1981 (1) TMI 213 - SC - VAT and Sales Tax

Supreme Court: Sale of power plant not taxable under 'old machinery' rule

Rainbow Steels Ltd. and Another Versus The Commissioner of Sales Tax, Uttar Pradesh, Lucknow and Another

The Supreme Court allowed the appeal, ruling that the sale of the thermal power plant was not subject to tax under entry No. 15 of the relevant ... Whether on a true construction of entry No. 15 of Notification No. ST-II-4949/X-10 (2)-74 dated May 30, 1975, issued under section 3-A of the U.P. Sales Tax Act, 1948, the negotiated sale of a thermal power plant by appellant No. 1 to appellant No. 2 is exigible to sales tax thereunder? Held that:- The appeal is allowed and the view of the lower authorities is set aside and the sale in question is declared to be not exigible to tax under entry No. 15 of the concerned notification dated May 30, 1975. Issues:Interpretation of entry No. 15 of Notification No. ST-II-4949/X-10 (2)-74 under the U.P. Sales Tax Act, 1948 regarding the levy of sales tax on the negotiated sale of a thermal power plant.Analysis:The case involved a dispute over the applicability of sales tax on the negotiated sale of a thermal power plant under entry No. 15 of a notification issued under the U.P. Sales Tax Act, 1948. The appellants argued that the power plant, though sold in perfect working condition, did not qualify as 'old machinery' as per the entry's definition, emphasizing the term 'old' should be interpreted in conjunction with other descriptors like 'discarded, unserviceable, or obsolete.' The Commissioner and the High Court upheld that the power plant, having been purchased and used previously, constituted 'old machinery' within the entry, attracting sales tax.The Supreme Court analyzed the interpretation of the term 'old machinery' in entry No. 15. The appellants invoked the principle of noscitur a sociis to restrict the meaning of 'old' based on its association with other terms in the entry. Conversely, the respondents argued against applying this principle, citing previous court decisions where a similar principle was not applied in statutory interpretation. The Court, after considering the arguments, held that the principle of noscitur a sociis was applicable in this case. It concluded that the term 'old' should be given a restricted meaning in line with the less general descriptors in the entry, such as 'discarded, unserviceable, or obsolete.'The Court further explained that the term 'old' was vague and ambiguous on its own, lacking clarity on the degree of 'oldness' required to qualify as 'old machinery.' Therefore, applying the principle of noscitur a sociis, the Court determined that for machinery to be considered 'old machinery' under the entry, it must be non-functional or non-usable. As the thermal power plant was in perfect working condition at the time of sale, the Court ruled that it did not fall within the scope of entry No. 15, thereby exempting the sale from sales tax liability.In conclusion, the Supreme Court allowed the appeal, setting aside the lower authorities' view and declaring the sale of the thermal power plant as not subject to tax under entry No. 15 of the relevant notification. The Court made this decision based on the interpretation that the power plant did not meet the criteria to be classified as 'old machinery' as per the entry's requirements.