Gujarat High Court
The State Of Gujarat vs M/S.Pipavav Defense And Offshore ... on 10 April, 2017
Bench: M.R. Shah, B.N. Karia
O/TAXAP/563/2016 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 563 of 2016
With
CIVIL APPLICATION (OJ) NO. 312 of 2016
In TAX APPEAL NO. 563 of 2016
With
TAX APPEAL NO. 99 of 2015
For Approval and Signature:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/
and
HONOURABLE MR.JUSTICE B.N. KARIA Sd/
=============================================
1 Whether Reporters of Local Papers may be allowed to see Yes the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India or any order made thereunder ?
============================================= THE STATE OF GUJARAT....Appellant(s) Versus M/S.PIPAVAV DEFENSE AND OFFSHORE ENGINEERING COMPANY LIMITED....Opponent(s) ============================================= Appearance in Tax Appeal No.563/2016:
MR HARDIK VORA, ASSISTANT GOVERNMENT PLEADER for the Appellant(s) No. 1 MR MIHIR JOSHI, SENIOR ADVOCATE with MS AMRITA M THAKORE, ADVOCATE for the Opponent(s) No. 1 Appearance in Tax Appeal No.99/2015 MR HARDIK VORA, ASSISTANT GOVERNMENT PLEADER for the Appellant(s) No. 1 MR DEVEN PARIKH, SENIOR ADVOCATE with MR SN THAKKAR, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE B.N. KARIA Date : 10/04/2017 COMMON CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 30 HC-NIC Page 1 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT [1.0] As common question of law and facts arise in these Tax Appeals, both these Tax Appeals are decided and disposed of by this common judgment and order.
[2.0] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 31.08.2015 passed by the learned Value Added Tax Tribunal, Ahmedabad (hereinafter referred to as "learned Tribunal" in Second Appeal No.269/2013 by which the learned Tribunal has allowed the said appeal preferred by the respondent - Dealer and has held that the respondent - Dealer is entitled to the Input Tax Credit on capital assets viz. Dry Dock and Fit Out Berth which are considered as "plant", the Revenue has preferred the Tax Appeal No.563/2016 to consider the following questions of law.
"1. Whether the Hon'ble Tribunal has erred in holding that Input Tax Credit u/s.11(3)(a)(vii) of the Gujarat Value Added Tax Act, 2003 is available for purchase of cement, sand, steel, greet, concrete etc. that are used for manufacture of capital goods?
2. Whether the Hon'ble Tribunal is justified in holding that even immovable structure shall be categorized as capital goods under the Gujarat Value Added Tax Act, 2003?"
[3.0] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 13.06.2014 passed by the learned Tribunal in First Appeal No.29/2010 by which the learned Tribunal has allowed the said Appeal preferred by the respondent - Dealer and has held that on the purchases of cement, steel, greet etc. which are used for the purpose of construction of Jetty etc. used as capital goods, the Dealer is entitled to Input Tax Credit and by which the learned Tribunal has set aside the Determination Order passed by the Joint Charity Commissioner in treating the LPG and Acetylene Gas as fuels which are alleged to have been used for generating heat, the Revenue has preferred the present Page 2 of 30 HC-NIC Page 2 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Tax Appeal No.99/2015 to consider the following substantial questions of law.
"(A) Whether the learned Tribunal has erred in holding that the LPG and acetylene gas are not fuel as per Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act?
(B) Whether the learned Tribunal has erred in holding that the Input Tax Credit is available on purchase of steel, cement, kapachi, greet etc. used for construction of capital goods?"
[4.0] For the sake of convenience, Tax Appeal No.563/2016 be treated and considered as a lead matter and therefore, the facts in Tax Appeal No.563/2016 are narrated.
