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Kirloskar Pneumatic Co. Ltd. Vs. State of Maharashtra - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 1 of 1980
Judge
Reported in[1987]64STC420(Bom)
Acts Bombay Sales Tax Act, 1959 - Sections 52 and 61
AppellantKirloskar Pneumatic Co. Ltd.
RespondentState of Maharashtra
Excerpt:
.....refrigeration compressor is `covered by entry 47 of schedule c to act of 1959 - not found that air-conditioning plant in which such compressor used is immovable property - only components of parts of air-conditioning plant included in entry 47 of schedule c - question answered in favour of assessee. - [couto; m.l. pendse, jj.] in the first instance the order passed under s. 132(5) is an order of a summary nature and does not conclude the rights of the petitioners, because while passing the assessment order, it is always open to the petitioners to point out that the assets recovered in the search were not undisclosed to point out that the assetsrecovered in the search were not undisclosed income. secondly, the order passed under s. 132(5) is appealable under the provisions of the act..........separate entries, one dealing with an air-conditioning plant and the other with a refrigeration plant. entry 95 dealing with an air-conditioning plant is identical with entry 47(b) which we have to consider in the present case. entry 96 deals with refrigeration plant and all kinds of refrigeration appliances and equipments including various items mentioned therein and component parts and accessories of any of them. at the relevant time, however, there was no such specific entry dealing with component parts of a refrigeration plant. hence the compressor in question at the relevant time would have to be classified under the residuary entry 22 of schedule e to the bombay sales tax act, 1959.9. in this connection our attention was drawn to a decision of the gujarat high court in the case.....
Judgment:

Sujata V. Manohar, J.

1. The applicants, who are the assessees, are registered dealers under the Bombay Sales Tax Act, 1959. The assessees sold a refrigeration compressor under the invoice dated 15th October, 1974. In respect of this invoice an application was made by the assessees under section 52 of the Bombay Sales Tax Act, 1959 for determination as to whether the article sold was covered by entry 47(b) of Schedule C to the Bombay Sales Tax Act, 1959 or whether it fell within the residuary entry 22 of Schedule E to the Bombay Sales Tax Act, 1959. It was also contended at one stage that the article was covered by entry 60 of Schedule C. In respect of this application, which ultimately went before the Sales Tax Tribunal, the Tribunal has held that the article in question fell within entry 47(b) of Schedule C to the Bombay Sales Tax Act, 1959. From this decision of the Tribunal, the following question has been referred to us under section 61 of the Bombay Sales Tax, 1959 :

'Whether, on the facts and in the circumstance of the case, the Tribunal was correct in holding that kirloskar refrigeration compressor model K 60 X 110 manufactured and sold by the applicant under invoice dated 15th October, 1974, is covered by entry 47 of Schedule C to the Bombay Sales Tax Act, 1959 ?'

2. The invoice in question is in respect of a kirloskar refrigeration compressor model K 60 X 110 manufactured and sold by the assessees. In respect of this compressor the assessees had produced before the authorities the relevant literature and technical information as also figures relating to sales. According to the assessees, the compressor in question is mainly used in refrigeration plants or systems. It is occasionally used in air-conditioning plants or systems also. The compressor is not designed for being used in a refrigerator not can it be used in an air-conditioner. It is designed for use in a refrigeration plant or a refrigeration system, which may be set up for obtaining and maintaining a very low level of temperature either in a cold room for storage and preservation of goods or for removal of process heat in certain manufacturing processes, e.g., chemical and pharmaceutical processes. Such a plant is not available in the market as a unit. Installation of such a plant at site involves not only alignment and assembly of factory finished units of machinery but also fabrication and use of piping, electrical installations, insulation and the like, which can generally be done only at site. In addition, installation of such a plant also involves a certain amount of civil engineering work relating to foundations and so on. The compressor model in question manufactured by the assessees is required for use in such a refrigeration plant, which is required to be set up at site.

