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1991 Supreme(Guj) 126
G.T. Nanavati, S.D. Shah, JJ.
VALLABH GLASS WORKS
Versus
STATE OF GUJARAT.
Sales Tax Reference No. 7 of 1983
Decided On: Decided On : 16-04-1991
The interpretation of the term 'machinery' in Entry 53 of the Government Notification issued under section 49 of the Gujarat Sales Tax Act, 1969, to include parts or members of a machine that, when assembled, form a complete machine.
Headnote:
Gujarat Sales Tax Act, 1969 - Exemption from Tax - Machinery - Processing Materials - Breach of Conditions in Form 'Z' - Interpretation of Entry 53 of Government Notification - Beaters Used in Sand Manufacturing Process.
Fact of the Case:
The assessee, a certified manufacturer under the Gujarat Sales Tax Act, 1969, purchased 'beaters' against form 'Z' from a registered dealer, claiming exemption from tax. The Sales Tax Officer, however, assessed the assessee to purchase tax under section 50 of the Act, holding that the 'beaters' were not used as machinery or processing materials in the manufacture of sand and that there was a breach of the recitals in form 'Z' when the sand manufactured was used as a further raw material in the manufacture of glass at another location.
Finding of the Court:
The Gujarat High Court held that 'beaters' used in the sand manufacturing process constituted 'machinery' within the meaning of Entry 53 of the Government Notification issued under section 49 of the Act. The court interpreted the term 'machinery' broadly to include parts or members of a machine that, when assembled, form a complete machine. The court also found that the assessee had breached the recitals in form 'Z' by using the manufactured sand as a raw material for glass production at another location, as the exemption was intended for the sale of the final product by the certified manufacturer.
Issues: 1. Whether 'beaters' used in the sand manufacturing process can be considered 'machinery' or 'processing materials' under Entry 53 of the Government Notification, entitling the assessee to exemption from tax. 2. Whether the assessee breached the recitals in form 'Z' by using the manufactured sand as a raw material for glass production at another location.
Ratio Decidendi: 1. The court interpreted the term 'machinery' in Entry 53 broadly to include parts or members of a machine that, when assembled, form a complete machine. The court reasoned that a narrow interpretation would defeat the object of the exemption, which was to benefit new industries by exempting essential parts of machinery from tax. 2. The court held that the assessee breached the recitals in form 'Z' by using the manufactured sand as a raw material for glass production at another location. The exemption was intended for the sale of the final product by the certified manufacturer, and the assessee's actions violated this condition.
Final Decision: The court answered the first question in the negative, holding that 'beaters' used in the sand manufacturing process constituted 'machinery' within the meaning of Entry 53 of the Government Notification. The court answered the second question in the affirmative, holding that the assessee had breached the recitals in form 'Z' by using the manufactured sand as a raw material for glass production at another location.
The judgment of the Court was delivered by
S. D. SHAH, J. - On being moved by the applicant under section 69 of the Gujarat Sales Tax Act, 1969, the Gujarat Sales Tax Tribunal has referred the following questions of law for our decision :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in terms of the requirements of entry 53 of the Government notification issued under section 49 of the Gujarat Sales Tax Act, 1969, 'beaters' were not used as machinery, or raw materials or processing materials in the manufacture of sand and in confirming the levy of the purchase tax on that count under section 50 of the Gujarat Sales Tax Act, 1969 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that keeping in view the requirements of entry 53 of the Government notification issued under section 49 of the Gujarat Sales Tax Act, 1969, there was a breach of recitals of the declaration in form 'Z' when the sand manufactured at Pali factory was used as a further raw material in the manufacture of glass for sale at Vallabh Vidyanagar, and in confirming the levy of purchase tax on that count under section 50 of the Gujarat Sales Tax Act, 1969 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in concluding that, there was no bona fide belief on the part of the applicant-company, of being eligible to make purchase of 'beaters' against form 'Z' and also whether the consequent, conclusion about the absence of reasonable cause within the meaning of section 45(6) of the Gujarat Sales Tax Act, 1969, as drawn by the Tribunal was unreasonable or not ?"
2. The applicant-company, i.e., M/s. Vallabh Glass Works at Pali is a registered dealer and it is a "new industry" holding eligibility certificate from the Commissioner of Industries in terms of entry 53 in. Government notification issued under section 49 of the said Act. The said company is also registered as a dealer at Vallabh Vidyanagar, Anand. The unit at Pali was holding eligibility certificate and not the unit at Vallabh Vidyanagar.
3. For the accounting year 1974-75 the applicant-company made purchase of "beaters" of the value of Rs. 1,08,716. The said purchases were made free of tax on the strength of certificate in form "Z". Since the applicant failed to comply with the recitals contained in form "Z" the Sales Tax Officer assessed him to purchase tax under section 50 of the said Act, and he also imposed penalty under section 45(6) of the said Act.
4. Being aggrieved by the said judgment and order of the Sales Tax Officer, Godhra, the applicant preferred appeal to the Assistant Commissioner of Sales Tax who confirmed the order of the Sales Tax Officer.
5. The applicant carried the matter in appeal to the Gujarat Sales Tax Tribunal. The said second appeal was also dismissed and the order passed by the lower authorities came to be confirmed.
6. On being moved by the applicant to refer certain questions of law arising from its judgment, dated 10th September, 1981, the Tribunal has referred the questions aforesaid for our decision.
7. Section 49 of the said Act deals with exemption of certain class of sales or purchases from the liability of tax. Sub-section (2) of section 49 empowers the State Government to exempt any specified class of sales or of specified sales or purchases from payment of whole or any part of tax payable under the provisions of the Act, if the State Government considers it necessary to do so in the public interest by issuing notification in the official gazette. It was in exercise of this power that the State Government issued Notification dated 29th April, 1970 exempting from the payment of tax to the extent specified in column 3 of the Schedule appended to such notification the class of sales or purchases specified in column 2 of the said Schedule on the conditions, if any, specified against each of such class of sa
