2019 (11) TMI 4 - HC - VAT and Sales Tax

Classification of goods - crankshaft' and 'camshaft' used in the compressors in refrigerators - machinery or not - whether goods in question 'crankshaft' and 'camshaft' are covered within the ambit of Entry No. 26 of Schedule-II Part-A of the U.P. VAT Act, 2008? - rejection of Books of Accounts - Best Judgement assessment - HELD THAT - Section 4(1)(a) read with Schedule-II of the Act provides for rate of tax on goods that have been described in column-2 Schedule-II. Thus, everything else apart, the rate of tax on goods falling under Schedule-II would remain 4%. There exist other Schedules to the Act and parts thereof providing different categorization of goods both on the basis of rates and also use. However, no classification or categorization of any goods by virtue of those being 'capital goods' - On the other hand, Section 2(f) of the Act is not a provision affecting the rate of tax. There is no taxing entry of 'capital goods' existing or relied upon by the revenue. What was required to be seen first was - whether 'crankshaft' and 'camshaft' of compressors used in refrigerators and air-conditioners manufactured and sold by the assessee were items as would fall within any of the description of the taxing entry 26 of Schedule II, Part A of the Act. While examining that claim the Tribunal could not have looked into the residuary entry that in effect is Schedule V of the Act. Thus, if the answer to the above were in the negative and it were to be found that the 'crankshaft' and 'camshaft' manufactured by the assessee were not machinery, then, in absence of any other or alternative claim, the Tribunal could treat the goods to be unclassified under Schedule V to the Act. If however, that answer were in the affirmative, they could not be treated as unclassified by relying on Section 2(f) of the Act, which has no bearing to classification of any goods for taxation purpose. For the purposes of interpreting a taxing entry and to determine the classification of goods, section 2(f) of the Act and its effect would remain wholly irrelevant. It may be clarified, as there is complete absence of any taxing entry of 'capital goods' under any of the Schedules, hence there exists no occasion to examine that issue any further or to determine whether there exists a special entry (of capital goods) and a general entry (of machinery) under entry no. 26, Schedule II, Part A. Commonly, even in homes and non-commercial or non-industrial establishment machines come to be used on a daily basis. A common example of such machine is a ceiling fan. In absence of a special taxing entry to categorize it otherwise, merely because a ceiling fan may be used both in an industrial establishment and also at a residential establishment would not change its identity and therefore its taxability as a machine. It cannot be treated both as an classified and unclassified goods solely on the basis of its installation, whether at an industrial establishment or a home. The order passed by the Tribunal is wholly unsustainable - The same is set aside and the matter is remitted to the Tribunal to pass a fresh order in accordance with law - the question of law is left unanswered.

Summary

Issues:
1. Interpretation of Entry No. 26 of Schedule-II Part-A of the U.P. VAT Act, 2008 regarding taxation of 'crankshaft' and 'camshaft'.

Analysis:
The judgment involves a revision filed against the order of the Commercial Tax Tribunal regarding the taxation of 'crankshaft' and 'camshaft' under the U.P. VAT Act, 2008. The assessee charged these items at 4% under Entry 26 of Schedule-II Part-A, considering them as component parts of machinery. However, the assessing authority treated them as unclassified goods taxed at 12.5%. The Tribunal upheld this view based on the reasoning that these items are used in consumer goods like refrigerators, not machinery used for production. The Tribunal's interpretation was deemed erroneous as it misdirected itself in reaching conclusions.

The judgment delves into the definitions provided in the Act, specifically Section 2(f) defining 'capital goods' and Entry 26 of Schedule-II Part-A. It clarifies that the Tribunal's reliance on Section 2(f) was misplaced as it does not affect the tax rate, and there is no specific entry for 'capital goods' for taxation purposes. The Tribunal failed to correctly interpret Entry 26 and erred by considering the goods as non-capital goods and not machinery.

The judgment emphasizes that the classification of goods for taxation must align with the specific entries provided in the Act. It cites a Supreme Court case to highlight the importance of specific entries overriding general ones. The Tribunal's failure to conduct a proper analysis based on the relevant entry led to an incorrect conclusion. It clarifies that the absence of a specific entry for 'capital goods' means such classification is irrelevant for taxation purposes.

Furthermore, the judgment distinguishes between 'machinery' and 'capital goods,' stating that while they may overlap, they serve different purposes in the context of fiscal statutes. It emphasizes that the taxability of goods must be determined based on legislative provisions and entries. The judgment concludes by setting aside the Tribunal's order and remitting the matter for a fresh decision in accordance with the law and observations provided.

In summary, the judgment critically analyzes the interpretation of Entry 26 of Schedule-II Part-A of the U.P. VAT Act, 2008 regarding the taxation of 'crankshaft' and 'camshaft.' It highlights errors in the Tribunal's reasoning, clarifies the relevance of specific entries for taxation, and emphasizes the importance of aligning tax classification with legislative provisions.