[5.0] Facts leading to the present Tax Appeal No.563/2016 in nutshell are as under:
[5.1] That the respondent - Dealer is a Public Limited Company holding registration both under the Gujarat Value Added Tax Act, 2002 (hereinafter referred to as "VAT Act") as well as under the Central Sales Tax Act (hereinafter referred to as "CST Act"). That the Dealer is engaged in the business of ship building / manufacture and repairs of ship. That for the aforesaid purpose the Dealer constructed the Dry Dock, Fit Out Berth and during the assessment period 200809 incurred expenses of Rs.365,03,44,196/. According to the Dealer the "Dry Dock"
and "Fit Out Berth" is a plant to manufacture the Panamax Ships (large ships). According to the Dealer, the Dry Dock and Fit Out Berth were essential for its manufacturing activities viz. ship building, as without Dry Dock and Fit Out Berth, manufacture of Panamax Ship was not possible That in the Books of Accounts also the Dealer capitalized the amount incurred in construction of Dry Dock and Fit Out Berth under the head "Plant" which was also certified by the Chartered Accountant.
That the respondent - Dealer claimed the Input Tax Credit on purchase Page 3 of 30 HC-NIC Page 3 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT of cement, sand, steel, greet, concrete etc. used in construction of Dry Dock, Fit Out Berth which were used as capital goods. The Assessing Officer, however, while passing the assessment order, rejected the Input Tax Credit on capital investment made by the Dealer in respect of Dry Dock and Fit Out Berth more particularly on purchase of cement, steel, greet etc. used in construction of Dry Dock and Fit Out Berth, which were used as capital goods.
[5.2] Feeling aggrieved and dissatisfied with the assessment order the Dealer preferred the First Appeal before the learned Joint Commissioner. That the learned Joint Commissioner dismissed the said appeal and confirmed the order passed by the learned Assessing Officer.
[5.3] Feeling aggrieved and dissatisfied with the assessment order passed by the learned Assessing Officer as well as the order passed by the learned Appellate Authority in denying the Input Tax Credit on the Dry Dock and Fit Out Berth more particularly on purchase of cement, sand, steel, greet, concrete etc., the Dealer preferred Second Appeal No.269/2013 before the learned Tribunal. On considering the decisions on the point and the use of Dry Dock and relying upon the decision of the House of Lords in case of Inland Revenue Commissioners vs. Barclay, Curle & Co. Ltd. (1970) 76 ITR 62 (HL), the learned Tribunal has held the Dry Dock as "plant" and consequently as capital goods and has held that on purchase of cement, sand, steel, greet, concrete etc. used in construction of Dry Dock - capital goods, the Dealer is entitled to the Input Tax Credit. The learned Tribunal has also considered / noted its earlier decision in the case of ABG Shipyard Limited. (First Appeal No.29/2010), which is the subject matter of Tax Appeal No.99/2015.
[5.4] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, in treating and/or considering Page 4 of 30 HC-NIC Page 4 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT the Dry Dock and Fit Out Berth as plant / capital goods and consequently in holding that on purchase of cement, sand, steel, greet, concrete etc., which are used in construction of Dry Dock and Fit Out Berth, the Revenue has preferred the present Tax Appeal to consider the aforesaid questions of law.
[6.0] In Tax Appeal No.99/2015, the additional question is whether the learned Tribunal has erred in holding that the LPG and Acetylene gas are not fuel as per Section 11(3)(b)(iii) of the VAT Act?
[7.0] Shri Hardik Vora, learned Assistant Government Pleader has appeared on behalf of the Revenue and Shri Mihir Joshi, learned Senior Advocate has appeared on behalf of the Dealer - M/s. Pipavav Defense & Offshore Engineering Company Limited in Tax Appeal No.563/2016 and Shri Deven Parikh, learned Senior Advocate has appeared on behalf of the Dealer - ABG Shipyard Ltd. in Tax Appeal No.99/2015.
[7.1] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue has vehemently submitted that in the facts and circumstances of the case, the learned Tribunal has committed a grave error in holding Dry Dock and Fit Out Berth as "plant" / capital goods.
