Commercial meaning of plant and machinery applied to diesel generating sets; lease rentals held taxable under the sales tax regime.

Diesel generating sets leased by the assessee were treated as plant and machinery within entry 3 of the Seventh Schedule, because the expression was given its ordinary commercial meaning and the sets were regarded as self-contained tools of trade capable of generating power. On that basis, section 5-C applied to the transfer of the right to use those goods, and the lease rentals were held taxable. The exemption notification was construed as covering only the sale of diesel captive generation units, not the rentals from leasing them. The contrary view that the goods fell outside the Seventh Schedule and within the Fifth Schedule was rejected, and the revisional order was sustained.

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Issues: Whether diesel generating sets leased out by the assessee constitute plant and machinery within entry 3 of the Seventh Schedule to the Karnataka Sales Tax Act, 1957, so as to attract tax under section 5-C, and whether the exemption notification applied to the lease rentals.

Analysis: The expression "plant and machinery" is not defined in the Act and therefore falls to be understood in its ordinary and commercial sense. Applying the test of commercial parlance, diesel generating sets used in the assessee's business were treated as tools of trade and as self-contained machinery capable of generating power. The notification relied upon by the assessee was held to exempt only the sale of diesel captive generation units and not the rentals received on leasing them. Since section 5-C is a charging provision for transfer of the right to use goods specified in the Seventh Schedule, the revisional view that the lease rentals were taxable was upheld. The contrary view that the goods fell outside the Seventh Schedule and within the Fifth Schedule was rejected.

Conclusion: Diesel generating sets were held to be plant and machinery falling within entry 3 of the Seventh Schedule, and the lease rentals were liable to tax under section 5-C. The revisional order was sustained.

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