly held that, the goods Out Board Marine Engine commonly known as Oil Engines falls U/e No.42A of Schedule II of the Gujarat Value Added Tax Act,2003? The assessee deals in Out Board Marine Engine of less than 15 HP capacity. Said engine is fitted on fishing boats and is used for the purpose of fishing. It is specially designed engine for such purpose - Held that - the term agriculture and the related terms have reference to cultivation of land. It would include floriculture, horticulture, the raising of crops, grass or garden produce, and grazing. All these activities would be in connection with the soil. By no stretch of imagination, activity of fishing would satisfy this definition. 11. A similar issue came up before the Supreme Court in case of Commissioner of Income-tax,West Bengal, Calcutta V/s. Benoy Kumar Sahas Roy 1957 (5) TMI 6 - SUPREME Court where it was held that Nevertheless there is present all throughout the basic idea that there must be at the bottom of it cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself. This basic conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of the agricultural operations. Whether the goods fall entry-58A which pertains to plant and machinery? - Held that - The term plant in common parlance has thus acquired a definite meaning and would normally mean a self-contained area, structure or building containing one or more units with infrastructure such as an administrative section or storage or a laboratory, a building machinery etc. taken together that are used in the unit of industrial production are also categorized as plant. The fishing boat would certainly not fall within this description. The entry-58A refers to plant and machinery and not plant or machinery. Accepting the contention of the assessee that the entry would include either plant or machinery would expand the scope beyond what the entry seeks to convey. Every piece of machinery whether part of a plant or not would come within its fold. When we hold that the boat is not a plant, an engine per-se which may be machine would not fit the description of said entry-58A. Shri Hemani however contended that such an interpretation would not be correct. He referred to definition of term capital goods contained in Section 2(5) of the VAT Act which reads thus; Capital Goods means plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts. He would submit that if same logic is applied here also, capital goods would include only machinery which part of a plant and not otherwise. We do not think so. This definition of term capital gods is worded as to mean plant and machinery used for manufacture of taxable goods. Word and in this definition seems to have been used to convey the expression as well as . A plant as well as machinery would therefore be capital goods if it is meant for manufacture of taxable goods. However, there are only passing remarks since we are not concerned with interpretation of definition of term capital goods. The judgment of the Tribunal set aside - The question answered in favour of the revenue - Tax Appeals allowed and disposed off.

Issues Involved:
1. Classification of 'Out Board Marine Engine' under the Gujarat Value Added Tax Act, 2003.
2. Determination of whether 'Out Board Marine Engine' falls under Entry-42A as agricultural input.
3. Consideration of whether 'Out Board Marine Engine' falls under Entry-58A as plant and machinery.

Issue-wise Detailed Analysis:

1. Classification of 'Out Board Marine Engine' under the Gujarat Value Added Tax Act, 2003:
The primary issue is whether the 'Out Board Marine Engine' should be classified under Entry-42A of Schedule II of the Gujarat Value Added Tax Act, 2003, which pertains to agricultural inputs, or under the residuary entry which attracts a higher tax rate. The Commercial Tax Officer initially levied VAT at 12.5% treating the goods under the residuary entry. The Tribunal later held that the goods would fall under Entry-42A, thus subject to a lower tax rate of 4%.

2. Determination of whether 'Out Board Marine Engine' falls under Entry-42A as agricultural input:
The Tribunal's majority opinion was that the 'Out Board Marine Engine' would be covered within the description "Oil Engine including Diesel Oil Engine up to 15 HP" as specified in Entry-42A. The Tribunal rejected the Government's contention that Entry-42A could only contain agricultural inputs, arguing that fishery is part of agriculture. However, the dissenting member opined that the engine, being designed for fishing boats, cannot be categorized as an agricultural input. The High Court noted that Entry-42A pertains to agricultural inputs specified by the State Government in the official gazette. The Court emphasized that the entry must be understood in context, and only agricultural inputs specified by the Government would be covered under Entry-42A. The Court concluded that the 'Out Board Marine Engine,' used for fishing, does not fit the description of agricultural inputs.

3. Consideration of whether 'Out Board Marine Engine' falls under Entry-58A as plant and machinery:
The assessee alternatively contended that the 'Out Board Marine Engine' should fall under Entry-58A as plant and machinery, subject to a lower tax rate. The Tribunal's dissenting member rejected this contention, interpreting 'plant and machinery' in a common understanding and concluding that a fishing boat does not satisfy this description. The High Court supported this view, stating that the term 'plant' in common parlance refers to a self-contained area or structure used in industrial production, which a fishing boat does not satisfy. The Court also highlighted that the VAT Act does not provide an expanded definition of 'plant' as found in other statutes like the Income-tax Act. Therefore, the engine, even if considered machinery, would not fit the description of Entry-58A as it is not part of a plant.

Judgment:
The High Court concluded that the Tribunal committed an error in upsetting the decision of the authorities below. The judgment of the Tribunal was set aside, and the question was answered in favor of the revenue. The 'Out Board Marine Engine' does not fall under Entry-42A as agricultural input nor under Entry-58A as plant and machinery. The Tax Appeals were allowed and disposed of accordingly.

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