[7.2] It is vehemently submitted by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue that the learned Tribunal has materially erred in holding that on purchase of cement, sand, steel, greet, concrete etc., the Dealer is entitled to Input Tax Credit.
[7.3] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue relying upon the decision of the Division Bench of this Court in the case of State of Gujarat vs. Sales India Corporation Page 5 of 30 HC-NIC Page 5 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT rendered in Tax Appeal No.582/2013 with 705/2013 has vehemently submitted that the Dry Dock and Fit Out Berth cannot be said to be "plant" / capital goods and therefore, the Dealer is not entitled to Input Tax Credit on the same. Shri Vora, learned Assistant Government Pleader has as such made elaborate submissions on whether on purchase of cement, sand, steel, greet, concrete etc., which are used in construction of Dry Dock and Fit Out Berth, the Dealer is entitled to the Input Tax Credit or not.
[7.4] It is vehemently submitted by Shri Vora, learned Assistant Government Pleader that as per subsection (3) of section 11 of the VAT Act, the Tax Credit to be claimed under subsection (1) shall be allowed to a person / Dealer on his purchase of taxable goods which are intended for the purpose of use as capital goods meant for use in manufacture of taxable goods intended for (1) sale or resale by him in the State; (2) sale in the course of interState trade and commerce other than sale in the course of the expiry out of the territory in India; (3) branch transfer or consignment of taxable goods to other States and (4) sales in the export out of the territory of India. It is submitted that therefore on purchase of those taxable goods which are entitled for the purpose of use as capital goods, the Input Tax Credit is allowable. It is submitted that therefore cement, sand, steel, greet, concrete etc. which are admittedly not intended for the purpose of use as capital goods meant for use in manufacturing of taxable goods, Input Tax Credit is not allowable.
[7.5] It is further submitted by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue that cement, sand, steel, greet, concrete etc. can be said to be raw material used in capital goods and they cannot be said to be the raw materials used in the manufacture Page 6 of 30 HC-NIC Page 6 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT of taxable goods. It is submitted that purchase of taxable goods used as raw materials shall be applicable only with respect to section 11(3)(a)
(vii) of the VAT Act and shall be applicable with respect to the purchase of taxable goods used as raw material in the manufacture of taxable goods entitled for (i) to (v) of section 11(3)(a) of the VAT Act.
[7.6] It is further submitted by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue that therefore, when cement, sand, steel, greet, concrete etc. are used as raw material in the manufacture of capital goods and not in the manufacture of taxable goods intended for (i) to (v) of section 11(3)(a) of the VAT Act, on purchaser of such taxable goods i.e. cement, sand, steel, greet, concrete etc., Input Tax Credit is not allowable.
[7.7] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue has submitted that it is cardinal principle of law that while considering the Taxing Statute, literal meaning of the words used in the Statute are required to be considered and the words used in the Statute are required to be considered as they are. It is submitted that in the present case language of section 11(3) of the VAT Act is very clear. There is neither any ambiguity nor any confusion and therefore, on fair reading of section 11(3)(a) of the VAT Act, on purchaser of only those taxable goods which are intended for the purpose of use as capital goods meant for use in manufacture of taxable goods, the Input Tax Credit is allowable. It is submitted that as none of the aforesaid items are intended to be used as capital goods and they are used as raw materials in the capital goods i.e. Dry Dock and Fit Out Berth, on such purchase the Dealer is not entitled to the Input Tax Credit.
