2019 (7) TMI 1290 - HC - VAT and Sales Tax

Levy of Entry Tax - Whether any entry could have been levied on the assessee for import of machineries and spare parts individually valued at less than ₹ 10,00,000/-? - HELD THAT - Under the schedule entry 2, entry tax has been imposed on a machinery that may be imported into a local area of value more than ₹ 10,00,000/- or a single spare part of a machinery whose value may be more than ₹ 10,00,000/-. Therefore, by way of example (only), if value of a single machinery is more than ₹ 15,00,000/-, the same would remain taxable for the purposes of the Entry Tax Act, even if the assessee chooses to knock down such machinery before its import and cause its entry into the local area in three different parts with value of each part at ₹ 5,00,000/-. The interpretation made by the revenue authority and the appellate authorities would allow the parties to alter and present a transaction as taxable or otherwise by creating artificial bifurcations and unity (amongst different transactions), so as to avoid or create existence of a taxable event. Even otherwise, the rule of strict construction of taxing entry suggests that the taxing entry seeks to impose entry tax on input of machinery of value more than ₹ 10,00,000/-. Therefore the valuation of the taxable goods is determinative of their taxability or otherwise. Once the taxing entry identifies the total of value of a single machine (which would be more than the sum total of value of it's parts), as the factor giving rise to it's taxability, the same test of value would determine the taxability or otherwise of the spare parts. The taxing entry 2 of the schedule to the entry tax act would apply and entry tax may be imposed only on import of such single machinery whose value exceed ₹ 10,00,000/- or on such individual spare parts of any machinery whose value exceeds ₹ 10,00,000/-. The composite value of different machinery and spare parts being compositely imported would not be relevant to determine existence of a taxable event. The matter remitted to the Assessing Authority to re-examine the issue - revision allowed by way of remand.

Summary

Issues:
Interpretation of the U.P. Tax on Entry of Goods into Local Areas Act, 2007 regarding imposition of entry tax on machinery and spare parts valued at over ?10,00,000.

Analysis:
1. The revision was filed against the Trade Tax Tribunal's order confirming the imposition of entry tax on the import of machinery and spare parts by the assessee. The Tribunal upheld the tax on transactions where the value of spare parts imported against a single declaration form exceeded ?10,00,000.

2. The dispute revolved around whether the tax could be levied on the composite value of machinery and spare parts imported or only on individual machinery or spare parts valued over ?10,00,000. The assessee argued that each spare part should be considered separately, relying on the Act's language and a circular by the Commissioner of Trade Tax.

3. The Court examined the Schedule Entry 2 of the Act, which specifies that entry tax applies to machinery or spare parts valued at ?10,00,000 or more individually. The Court clarified that the tax is based on the value of a single machinery or spare part, not the total composite value of multiple items imported in a transaction or throughout the year.

4. The Court emphasized that the intent of the taxing entry was to tax individual high-value machinery or spare parts. It rejected the revenue authority's interpretation that allowed manipulation of transactions to avoid taxation. The Court endorsed a strict construction approach to taxing entries to ensure clarity and consistency in tax application.

5. The Court distinguished a previous case relied upon by the revenue authority, emphasizing that the value of a single machinery or spare part determines tax liability. The Court directed the Assessing Authority to reevaluate the matter based on the clarified interpretation and evidence on record, within six months of the order.

6. Ultimately, the Court allowed the revision, ruling that entry tax should only be imposed on individual machinery or spare parts valued over ?10,00,000 each, not on the total value of multiple items imported together. The decision provided clarity on the taxability criteria under the Act and aimed to prevent manipulation of transactions for tax purposes.