CURRENCY COUNTING MACHINE – A MACHINE OR ELECTRONIC GOODS?

[Mr. M. GOVINDARAJAN]

The word ‘machinery’ was interpreted by the Privy Council in ‘Corporation of Calcutta V. Cossipore Municipality’ – AIR 1922 PC 27.  In this case the Privy Council while dealing with the question, whether a over head tank was a machinery has laid down the basic guidelines as –

• The word ‘machinery’ must mean something more than a collection of ordinary tools.   It must mean something more than a solid structure built upon the ground whose parts either do not move at all or, if they do move, do not move the one with or upon the other in interdependent action with the object of producing a specific and definite results;
• It is not possible to define ‘machinery’ as applicable to all cases.   However, it could be said that, when used in ordinary language prima facie means some mechanical contrivances, which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts, generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result;
• Determination so to what is or what is not ‘machinery’ must, to a large extent, depend on the special facts of each case;
• Illustrations are better guides to ascertain the true meaning of the word ‘machinery’ when used ordinarily and not as a specific definition.

The Karnataka High Court in ‘State of Mysore V. M.N.V. Rao’ – 1964 (3) TMI 75 - KARNATAKA HIGH COURT  held that in simpler language ‘machinery’ is a contrivance whereby several things are put together to work in such a way that force may be applied at a most convenient point in a most convenient way to get a particular work or an item of work done or to produce a specific articles or manufactured goods.  If this is the essential feature of a machinery which distinguishes it from other things, the mode or the manner in which power is fed into it or force is applied need not and should not make any difference.   It is conceded, for example, that machinery would be a machinery whether it is fed by electrical power or other form of power applied by steam or generated by burning combustible oils.   If the mode or the manner in which the power is applied makes no difference in these specified cases, it should make no difference either if the source of power is either human or animal.

The Karnataka High Court in ‘K.B. Dani V. State of Karnataka’ – 1979 (7) TMI 215 - KARNATAKA HIGH COURT held that ‘machine’ means a mechanical device consisting of a planned and an organized arrangement of various parts, each part having definite functions and, as a result of combined functioning, does some work, which may be impossible or difficult for human physical power to perform or, even if it can be done, it cannot be done continuously for a long period or with the speed and with the same uniformity with which the machinery does the same work.  Supply of power to the machine could be either by the natural forces or by human or animal energy, or electric energy or any other type of energy.

In ‘Diebold System Private Limited V. Commissioner’ – 2005 (1) TMI 652 - KARNATAKA HIGH COURT  the Karnataka High Court referred the meaning for ‘machinery’ given in the Webster’s Third New International Dictionary which defines that machine, engine, apparatus, appliance signify, in common, a device, often complex, for doing work beyond human hand or mind, machine applies to a construction or organization whose parts are so connected and interrelated that it can be set in motion and perform work as a unit (those most practical machines of our modern life, the dynamo and the telephone Havelock Ellis) (calculators, billers, duplicators, and other business machines).

The issue to be discussed in this article is whether currency counting machine is a machine or electronic goods with reference to decided case law.   One may say the word itself reveal that the currency counting machine is a machine.   In ‘Methodex Systems Limited V. Assistant Commissioner of Commercial Taxes (Zone – I), Bangalore’ – 2015 (1) TMI 62 - KARNATAKA HIGH COURT the said issue is discussed in detail.   The facts of the case run as follows:

The appellant is a public limited company registered with Sales tax and Central sales Tax Acts.  The appellant is a dealer in sale of furniture.  On verification of books of account by the Department they found that the assessee also effected sales of craft items and electronic items.  The assessee claimed exemption from payment of entry tax under the Act.   The Assessing Authority found that the appellant has received currency counting machines and bundling machine amount to ₹ 22,50,950/- from its head office and also other branches outside the state.  The appellant had not declared the said turnover and paid the entry tax for the same.  The Assessing Authority was of the view that the currency counting machines and bundling machines come under the entry machinery (all kinds) and liable for 2% tax though the appellant had caused the scheduled goods into the local area.