[7.8] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue has relied upon the definition of "capital goods"
Page 7 of 30HC-NIC Page 7 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT contained in section 2(5), definition of "goods" contained in section 2(13) and the definition of "raw material" contained in section 2(19) of the VAT Act. He has also relied upon the definition of "taxable goods"
contained in section 2(29) of the VAT Act. Shri Vora, learned Assistant Government Pleader has relied upon the aforesaid definitions in support of his above submissions and more particularly in support of his submission that Dry Dock and Fit Out Berth cannot be said to be goods within the definition of section 2(13) of the VAT Act. Relying upon the definition of "capital goods" contained in section 2(5) of the VAT Act, it is vehemently submitted that as per section 2(5) of the VAT Act, "capital goods" means "plant and machinery" meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts. It is submitted that therefore cement, sand, steel, greet, concrete etc. cannot be said to be "capital goods" and therefore, on such purchase the Input Tax Credit is not allowable.
[7.9] Relying upon the definition of "goods" contained in section 2(13) of the VAT Act, it is submitted that Dry Dock and Fit Out Berth / Jetty cannot be said to be "goods" as the same are not a movable property.
Making above submissions and relying upon above decision it is requested to allow the present Tax Appeals and answer the question in favour of the Revenue and against the Dealer.
[8.0] Present Tax Appeal is vehemently opposed by Shri Mihir Joshi, learned Senior Advocate appearing on behalf of the Dealer in Tax Appeal No.563/2016.
[8.1] It is vehemently submitted by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer that as such before the learned Tribunal the only submission made on behalf of the State was that the Dry Dock and Fit Out Berth cannot be said to be plant / capital goods. It Page 8 of 30 HC-NIC Page 8 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT is submitted that no other submissions were made on behalf of the State which are now made in the present Tax Appeal more particularly on section 11(3)(a) of the VAT Act and that whether cement, sand, steel, greet, concrete etc. can be said to be capital goods or not.
It is submitted that so far as the issue / question whether Dry Dock, Fit Out Berth can be said to be the plant / capital goods or not is concerned, the same is now not res integra in view of the decision of the House of Lords in Barclay's case.
[8.2] It is submitted by Shri Joshi, learned Senior Advocate that as such the aforesaid is not seriously disputed by the learned Assistant Government Pleader appearing on behalf of the State. It is submitted that therefore, no error has been committed by the learned Tribunal in holding the Dry Dock and Fit Out Berth as plant / capital goods used in manufacture of the taxable goods.
[8.3] Now, so far as the submissions made by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue relying on section 11(3)(a) of the VAT Act and the submission that as cement, sand, steel, greet, concrete etc. are not intended to be used as capital goods in manufacturing of the taxable goods, on purchase of such goods, the Input Tax Credit is not allowable is concerned, Shri Joshi, learned Senior Advocate has vehemently submitted that as such all those goods are used in manufacture / construction of the plant i.e. Dry Dock and Fit Out Berth. It is submitted that therefore applying the "User Theory" on purchase of such goods, the Input Tax Credit is allowable.
[8.4] In support of his above submissions, Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer has relied upon the following decisions.
Page 9 of 30HC-NIC Page 9 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT
1. Scientific Engineering House (P) Ltd. vs. Commissioner of Income Tax, Andhra Pradesh (1986) 1 SCC 11
2. Commissioner of Central Excise, Jaipur vs. Rajasthan Spinning and Weaving Mills Limited (2010) 2 SCC 186
3. Commissioner of Central Excise, Coimbatore and Ors. vs. Jawahar Mills Ltd. and Ors.
(2001) 6 SCC 274 [8.5] Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of Sales India Corporation (Supra) by the learned Assistant Government Pleader, it is submitted by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer that the said decision shall not be applicable to the facts of the case on hand. It is submitted that in the case before the Division Bench, the Division Bench was considering the definition of "plant and machinery"
and was considering whether the goods 'Out Board Marine Engine' commonly known as "Oil Engines" shall fall under Entry No.58A of the VAT Act which pertains to plant and machinery. It is submitted that considering the fact that Entry No.58A referred to "plant and machinery"
and not "plant or machinery", the Division Bench has held that the Out Board Marine Engine shall not fall under Entry 58A. It is submitted that as such the said decision more particularly the observations made in para 15 shall assist the Dealer in support of his submission that "Dry Dock" are capital goods.
