2015 (4) TMI 284 - HC - VAT and Sales Tax

Honeycomb Partition Frames for Rail Coaches: Tax Classification Upheld

The High Court upheld the tribunal's decision, classifying honeycomb partition frames supplied to Indian Railways as parts of rail coaches under a ... Classification of goods - Whether honeycomb partition frames manufactured and supplied by the assessee to the Indian Railways is a part of rail coach, falling under Entry No.76 of Third Schedule to KVAT Act - Held that:- If a particular good is enumerated to the Schedule of the Act, then, levy of tax should be according to the said specification. Infact, a Division Bench of this Court in the case of ‘STATE OF KARNATAKA v. M/s. MYSORE THERMO ELECTRIC P. LTD.’ dealing with the question of battery being the part of the railway which falls under Sl.No.76 of the Third Schedule, held that if battery sold to the railways under the expression ‘part thereof’, were manufactured as per the specifications of the railways, the dealers are liable to collect tax at the rate of 4% falling under Entry 76 of the Third Schedule as the battery is an integral part of the rail coaches, engines and wagons and falls under ‘part thereof’. On the same analogy, the honeycomb partition frames used for partition of the rail coaches becomes a part thereof of the rail coaches and therefore, the Tribunal was justified in holding that the honeycomb partition frames manufactured and supplied by the assessee to the railways, form part of a rail coach and falls within Entry No.76 to the Third Schedule of the KVAT Act. We do not see any error committed by the Tribunal. - Decided against Revenue. Issues:1. Classification of honeycomb partition frames for tax purposes under the Karnataka Value Added Tax Act.2. Determining whether honeycomb partition frames supplied to Indian Railways are considered as parts of a rail coach.Issue 1: Classification of Honeycomb Partition Frames for Tax PurposesThe case involved a dispute over the tax rate applicable to honeycomb partition frames supplied by the assessee to Indian Railways. The Karnataka Appellate Tribunal had ruled that these frames fell under a specific entry in the Third Schedule of the Karnataka Value Added Tax Act, attracting a tax rate of 5%, rather than being taxed as unscheduled goods at 13.5%. The tribunal concluded that the frames were integral parts of rail coaches, as they were exclusively manufactured for and supplied to the railways, meeting specific requirements and specifications for use in rail coach construction. The tribunal emphasized that the frames were not intended for general commercial use but were specifically designed for rail coach construction, making them eligible for the lower tax rate. The High Court upheld the tribunal's decision, emphasizing that the frames' primary function and intended use as parts of rail coaches justified their classification under the specific entry in the tax schedule.Issue 2: Determination of Honeycomb Partition Frames as Parts of a Rail CoachThe main question before the court was whether the honeycomb partition frames supplied to Indian Railways constituted parts of a rail coach falling under a specific entry in the tax schedule. The court examined the nature of the frames, noting that they were manufactured according to specific requirements and drawings provided by the railways for use in AC 3 tier coaches. The court highlighted that these frames were not available in the general market and were exclusively designed for partition in rail coaches. Emphasizing the functional character of the frames and their essential role in the construction of rail coaches, the court concluded that they indeed formed integral parts of rail coaches. Drawing on precedents and legal principles, the court rejected the revenue's argument that the frames should be taxed based on their potential uses, emphasizing that the specific entry in the tax schedule governed the tax treatment. The court's decision aligned with previous judgments and upheld the tribunal's ruling that the frames were rightly classified as parts of rail coaches, warranting the lower tax rate.In conclusion, the High Court dismissed the revenue's appeal, affirming the classification of honeycomb partition frames supplied to Indian Railways as parts of rail coaches under a specific entry in the tax schedule, thereby subjecting them to a lower tax rate of 5%. The court's detailed analysis focused on the frames' unique design for rail coach construction, their exclusive use for this purpose, and their essential role in the functionality of rail coaches, ultimately supporting their classification under the specific tax entry.