2008 (9) TMI 910 - AT - VAT and Sales Tax

Classification of Diesel Engines & Generator Sets under VAT Act: Functional test crucial for 'plant and machinery.'

The Tribunal held that diesel engines and generator sets could be classified under entry No. 54B of Part I of Schedule C of the VAT Act, 2003. It ... - Issues Involved:1. Interpretation of items (xxviii) and (xxix) under entry No. 54B of Part I of Schedule C of the VAT Act, 2003.2. Determination of whether diesel engines and generator sets qualify as 'machinery' or 'plant and machinery' under the VAT Act, 2003.3. Applicability of tax rates on diesel engines and generator sets and their spare parts.Issue-wise Detailed Analysis:1. Interpretation of Items (xxviii) and (xxix) under Entry No. 54B of Part I of Schedule C of the VAT Act, 2003:The petitioners questioned the Commissioner's interpretation of items (xxviii) and (xxix) under entry No. 54B of Part I of Schedule C of the VAT Act, 2003, which led to a determination that diesel engines and generator sets are not covered by these entries. The petitioners contended that this interpretation was incorrect and sought clarification on the true ambit, scope, effect, and purport of these items.2. Determination of Whether Diesel Engines and Generator Sets Qualify as 'Machinery' or 'Plant and Machinery' under the VAT Act, 2003:The petitioners argued that diesel engines and generator sets should be considered as 'machinery' or 'plant and machinery' based on common parlance and judicial precedents. They cited various cases, including Ghaziabad Engineering Co. (P) Ltd. v. Commissioner of Sales Tax and Sterling Machine Tools v. Commissioner of Sales Tax, U.P., where similar items were classified as machinery. The Commissioner's observation that these items are not treated as machinery in common parlance was challenged as being far from the truth and not reflective of the prevailing trade situation.3. Applicability of Tax Rates on Diesel Engines and Generator Sets and Their Spare Parts:The Commissioner determined a tax rate of 12.5% for diesel engines and generator sets, which the petitioners contested. They argued that these items should not fall under the residuary entry No. 1 of Schedule CA of the VAT Act, 2003, and should instead be taxed at 4% as per entry No. 54B of Part I of Schedule C. The petitioners highlighted that provisional certificates issued under the West Bengal Sales Tax Rules, 1995, classified diesel engines and generator sets as plant and machinery, suggesting that the Commissioner's stance under the VAT Act was inconsistent.Judgment Summary:The Tribunal concluded that the Commissioner was not justified in taking a general view that diesel engines and generator sets cannot be classified under entry No. 54B of Part I of Schedule C of the VAT Act, 2003. The Tribunal emphasized the importance of the functional test as a decisive criterion for determining whether these items qualify as 'plant and machinery.' The Tribunal directed the Commissioner to reassess whether items (xxviii) and (xxix) of entry No. 54B cover diesel engines, generator sets, and their spare parts, considering the principles and judicial decisions discussed. The applications were disposed of with no order as to costs.