Making above submissions and relying upon above decisions, it is submitted that applying "User Theory", as applied by the Hon'ble Supreme Court in the aforesaid decisions, the learned Tribunal has not committed any error in holding that on purchase of cement, sand, steel, greet, concrete etc., which are used in construction of capital goods / Page 10 of 30 HC-NIC Page 10 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT plant used in manufacture of final taxable goods, Input Tax Credit is allowable. Therefore, it is requested to dismiss the present Tax Appeal and answer the questions in favour of the Dealer and against the Revenue.
[9.0] Tax Appeal No.99/2015 is opposed by Shri Deven Parikh, learned Senior Advocate appearing on behalf of the Dealer. Now, so far as on purchase of cement, sand, steel, greet, concrete etc. used in manufacture / construction of Jetty is concerned, Shri Parikh, learned Senior Advocate appearing on behalf of the Dealer has adopted the submissions made by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer in Tax Appeal No.563/2016, however over and above the decisions which are cited and relied upon by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer referred to hereinabove, Shri Parikh, learned Senior Advocate has also relied upon the following decisions of this Court as well as other High Courts
1. Commissioner of Income Tax vs. Elecon Engineering Co. Ltd. 1974 (96) ITR 672 (Gujarat)
2. Commissioner of C. Ex., Tiruchirapalli vs. India Cements Ltd. 2012 (285) E.L.T. 341 (Mad.)
3. Commissioner of C. Ex. & Service Tax vs. India Cements Ltd. 2014 (310) E.L.T. 636 (Mad.)
4. Orissa Power Generation vs. Commissioner, Commercial Taxes 105 (2008) CLT 442 (Decided on 14.02.2008 by Orissa High Court)
5. Commissioner of Incometax vs. Kiran Crimpers (1997) 94 Taxman 502 (Guj)
6. Commissioner of Incometax vs. Saurashtra Bottling (P.) Ltd. (1998) 232 ITR 270 (Guj) Page 11 of 30 HC-NIC Page 11 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT [9.1] Now, so far as question No.1 in Tax Appeal No.99/2015 is concerned, Shri Parikh, learned Senior Advocate appearing on behalf of the Dealer in Tax Appeal No.99/2015 has vehemently submitted that the said question is already concluded against the Revenue in light of the decision of the Division Bench of this Court in the case of State of Gujarat vs. Balram Cement Ltd. (Tax Appeal No.968/2015) and another decision of the Division Bench of this Court in the case of State of Gujarat Through Commissioner vs. SAL Steel Limited (Tax Appeal No.251/2013 and other allied appeals). It is submitted that in the aforesaid decisions the Division Bench of this Court has held that petroleum coke used in the process of manufacturing cement cannot be said to be used as fuel. It is submitted that therefore the learned Tribunal has not committed error in holding that LPG and Acetylene gas are not fuel as per section 11(3)(b)(iii) of the VAT Act and consequently has not committed any error in holding that on the same the Input Tax Credit is allowable.
Making above submissions, it is requested to dismiss the Tax Appeal No.99/2015 and to answer the questions in favour of the Dealer and against the assessee.
[10.0] Heard learned Counsel appearing on behalf of the respective parties at length. A short question which is posed for consideration of this Court is whether on purchase of cement, sand, steel, greet, concrete etc. which are used for manufacture of capital goods, the Dealer is entitled to Input Tax Credit under Section 11(3)(b)
(a)(vii) of the VAT Act and another question which is posed for consideration of this Court is whether the immovable structure viz. Dry Dock and Fit Out Berth shall be categorized as capital goods under the VAT Act or not?
Page 12 of 30HC-NIC Page 12 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT [10.1] For the sake of convenience we shall first consider the question No.2 i.e. whether in the present case Dry Dock and Fit Out Berth shall be categorized as "capital goods" under the VAT Act or not?
