2016 (7) TMI 627 - HC - VAT and Sales Tax

Clarification on Tax Classification: Impact on Machinery and Motor Vehicle Accessories

STATE OF GUJARAT Versus STANDARD RADIATORS PVT LTD

The High Court ruled that post the 2010 amendment to entry No.35 of the Gujarat Value Added Tax Act, machinery classified as motor vehicles or attached to ... Rate of tax - Classification - nature of machinery used for works contract - motor vehicle - oil cooler for backho loader / oil cooler for wheel loader / oil cooler for soil compactors - scope of entry No.35 of notification issued under section 5(2) of the Gujarat Value Added Tax Act? - various types of oil coolers were principally used in chain mounted equipments and other equipments used for cutting of iron and steel sheets etc. Held that:- Quite apart from the plain interpretative process which would lead us to this conclusion, we must give due importance to the very entry no.35 which is coined in an inclusive phraseology. Machinery including parts and accessories are brought within this entry. Now that by virtue of amendment with effect from 15.2.2010, the term 'machinery' itself is made to exclude a machinery in form of motor vehicle or attached or mounted to a motor vehicle, its parts and accessories which were hither to included in the term 'machinery' for the purpose of entry no.35, would automatically stand ejected out of such entry. Post 15.2.2010 therefore, the assessee's claim for inclusion of its oil coolers which are used for the purpose of motor vehicle must fail. To that extent the judgement of the Tribunal is reversed. The questions are answered accordingly. Tax appeal is dismissed. - Decided against the revenue. Issues:1. Interpretation of entry No.35 of notification under section 5(2) of the Gujarat Value Added Tax Act regarding oil coolers for different types of vehicles.2. Whether machinery used in execution of works contract includes motor vehicles.3. Impact of the amendment to entry No.35 with effect from 15.2.2010 on the inclusion of motor vehicles as machinery.Issue 1: Interpretation of Entry No.35The State appealed against the Value Added Tax Tribunal's decision regarding the classification of oil coolers for various vehicles under entry No.35 of the Gujarat Value Added Tax Act. The respondent argued that the oil coolers were accessories of machinery used in works contracts and should be covered under entry 35. The competent authority initially accepted this contention for certain types of oil coolers but rejected it for loaders classified as motor vehicles under the Motor Vehicles Act.Issue 2: Machinery vs. Motor VehiclesThe Tribunal ruled in favor of the respondent, stating that the oil coolers for vehicles were machinery used in works contracts. The High Court analyzed the definition of sale and works contract under the VAT Act, emphasizing that the equipment in question was used for works contracts. The Court referred to previous judgments on machinery and observed that the equipment's nature and use for works contracts were established. It concluded that being motor vehicles did not exclude the equipment from being considered machinery used in works contracts under entry No.35.Issue 3: Impact of 2010 AmendmentThe Court highlighted the 2010 amendment to entry No.35, excluding machinery in the form of a motor vehicle or attached to one. Post-amendment, machinery classified as motor vehicles or attached to them was explicitly excluded from entry No.35. Therefore, the oil coolers used for motor vehicles were no longer covered under entry No.35 after the 2010 amendment. The Court reversed the Tribunal's decision based on this amendment, leading to the dismissal of the tax appeal.In conclusion, the High Court's judgment clarified the interpretation of entry No.35 of the Gujarat Value Added Tax Act concerning the classification of machinery and motor vehicles. The Court emphasized the impact of the 2010 amendment, which explicitly excluded motor vehicles or machinery attached to them from entry No.35. This decision had significant implications for the taxation of accessories used in motor vehicles under the works contract category.