2021 (11) TMI 170 - HC - VAT and Sales Tax

Transaction of sale taking place or not - sale of Furnace - machinery or not - Section 12(4) of the Orissa Sales Tax Act, 1947 - Whether furnace being an immovable property the sale price of it is not liable to tax under the Act? - HELD THAT - In its judgment in CCE, INDORE VERSUS VIRDI BROTHERS ORS. 2006 (12) TMI 3 - SUPREME COURT the Supreme Court while dealing with the correctness of the order passed by the CEGAT holding that refrigeration plant/cold storage plant which were fabricated out of duty paid materials would be subject to excise duty, held that these plants are basically systems comprising of various components and are thus in the nature of systems and are not machines as a whole. Therefore, they could not be considered to be excisable goods. The Supreme Court accordingly dismissed the Department s appeal. The furnace permanently embedded to the earth is an immovable property and is not liable to Orissa Sales Tax as sale of machinery - The furnace in question is not covered under machinery under Entry 70 List-C of Schedule of rates and therefore, is not exigible to sales tax. The contract involving receipt of lease rent for leasing of the flameless furnace does not constitute sale or resale of goods within the meaning of sale under Section 2(g) of the OST Act - Leasing of flameless furnace cannot be the subject matter of taxation since it has suffered Orissa Sales Tax at an interior stage in view of Section 8 of the Orissa Sales Tax Act. The impugned orders which hold to the contrary shall stand set aside - revision petitions are disposed of.

Issues Involved:

1. Whether the furnace permanently embedded to the earth is an immovable property and thus not liable to Orissa Sales Tax as a sale of machinery.
2. Whether the furnace in question is covered under "machinery" under Entry 70 List-C of the Schedule of rates.
3. Whether the contract involving receipt of lease rental for leasing of flameless furnaces constitutes sale or deemed sale of goods within the meaning and definition of ‘sale’ under Section 2(g) of the Orissa Sales Tax Act, 1947.
4. Whether leasing of flameless furnaces can be legitimately subject to taxation when the same has suffered Orissa Sales Tax at the interior stage in view of Section 8 of the Orissa Sales Tax Act.
5. Whether concessional rate of tax against declaration Form IV is allowable against deemed sale transaction constituting lease of furnaces.

Detailed Analysis:

1. Whether the furnace permanently embedded to the earth is an immovable property and thus not liable to Orissa Sales Tax as a sale of machinery:

The Court examined various precedents, including the Supreme Court's decision in Quality Steel and Tubes (P) Ltd. v. Collector of Central Excise, where it was held that plant and machinery embedded to the earth and forming part of a larger installation are not excisable goods. The Court also referred to the case of Commissioner of Central Excise v. Silical Metallurgic Ltd., where it was held that an electric arc furnace constructed and installed at the site, embedded to the earth, could not be dismantled without substantial damage and thus was not exigible to excise duty. The Court concluded that the flameless furnace in question was similarly embedded and immovable, and therefore, not subject to Orissa Sales Tax as a sale of machinery.

2. Whether the furnace in question is covered under "machinery" under Entry 70 List-C of the Schedule of rates:

The Court held that the furnace, being permanently embedded to the earth and thus immovable, does not fall under the category of "machinery" as listed under Entry 70 List-C of the Schedule of rates. Consequently, it is not exigible to sales tax.

3. Whether the contract involving receipt of lease rental for leasing of flameless furnaces constitutes sale or deemed sale of goods within the meaning and definition of ‘sale’ under Section 2(g) of the Orissa Sales Tax Act, 1947:

The Court referred to the case of Srei International Financial Ltd. v. State of Odisha, where it was held that lease rentals for equipment that has become immovable property are not subject to sales tax. The Court agreed with this precedent, ruling that the lease contract for the flameless furnace, which is immovable, does not constitute a sale or deemed sale of goods under Section 2(g) of the OST Act.

4. Whether leasing of flameless furnaces can be legitimately subject to taxation when the same has suffered Orissa Sales Tax at the interior stage in view of Section 8 of the Orissa Sales Tax Act:

The Court held that since the furnace is immovable and not considered goods, the leasing of such a furnace cannot be subject to further taxation under the OST Act, especially since it has already suffered tax at an earlier stage.

5. Whether concessional rate of tax against declaration Form IV is allowable against deemed sale transaction constituting lease of furnaces:

Given the Court's findings that the leasing of the furnace does not constitute a sale or deemed sale of goods and that it is not subject to further taxation, the question of applying a concessional rate of tax against declaration Form IV does not arise.

Conclusion:

The Court concluded that the furnace permanently embedded to the earth is an immovable property and not liable to Orissa Sales Tax as a sale of machinery. The lease rental for such a furnace does not constitute a sale or deemed sale of goods and is not subject to further taxation. Consequently, the impugned orders were set aside, and the revision petitions were disposed of accordingly.

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