While considering the said issue the definition of "capital goods" contained in section 2(5) of the VAT Act is required to be referred to which reads as under:
"Section 2(5). "Capital Goods" means plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable good and accounted as capital assets in the books of accounts;"
Therefore, considering "Capital Goods" defined under section 2(5) of the VAT Act, any plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts can be said to be "capital goods". It is not in dispute that in the books of accounts the Dealer has accounted expenses incurred on construction of Dry Dock and Fit Out Berth as "Capital Assets". Therefore, while considering the issue No.2, next question which is required to be considered is whether such immovable structure shall be categorized as capital goods under the VAT Act can be said to be plant and machinery meant for use in manufacture of taxable goods or not. As such whether the Dry Dock can be said to be considered as plant or not, is now not res integra.
[10.2] In the case of Barclay, Curle & Co. Ltd. (Supra), the House of Lords has held that "Dry Dock" since it fulfill the function of a plant must be held to be a plant. In the aforesaid decision it is observed and held that the while deciding whether a particular subject is "plant" or not, the test would be .... "does the Article fulfill the function of a plant in the assessee trading Company? Is it a tool of its trade with he carries on business ? If the answer is in the affirmative, it will be a plant".
[10.3] Identical question came to be considered by the Hon'ble Page 13 of 30 HC-NIC Page 13 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Supreme Court in the case of Scientific Engineering House (P) Ltd. (Supra) and the Hon'ble Supreme Court had an occasion to consider in detail what can constitute a "plant"? While holding the drawings, designs, charts, plans, processing data and other literature comprised in the "documentation service" as "plant" visavis the book, in paras 11 to 14 the Hon'ble Supreme Court has observed and held as under:
"11. Counsel for the assessee urged that the expression 'plant' should be given a very wide meaning and reference was made to a number of decisions for the purpose of showing how quite a variety of articles, objects or things have been held to be 'plant'. But it is unnecessary to deal with all those cases and a reference to three or four decisions, in our view, would suffice. The classic definition of 'plant' was given by Lindley, L.J. in Yarmouth v. France a case in which it was decided that a carthorse was plant within the meaning of section 1(1) of Employers' Liability Act, 1880. The relevant passage occurring at page 658 of the Report runs thus : There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business, not his stockintrade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business .
In other words, plant would include any article or object fixed or movable, live or dead, used by businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant the article must have some degree of durability, as for instance, in Hinton v. Maden & Ireland Ltd. knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel, the respondent, which ran a hotel installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the definition of plant given in sec. 10(5) of the 1922 Act which was similar to the definition given in Sec. 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France as expounded in Jarrold v. John Good and sons Ltd. held that sanitary and pipeline fittings fell within the definition of plant.
12. In Inland Revenue Commissioner v. Barclay Curle & Co. Ltd. the House of Lords held that a dry dock since it fulfilled the function Page 14 of 30 HC-NIC Page 14 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT of a plant must be held to be a plant. Lord Reid considered the part which a dry dock played in the assessee company's operations and observed :
It seems to me that every part of this dry dock plays an essential part....The whole of the dock is, I think, the means by which, or plant with which, the operation is performed.
Lord Guest indicated a functional test in these words: In order to decide whether a particular subject is an 'apparatus' it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary In other words the test would be: Does the article fulfil the function of a plant in the assessee's trading activity Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative it will be a plant.