3. The entries in force at the relevant time were as under :

SCHEDULE C------------------------------------------------------------------------Serial Description of goods Rate of sales Rate ofNo. tax in paise purchase taxin the rupee in paise inthe rupee1 2 3 4------------------------------------------------------------------------47. Air-conditioning plant ... ...including air-conditionersand air-coolers andcomponents, parts andaccessories thereof.(a) of capacity up to ... ...1.5 tonnes.(b) of capacity over ... ...1.5 tonnes* * *60(1) Refrigerators and mechanicalwater coolers and components,parts and accessories thereof.------------------------------------------------------------------------

It is now nobody's case that the compressor in question is covered by entry 60 of Schedule C. That entry does not deal with a refrigeration plant or its components, parts or accessories. It is, however, the case of the respondents that this compressor falls under entry 47 of Schedule C because it can be used in an air-conditioning plant. Being a part of component of an air-conditioning plant, it would be covered by entry 47(b) of Schedule C.

4. In the present case, there is no evidence or finding relating to how such a compressor is regarded in the trade. The entire case was argued before the Tribunal by the assessees on the basis that the primary use of such compressors was in a refrigeration plant. Apart from technical literature which was produced by the assessees, the assessees also relied upon the figures of sales relating to these compressors manufactured by them for a period of 3 years from 1st July, 1975, till 31st March, 1978. Barring these 3 years, out of a total of 29 compressors which were sold, only 4 were sold for use in an air-conditioning plant. The rest were sold for use in a refrigeration plant. If the figures for 5 years were to be taken into account starting from the year 1972-73 and ending with the year 1976-77, a total of 101 such compressors were sold by the assessees out of which only 25 were used in the air-conditioning plant. The assessees thus contended that the primary use of the compressor in question was in a refrigeration plant. It was only occasionally used in an air-conditioning plant. Hence, the compressor in question should be classified on the basis of its primary use. It could not, therefor, be treated as a component or part of an air-conditioning plant. The department, on the other hand, did not challenge the factual basis of the submission made by the assessees. The department accepted the contention that the compressor was primarily used in a refrigeration plant. The department, however, submitted that the compressor could be used in an air-conditioning plant and hence it could be classified under entry 47(b) of Schedule C to the said Act. This contention of the department was accepted by the Tribunal.

5. In our view, the Tribunal was clearly wrong in coming to this conclusion. In order to decide how the goods in question can be classified under the schedules to the sales tax legislation, one has to look to the primary use of the article in question in the absence of any evidence of trade or common parlance. The classification of any given type of goods depends upon its main or primary use. The fact that occasionally the goods in question can be used for other purposes will not take the goods out of the entry in which the goods would normally fall. Thus, in the case of Annapurna Carbon Industries Co. v. State of Andhra Pradesh : [1976]3SCR561 the Supreme Court was required to consider whether are carbons manufactured by the appellant-company could be classified under an entry dealing with 'cinematographic equipment, including cameras, projectors, and sound recording and reproducing equipment, lenses, films and parts and accessories required for use therewith'. One of the contentions before the Supreme Court was to the effect that although ordinarily 'arc carbons' were used with cinematographic equipment for the purpose of projecting powerful lighting on the screen, they were also occasionally used for other purposes such as signalling, searchlights and so on. The Supreme Court held that in order to classify an item under a proper entry, the deciding factor was the predominate or ordinary purpose or use. It said : 'It is not enough to show that the article can be put to other uses also. It is its general or predominant user which seems to determine the category in which an article will fall.' The Supreme Court also discussed the language of the entry in question along with the language of certain other entries where the words 'for use therewith' were absent. The ratio of the Supreme Court, however, in the above case does not turn on this difference in language in the various entries. Nor is it confined only to the interpretation of such entries as contain the words 'for use therewith'. The above observations of the Supreme Court apply generally to all classifications of goods required to be made for the purpose of sales tax legislation. The Supreme Court in the above case concluded that the main use of are carbons was for projection of a powerful light used in projectors in cinemas. The fact that they could also be used for searchlights, signalling, stage lighting and for powerful lighting for photography or for other purposes could not detract from the classification.

6. In this connection a reference may also be made to a decision of the Bombay High Court in the case of Commissioner of Sales Tax v. Jayanand Khira & Co. Pvt. Ltd., reported in [1975] 36 STC 242. In that case the question related to the classification of an oil-tank sold by the respondent for the purpose of being fitted on the chassis of a motor vehicle. The relevant entry in that case was entry 58 of Schedule C to the Bombay Sales Tax Act, 1959 as it stood at the relevant time. It dealt with (inter alia) components and spare parts of motor vehicles. The Court held that, 'in order to determine whether a particular article is a component part of another article, the correct test would be to look both at the article which is said to be the component part and the completed article and then come to the conclusion whether the first article is a component part of the whole or not. If one were to look at a complete and finished product, one might find so many parts which, by being fixed or otherwise made part of the said product, would lead one into a fallacious impression that they are component parts. One must first look at the article itself and consider what its uses are and whether its only use or its primary or ordinary use is as the component part of another article.'