A show cause notice was issued to the appellant.   The appellant objected the same and filed reply with the Authority.  The appellant contended that the currency counting machines and bundling machines are not liable for entry tax.   The Assessing Authority rejected the contentions of the appellant and confirmed the demand of tax of ₹ 45,019/- and imposed penalty of ₹ 10,000/-.

The appellant filed appeal to the Joint Commissioner of Commercial Taxes (Appeals), DVO-I & III, Bangalore.   The Appellate Authority relied on the judgment of Karnataka High Court in ‘Diebold Systems Private Limited’ (supra).  The High Court,  while dealing with the question whether Automated Teller Machine (ATM) installed in the various banks is an electronic goods or a computer, held that if the goods are not technical, the definition in the market parlance would apply.  Therefore the Court proceeded to hold that in commercial circles and in common parlance, machinery is understood to be a mechanical contrivance which produces output when an input is fed into it either manually or any other means.

The Appellate Authority observed in the case of currency counting machine and bundling machine, no input could be induced so as to obtain an output.  It only displays the number of currencies counted and bundled with the operation of the said machine.  When the currencies are placed in the box provided in these machines and when the button provided therein is pressed, the flow of electrons take place within the machine.   When the electrons are flown, then automatically the machine display the result electronically on the screed provided therein specifying the number of currencies counted and number of currencies bundled.  The assessing authority has not analyzed this aspect before forming an opinion that the currency counting machines are scheduled goods classifiable under ‘machinery’. The Appellate Authority quashed the order and also the penalty imposed.

The Additional Commissioner exercised his suo motu power of revision and found that the order of appellate authority is erroneous and prejudicial to the interest of the revenue.  The Additional Commissioner issued a notice to the appellant to file written objections.  The Additional Commissioner, on hearing the objections from the appellant, held that the judgment relied on by the Appellate Authority has no application to the present case as the dispute involved therein is, whether the item involved was an electronic good or a computer.  In the present case the dispute is whether the alleged item is a machinery or electronic good.  The Additional Commissioner held that the currency counting machine is machinery falling under Item No. 7 of the Schedule and therefore he passed order confirming the order issued by the Assessing Authority and also revoked the penalty.

Against this order the appellant filed the present appeal before the High Court.   The appellant contended the following before the High Court:

• Currency counting machine in common parlance is known as electronic goods in respect of no entry tax is payable.   It is not a machine and therefore the finding recorded by the Revisional authority is illegal and requires to be set aside;
• The currency counting machine could be construed as machinery or as electronic goods.   When two views are possible, it is not open to the Revisional Authority to interfere with the order of the appellate authority.  Such an exercise cannot be done while exercising revisional power;
• The Revisional Authority cannot interfere with the reduction of penalty imposed by the appellate authority.

The High Court considered the submissions on both sides.  The High Court observed that the copies of annual maintenance contract and invoices raised thereto, the buyers who have entered into AMC have clearly considered currency counting machines as machines only.  Both the buyer and seller considered the same as machines only.  The High Court  held that in order to constitute a particular goods as machinery, it is not the requirement of the law that there should be a manufacturing activity conducted with the aid of the said goods.   Even it is not necessary that such a machine should be operated with an electrical energy or any other type of energy.  Even natural force or human or animal energy could be used to perform the work for which the said machine is invented.  The essence of a machine is, it is a mechanical device consisting of a planned and an organized arrangement, to perform a work which otherwise a man would have performed.   Such a work is done in a more convenient way and may be faster than what a human being could do.  It is a case of substitution of manual work by a machine.

The role and function of the currency counting machine is to reduce or eliminate human in doing certain thing as desired to perform that work more efficient.  One of the operations conducted by the machine is by way of an electronic device would not make that machine an electronic goods.  The High Court held that the Revisional Authority was justified in interfering with the order of the Appellate Authority and restoring the order of the assessing Authority.   Thus the High Court, Karnataka has confirmed that the currency counting machine is amounting to ‘machine’ only.