13. If the aforesaid test is applied to the drawings, designs, charts, plans, processing data and other literature comprised in the 'documentation service' as specified in Clause 3 of the agreement it will be difficult to resist the conclusion that these documents as constituting a book would fall within the definition of 'plant'. It cannot be disputed that these documents regarded collectively will have to be treated as a 'book', for, the dictionary meaning of that word is nothing but a a number of sheets of paper, parchment, etc. with writing or printing on them, fastened together along one edge, usually between protective covers; literary or scientific work, anthology, etc., distinguished by length and form from a magazine, tract, etc. (vide Webster's New World Dictionary). But apart from its physical form the question is whether these documents satisfy the functional test indicated above. Obviously the purpose of rendering such documentation service by supplying these documents to the assessee was to enable it to undertake its trading activity of manufacturing the theodolites and microscopes and there can be no doubt that these documents had a vital function to perform in the manufacture of these instruments; in fact it is with the aid of these complete and upto date sets of documents that the assessee was able to commence its manufacturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. True, by themselves these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility, though owing to technological advances they might or would in course of time become obsolete. We are, therefore, clearly of the view that the capital asset Page 15 of 30 HC-NIC Page 15 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT acquired by the assessee, namely, the technical knowhow in the shape of drawings, designs charts, plans, processing data and other literature falls within the definition of 'plant' and therefore a depreciable asset.
14. Counsel invited our attention to the decision in Commssioner of Income Tax, Gujarat v. Elecon Engineering Co. Ltd. where the Gujarat High Court has, after exhaustively reviewing the case law on the topic, held that drawings and patterns which constitute know how and are fundamental to the assessee's manufacturing business are 'plant'. We agree and approve the said view."
In the aforesaid decision in the case of Scientific Engineering House (P) Ltd. (Supra), the Hon'ble Supreme Court approved the decision of this Court in the case of Elecon Engineering Co. Ltd. (Supra). In the case of Elecon Engineering Co. Ltd. (Supra), the Division Bench of this Court had an occasion to consider in detail what would constitute a "plant" and while holding the drawings and patterns as "plant" the Division Bench of this Court in paras 25 to 37 observed and held as under:
"25. The next question which must necessarily arise for consideration is whether drawings and patterns acquired by the assessee satisfy the aforesaid dual test and it is here that the real difficulty arises in the present case. We will, for the purposes of this point, assume in favour of the assessee indeed on that point there is a finding of fact recorded by the Tribunal that drawings and patterns satisfied the functional test since they formed "the basis" of the assessee's business of manufacturing Worm Reduction Gear Units and Conveyor Idlers. The real difficulty, however, arises in regard to the satisfaction of the other test. The real difficulty, however, arises in regard to the satisfaction of the other test. In the statement of the case, the Tribunal has not stated material facts or its conclusions on material facts which would enable us to hold that drawings and patterns in question were in a book form and possessed the physical characteristics of a book. In the absence of such material, the question referred to us cannot be answered, one way or the other, by confining one's attention only to the inclusive definition of the word "plant". If the case had to be decided solely by reference to the said inclusive definition, we would have been required to call for a supplementary statement of case or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust its decision under section Page 16 of 30 HC-NIC Page 16 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT 260(1) of the Act in the light of the observations made in this judgment. We find, however, that the Tribunal has alternatively found that drawings and patterns are "plant" even within the ordinary meaning of the said word, apart from the enlarged meaning given to it by the definition clause. This finding of the Tribunal turns upon the interpretation of the word "plant" occurring in section 32 and if we concur in the view of the Tribunal on that point, the question referred to us can be answered in favour of the assessee without calling for supplementary statement or adopting other suitable procedure. We, therefore, now proceed to the consideration of the question whether drawings and patterns in question are comprehended within the ordinary meaning of the word "plant" and shall revert to this point and take either of the two courses referred to earlier only if we are not inclined to uphold the alternative decision of the Tribunal.