7. Hence in the present case the fact that the compressor of the type in question can be used in an air-conditioning plant is not sufficient for the purpose of classifying it as a part of component of an air-conditioning plant. We have to see, that is, the primary or predominant use of such a compressor. If the predominant use is as a part of a refrigeration plant, the compressor must be considered as a component or part of a refrigeration plant.

8. At the relevant time, there was no specific entry in any schedule to the Bombay Sales Tax Act dealing with a refrigeration plant, its parts or components. Incidentally, in Schedule C to the Bombay Sales Tax Act, 1959 as now in force there are two separate entries, one dealing with an air-conditioning plant and the other with a refrigeration plant. Entry 95 dealing with an air-conditioning plant is identical with entry 47(b) which we have to consider in the present case. Entry 96 deals with refrigeration plant and all kinds of refrigeration appliances and equipments including various items mentioned therein and component parts and accessories of any of them. At the relevant time, however, there was no such specific entry dealing with component parts of a refrigeration plant. Hence the compressor in question at the relevant time would have to be classified under the residuary entry 22 of Schedule E to the Bombay Sales Tax Act, 1959.

9. In this connection our attention was drawn to a decision of the Gujarat High Court in the case of Bharat Sales Limited v. State of Gujarat reported in [1982] 49 STC 560. In the case before the Gujarat High Court it had to consider entry 76 of Schedule II, Part A to the Gujarat Sales Tax Act at the relevant time. This entry dealt with (inter alia) refrigerators and mechanical water-coolers and component parts and accessories thereof. Entry 69(a) dealt with air-conditioning plant and spare parts and accessories thereof. Entry 41 dealt with electrical goods not being machinery used in the manufacture of goods and spare parts and accessories of such machinery. The Gujarat High Court was required to consider whether autovolters of certain types referred to in that case were to be considered as accessories of refrigerators or air-conditioners or electrical goods. The Gujarat High Court held that sales of these autovolters for use as accessories to refrigerators would be covered by entry 76 while sales of autovolters which were sold for use with an air-conditioner would be covered by entry 69 of the said Act. If they were sold neither for use with a refrigerator not with an air-conditioner, they would be classified as electrical goods covered by entry 41. With respect to the Gujarat High Court, we are unable to agree with this decision of the Gujarat High Court. The classification of any goods cannot vary with the use to which the article would be put by the purchaser. If the logic of the judgment of the Gujarat High Court were to be applied, then, in respect of the same goods sold by the same dealer to different purchasers, the same goods will be classified differently and may attract different rates of tax depending upon how the purchaser uses the article. In our view, this would be an untenable position under the Sales Tax Act. In the first place, every seller would be required to make elaborate, enquiries from the purchaser at the time when he sells any article. Secondly, it may involve the sales tax department into making enquiries, which may be impossible in most case, as to how the article sold was used by the purchaser. It is also not clear what will happen when a purchaser's professed use at the time of purchase is different from his actual use. Lastly, such an interpretation would run counter to the accepted principles of classification laid down by various judgments including those of the Supreme Court. (Also see in this connection our judgment in S.T. Reference No. 61 of 1979 in the case of Commissioner of Sales Tax v. Govardhandas Manmohandas decided on 4th December 1984 63 STC 434. The attention of the Gujarat High Court was not drawn to the decision of the Supreme Court in the case of Annapurna Carbon Industries Co. : [1976]3SCR561 or to any other decision of any High Court. It is well-established that the actual use of an article makes no difference to its classification. One has to look to the primary or predominant use of the article in question in order to classify it correctly.

10. It was strenuously urged by Mr. Jetly, leaned counsel for the respondent, that in the present case there was no finding of fact to the effect that the compressor in question was primarily used in a refrigeration plant. This submission or Mr. Jetly cannot be accepted. The entire case of the assessees before the sales tax authorities was based on its submission that the compressor of the type in question was primarily used in refrigeration plant. The use of such a compressor in an air-conditioning plant was only occasional. This submission was at no stage challenged by the department. The department accepted this submission but argued that even occasional use of such a compressor in an air-conditioning plant was adequate for the purpose of classifying the compressor as part of an air-conditioning plant. This argument of the department was accepted by the Tribunal. Hence the Tribunal also accepted the factual position canvassed by the assessee and gave a finding that the refrigeration compressor in question was primarily used as a part of a refrigeration system; but it was also used as a part of an air-conditioning plant.

