2016 (7) TMI 790 - HC - VAT and Sales Tax

Court classifies loader used in works contract as machinery despite being a motor vehicle. Legislative amendment not retroactive.

STATE OF GUJARAT THROUGH COMMISSIONER OF Versus GMM CO. LTD C/O MANIBHAI & BROTHERS ESTATE

The High Court determined that the loader used in works contract activities qualifies as machinery, despite also being a motor vehicle. The Court ... Classification of Loader - Rate of VAT - whether loader will fall under expression machinery, thereby falling within Entry No.35 of notification, dealing with machinery used in excavation in works contract and not under Entry No.87 of ScheduleII of the Gujarat Value Added Tax Act, 2003? - Held that:- the equipments involved are in the nature of loader used in execution of works contract and, therefore, would not be part of entry 35. - Decided in favor of assessee. Issues:1. Whether the loader falls under machinery or motor vehicle category for the purpose of works contractRs.2. Whether the Tribunal erred in not independently finding that the items were used for execution of works contractRs.Analysis:1. The High Court analyzed whether the loader used in execution of works contract falls under machinery or motor vehicle category. The Government contended that as a motor vehicle, the loader cannot be considered machinery for works contract. However, the Court disagreed, holding that the loader qualifies as machinery used in works contract. The Court referred to the definition of sale under the VAT Act and explained the concept of works contract. It emphasized that the equipments in question were used for works contract execution, and their nature as machines was not disputed. The Court cited precedents to support its view that the equipments were machinery used in works contract activities. It further clarified that the fact that the machines were also motor vehicles did not change their classification as machinery for works contract. The Court highlighted an amendment excluding motor vehicles from machinery under entry 35, effective from 15.2.2010, but clarified that it did not have retrospective effect. Based on these considerations, the Court upheld the Tribunal's view that the machines were machinery used in works contract.2. The Court addressed the Tribunal's alleged error in not independently finding that the items were used for works contract execution. It noted that the Tribunal had thoroughly examined the nature of the equipments and their uses, considering the materials presented by the appellant. The Court applied principles from previous judgments to determine whether the equipments qualified as machinery for works contract. It emphasized that the equipments' design, mechanism, and adaptability to specific uses supported their classification as machinery for works contract. The Court concluded that the Tribunal's decision was valid, and the machines, despite being motor vehicles, were covered under entry 35 as machinery used in works contract. Consequently, the Court ruled against the State and in favor of the assessee, dismissing the tax appeal.In summary, the High Court's judgment clarified that the loader used in works contract activities qualifies as machinery, even if it is also a motor vehicle. The Court emphasized the importance of the equipments' design and functionality in determining their classification for works contract purposes. The judgment highlighted the legislative amendment excluding motor vehicles from machinery under entry 35, effective from 15.2.2010, but clarified that it did not have retrospective effect. The Court's detailed analysis of legal principles and precedents supported its decision to uphold the Tribunal's view and dismiss the tax appeal.