2024 (11) TMI 49 - HC - VAT / Sales Tax

Taxability of panel boards purchased by a manufacturer of submersible pumps - whether panel boards purchased against Form XVII declarations should be taxed separately at a higher rate or as part of an integrated unit with submersible pumps? - HELD THAT - In the present case, there is a finding of fact by the assessing authority that reveals that the goods supplied are integrated sets, comprising both submersible pump and panel board. In such circumstances, where the department has accepted the nature of final product supplied, it is found difficult to accept the stand that the two items must be treated as separate products liable to tax under different rates as stipulated in the schedules. In the case of Northwest Switchgear Ltd 2006 (2) TMI 169 - SUPREME COURT , the assessee was engaged in the manufacture of switches, fan regulators and distribution boards that fell under Chapter Sub-Headings No. 8536.90, 8414.20 and 8537.00 of the Central Excise Tariff Act, 1985. The appellants had classified fan regulators under Sub-Heading 8414.20 of the Tariff Act which covers electric fans, on the strength that there is no other use of these items and these are used principally and solely with the electric fans - The issue framed to be determined was whether fan regulators would be classified along with electric fans at the same rate of duty or as parts and accessories attracting higher rate of duty - On facts, the position in that case was that regulators had been sold without the electric fan and as independent, stand-alone products. On that admitted factual basis, the Supreme Court accepted the contention of the Department that fan regulators manufactured by that assessee without any electric fans were only classifiable as a part or accessory of a fan and not as a fan itself. In the present case, undoubtedly, submersible pumps and panel boards are governed by separate entries. Under the Schedules, submersible pumps are taxable @ 10% under entry 26 of part 'C' of the First Schedule and panel boards are taxable under entry 14 (iii) of part 'D' of the First Schedule taxable @ 12%. The Assessing Authority appears to have invoked the proviso to Section 3(3) of the Act although there is no reference to the proviso in the order of assessment. The officer proceeds on the basis that the petitioner, after purchasing the panel boards on the strength of Form XVII declarations, has failed to make use of the panel boards for the purpose stated in the declarations, but has sold them as independent commodities - his conclusion cannot be accpeted in the light of categoric admission in the assessment order to the effect that the submersible pumps have been sold with the panel boards as integrated kits. Reference made to three assessment orders all dated 27.01.2005 for the periods 2002-2003, 2004-2005 2005-2006 where the claim of concessional rate of tax under Section 3(3) has been accepted by the Assessing Officer. Needless to say, it is necessary that the Department adopts a sustained and uniform view in assessment and cannot waver, taking conflicting stands, especially in the absence of any variation in facts or legal position - the decision that Form XVII declarations are legitimate and liable to be accepted for the earlier and later years, there are no justification in the officer having deviated from that view for the intervening year alone. The impugned order of the Tribunal dated 03.12.2007 is set aside and this writ petition stands allowed.

Summary

Issues:
1. Interpretation of provisions of Tamil Nadu General Sales Tax Act, 1959 regarding the taxability of panel boards purchased by a manufacturer of submersible pumps.
2. Determination of whether panel boards purchased against Form XVII declarations should be taxed separately at a higher rate or as part of an integrated unit with submersible pumps.
3. Application of Section 3(3) of the Act in determining the tax liability on the sale of integrated pumpsets.
4. Consistency in the assessment of tax liability by the Department over different assessment periods.

Detailed Analysis:
1. The petitioner, a manufacturer of submersible pumps, was assessed for the sale of pumps, motors, scrap, and pumpsets. The dispute arose regarding the tax treatment of panel boards purchased against Form XVII declarations, which were sold along with submersible pumps. The Assessing Authority contended that the panel boards were separate items taxed at a higher rate, while the petitioner argued that they were integral components of the pumpsets. The Supreme Court judgment in Northwest Switchgear Ltd. case was cited in support of the tax department's position.

2. Both the first and second appeals upheld the tax department's findings that panel boards were independent items taxable at a higher rate. The petitioner argued that the pumpsets were sold as integrated units for immediate use, emphasizing the necessity of panel boards for the pumps' functionality. The definition of 'Manufacturer' under TNGST Rules was invoked to support the integration argument.

3. The Court analyzed the factual matrix and found that the pumpsets sold by the petitioner included both submersible pumps and panel boards. Despite the tax department's contention that panel boards could be purchased separately, the Court noted the integrated nature of the supplied pumpsets. The application of Section 3(3) of the Act, providing for a reduced tax rate on goods used in manufacturing, was crucial in determining the tax liability on the integrated pumpsets.

4. The Assessing Authority's invocation of the proviso to Section 3(3) was questioned as the panel boards were sold as part of integrated kits, not as independent commodities. The Court emphasized the uniformity in assessing tax liability over different periods, citing previous assessment orders where the concessional rate of tax under Section 3(3) was accepted. Inconsistency in the tax department's approach for the intervening year was highlighted as unjustified.

5. The Court referenced a decision regarding institutional integrity and consistency in judicial decisions to support its conclusion. Ultimately, the Court set aside the tax department's order, allowing the writ petition and emphasizing the importance of maintaining consistency in tax assessments. The judgment highlighted the need for a uniform and sustained view by the tax department to avoid conflicting positions on tax liabilities.