1988 (9) TMI 332 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of cycle locks under entry 14 versus entry 150 of the Second Schedule to the Karnataka Sales Tax Act.
2. Interpretation of legislative history and amendments concerning cycle locks.
3. Validity of the Commissioner's circular classifying cycle locks under entry 150.
4. Application of common parlance theory and functional character in determining tax classification.

Issue-wise Detailed Analysis:

1. Taxability of Cycle Locks under Entry 14 versus Entry 150:
The primary issue is whether cycle locks should be taxed under entry 14, which pertains to "bicycles, tandem cycles, cycle combinations and parts and accessories and tyres and tubes thereof," or under entry 150, which covers "all kinds of padlocks and locks." The petitioners argue that cycle locks have historically been treated as accessories to cycles and should continue to be taxed under entry 14. The respondents, represented by the learned Government Pleader, argue that cycle locks fall under the specific entry 150 introduced on November 18, 1983, and should be taxed accordingly.

2. Interpretation of Legislative History and Amendments:
The legislative history shows that cycle locks were initially taxed as accessories to cycles under entry 14 from 1958. This entry was omitted in 1980, exempting cycle parts and accessories from tax. In 1987, entry 14 was reintroduced, reviving the tax on cycle parts and accessories. The petitioners contend that the consistent treatment of cycle locks as accessories for over 25 years should continue. The court examined the legislative amendments and the consistent view taken by the department in taxing cycle locks as accessories.

3. Validity of the Commissioner's Circular:
The Commissioner issued a circular in 1987 classifying cycle locks under entry 150, which the petitioners challenged. The court considered whether the circular was justified based on the amendment introducing entry 150. The respondents argued that the circular provided correct guidance for taxing cycle locks under the newly introduced specific entry. The court needed to decide if the insertion of entry 150 changed the taxability of cycle locks, previously treated as accessories under entry 14.

4. Application of Common Parlance Theory and Functional Character:
The petitioners argued that cycle locks should be understood in common parlance as accessories to cycles, given their predominant use and functional character. They cited several decisions supporting the view that the purpose and predominant use of an article should guide its classification. The court considered precedents like the Supreme Court's decision in Atul Glass Industries (P.) Ltd. v. Collector of Central Excise, which emphasized the functional character and common identification of products. The respondents sought to distinguish these decisions, arguing that entry 150 specifically covered all kinds of locks, including cycle locks.

Judgment:
The court concluded that cycle locks should be taxed under entry 14 as accessories to cycles. It emphasized the consistent treatment of cycle locks as accessories for over 25 years and their identification in common parlance and trade as cycle accessories. The mere insertion of entry 150 did not change their taxability under entry 14. The court relied on the Supreme Court's decisions in Atul Glass Industries and Annapurna Carbon Industries, which emphasized the functional character and predominant use of products in determining their classification. The petitions were allowed, and the court declared that cycle locks should be taxed under entry 14 of the Second Schedule.

Writ Petitions allowed.