2022 (7) TMI 6 - HC - VAT and Sales Tax

Classification of goods - Equipment - whether equipment is same as machinery and would be covered under the Finance Department Notification No.44987-CTA-105/89-F dated 22 nd December 1989 w.e.f. 1st January 1990 and Notification No.1691/CTA-37/01 (PT)-F dated 9th January 2002 w.e.f. 1st March, 2002? - disallowance of claim of deduction under section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act for sale of mechanical equipments i.e. idler to HEC against Form No.XXXIV - HELD THAT - As per the notification dated 9th January 2002 issued by the Finance Department, the entry at serial No.175 states machinery, machinery parts and spare parts and component parts and accessories thereof and tools would be exigible to tax at the first point of sale - Admittedly, the Petitioner is the first seller of the idlers to HEC. The entry in question refers not only to machineries but also component parts thereof and accessories. It also includes tools . The decision of the Allahabad High Court in COMMISSIONER OF SALES TAX, UP., LUCKNOW VERSUS OM IRON FOUNDRY, AGRA 1973 (11) TMI 69 - ALLAHABAD HIGH COURT was dealing with the question whether pulleys were not parts of the machinery. The High Court observed that the goods in question were ordinary pulleys connecting shafts with electrical motors or oil engines for transmission of power . In the present case, the Petitioner does not appear to have placed on record materials to show what the function of the idler is. The STO treated it as machinery spare whereas the ACST took the view that components parts and accessories thereof constituted a separate part of the entry and therefore 12% rate in respect of unspecified taxability came into play when it concerned component parts and accessories. While it is true that idler by itself may not be a complete machine, what is exigible to tax is not only the complete machinery but also spare parts and accessories of machines. The Court is not persuaded that the idler sold by the Petitioner does not form part of machinery or is not an accessory. The distinction sought to be drawn by Mr. Sahoo between equipment and machinery is not convincing in the context in which the question arises here. If the idler was a component part of machinery or even an accessory or a tool, it would still be exigible to tax at the first point of sale. Questions decided in favour of the Department and against the Assessee thereby upholding the view expressed by the STO, ACST and the Tribunal - revision petition dismissed.

Summary

Issues:
1. Interpretation of the term "equipment" in relation to machinery under specific finance department notifications.
2. Disallowance of deduction under Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act for the sale of mechanical equipment.

Analysis:
1. The revision petitions challenged orders of the Orissa Sales Tax Tribunal disallowing the Petitioner's appeals against the Assistant Commissioner of Sales Tax's decisions. The key questions framed for consideration involved the classification of "equipment" as machinery and the disallowance of deductions under the Orissa Sales Tax Act.

2. The Petitioner, engaged in manufacturing and selling mechanical equipment, sold 'idlers' to HEC against Form-XXXIV during the assessment years 2000-01 and 2001-02. The Sales Tax Officer disallowed the deduction, adding the amounts to the taxable turnover for levy of sales tax at 16%. Additionally, a separate assessment resulted in extra tax demands based on job works undertaken by the Petitioner.

3. The Assistant Commissioner of Sales Tax upheld the disallowance of deductions for sales to HEC and made adjustments in the tax demands related to job works. The Tribunal affirmed these decisions, concluding that the idlers sold were subject to tax at the first point of sale, and the Petitioner was liable to collect tax on such transactions.

4. The Court considered arguments from both sides. The Petitioner contended that idlers were not part of machinery and satisfied conditions for deduction under the Orissa Sales Tax Act. Conversely, the Department supported the lower authorities' decisions, emphasizing the taxability of idlers as component parts of machinery.

5. The Court analyzed relevant notifications and legal precedents. It noted that machinery parts, spare parts, and accessories were subject to tax at the first point of sale. The Court found that idlers, being component parts, were exigible to tax, even if not standalone machinery. The lack of evidence on whether the same transaction was being taxed twice led to the dismissal of the Petitioner's contentions.

6. Ultimately, the Court upheld the view of the lower authorities, dismissing the revision petitions and ruling in favor of the Department. The distinction between 'equipment' and 'machinery' was deemed irrelevant in the context of taxability at the first point of sale, affirming the tax treatment of idlers as component parts.