11. In its judgment the Tribunal observed as follows :

'...... In the present case, the refrigeration compressor in question may have primary use as a part of refrigeration system. However, it had also been used as a part of an air-conditioning plant. The primary use as part of a refrigeration system, could not however lead to the position that the article in question which had been used as a part of an air-conditioning plant, could not fall within the entry C-47.'

Mr. Jetly emphasised the words 'may have primary use'. He submitted that there was no finding of fact involved here. In our view, the entire paragraph in question which we have reproduced earlier from the Tribunal's judgment must be read as a whole. In effect the Tribunal has said that although a refrigeration compressor is primarily used as a part of a refrigeration system it is also used as a part of an air-conditioning plant. The Tribunal has gone on to observe that its primary use as a part of a refrigeration system cannot take the compressor out of entry 47 of Schedule C. The words 'may have primary use' do not render the finding given by the Tribunal hypothetical or problematic. In our view, findings of fact are often given in this manner by the Tribunal. The Tribunal has accepted that the refrigeration compressor is primarily used as a part of a refrigeration plant.

12. In this connection Mr. Jetly drew our attention the figures of sales given by the assessees for the period 1st July, 1976, to 25th May, 1977. In that particular year out of 6 compressors which were sold 4 were sold for use in air-conditioning plants while 2 were sold for use in refrigeration plants. According to Mr. Jetly, for this assessment year, at any rate, the primary use of the compressor was for use in air-conditioning plants. Such a submission cannot be accepted. The classification of compressors cannot change from year to year in this manner. One must look to the use to which the article is put primarily over a period of time in order to classify it. It one looks at the figures of sales which are supplied by the assessees before the sales tax authorities, the predominant use that emerges is the use in refrigeration plants. In any case the Tribunal has proceeded on the basis that this type of compressor is used primarily in refrigeration plants. This aspect of the matter is not challenged before us by way of a question. Hence we have to proceed on the basis that the primary use of the compressor in question is for a refrigeration plant.

13. It was submitted by Mr. Dastur, learned counsel for the assessees, in the alternative, that entry 47 of Schedule C was an entry appearing in a legislation taxing sale of goods. Hence all the entries appearing in the Schedules of such an Act must be considered as entries dealing with sale or purchase of goods. In the present case, an air-conditioning plant in which a compressor of the type in question could be used, will have to be considered as immovable property. Such an air-conditioning plant has to be set up and assembled on site. According to Mr. Dastur such an air-conditioning plant cannot be considered as 'goods' or movable property at all. Hence, he submits that entry 47 when it refers to 'air-conditioning plant' must necessarily refer to a movable air-conditioning plant. The components or parts of an air-conditioning plant, therefore, have a reference to components and parts only of a movable air-conditioning plant.

14. This submission of Mr. Dastur cannot be accepted. In the first place, there is no finding in the present case that an air-conditioning plant in which such a compressor is used is immovable property. Hence we cannot really go into the question whether the compressors are taken out of entry 47 because they are not parts of a moveable air-conditioning plant. Even otherwise, we do not find much substance in the argument. Because one has to look to the plain language of the entry in order to decide whether an item falls within that entry or not. The components or parts of an air-conditioning plant are clearly included in entry 47 of Schedule C. If certain types of air-conditioning plants are considered as immovable property, they will not be exigible to tax under the Bombay Sales Tax Act, 1959. Their exclusion will not be on account of their not falling within entry 47 of Schedule C. It will be on account of the fact that they are not 'goods', and therefore, not taxable under a legislation concerning sales of goods. Components or parts of such plants are certainly goods and hence exigible to tax. They would fall under entry 47 of Schedule C since they are covered by the description in the entry. In the absence of any relevant finding, however, and in view of the decision that we have come to earlier, it is not necessary to decide this aspect of the matter.

15. In the premises, the question referred to us is answered in the negative and in favour of the assessees.

16. Respondent will pay to the applicants the costs of the reference.

17. Applicants will be entitled to a refund of Rs. 100 deposited with the Sales Tax Tribunal.

18. Reference answered in the negative


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