26. The word "plant", though an ordinary English word, is not altogether an easy word to construe. It may have a more or less extensive meaning according to its context. It has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import susceptible of diverse meanings depending upon its setting in the scheme of the statute. Almost all cases bearing upon the interpretation of the word "plant"
decided in England and in this country were cited before us and the following enumeration would show as to what an amazing variety of articles, objects or things have been held to be plant or not plant :
PLANT
(i) Horse, Yarmouth v. France; (ii) knives and lasts used in manufacture of shoes, Hinton v. Maden & lreland Ltd.; (iii) aircraft engine which was being dismantled, Watts v. Enfield Rolling Mills (Aluminium) Ltd.; (iv) moveable office partitions, Jarrold v. John Good & Sons Ltd.; (v) concrete dry dock, Inland Revenue Commissioner v. Barclay, Curle & Co. Ltd.; (vi) electircal fans and other office appliances, Sundaram Motors Pvt. v. Commissioner of Incometax; (vii) poles, cables conductors and switch boards for distribution of electricity, Commissioner of Incometax v. Indian Turpentine and Rosin Co. Ltd.; (viii) lightfittings, ceiling and pedestal fans and waterpipe fittings in a hotel, Commissioner of Incometax v. Jagadeeschandran & Co.; (ix) sanitary and pipeline fittings in a hotel, Commissioner of Incometax v. Taj Mahal Hotel. NOT PLANT :
(i) Horse, London and Eastern Counties Loan and Discount Co. v. Creasey; (ii) stallion (used to serve mares), Earl of Derby v. Ayler;
(iii) bed of a river, Dumbarton Harbour Board v. Cox; (iv) solicitor's law books, Daphne v. Shaw; (v) water tower, Margrett v. Lowestoft Water & Gas Co.; (vi) electric lamps and fittings in a tea shop, J.
Lyons & Co. Ltd. v. AttorneyGeneral; (vii) human body, Norman v.
Page 17 of 30HC-NIC Page 17 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Golder; (viii) wallpaper pattern books, Rose & Co. (Wallpaper & Paints) Ltd. v. Campbell; (ix) designs for wallpaper and furnishing fabrics, McVeigh v. Arthur Sanderson & Sons Ltd.; and (x) water storage tank used for storing water by the supplier thereof for irrigation purposes, Jayasingrao Piraji Rao Ghatge v. Commissioner of Incometax.
27. Two material facts emerge on a conspectus of these authorities :
first, that in each case the word "plant" was construed having regard to its context and circumstances of the case, and, secondly, that in none of the cases the court was concerned with the interpretation of the word "plant" occurring in a statute in which it was defined. The first feature noted above is illustrated by the fact that one and the same thing, namely, a horse, has been held to be plant in one case (Yarmouth's case) in the context of the Employers' Liability Act, 1880, whereas in another case (Creasey's case) in the context of the Bills of Sale Act (1878) Amendment Act, 1882, it has been held not to be plant. These cases, therefore, would be of little utility in seeking to interpret the word "plant" in section 32 of the Act in the context in which it occurs, all the more so because of the fact that by an inclusive definition contained in section 43(3) its ordinary meaning has been enlarged so as to include many things which could not be comprehended within its ordinary meaning. The problem with which we are concerned is not what is the meaning of the expression "plant" in any one of dozen other statutes, but what is its meaning in section 32 of the Act and it cannot be resolved by reference to the decisions given under different statutes. We shall, therefore, look at only those out of the numerous cases cited before us from which any general principles can be deduced which might guide us in deciding the question on hand. For the reasons stated above, we hope that we shall not be taken as neglecting the arguments advanced before us if we make no special reference to each and every case cited before us. With this prefatory remark, we proceed to refer to the relevant decisions.
28. The locus classicus for the definition of plant is in the words of Lindley L.J., in Yarmouth's case, which despite the great technological advances since those days is still of great help and has been adopted for the purposes of the incometax law. The question in that case was whether a horse could be regarded as plant and the main issue was whether the word "plant" must be confined to inanimate objects or whether it would also include animate objects. The learned judge said at page 658 of the report :
"There is no definition of plant in the Act : but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, not his stockintrade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business" : see Blake v. Shaw."Page 18 of 30
HC-NIC Page 18 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT
29. This wide definition sets out in simple words, both positively and negatively, the essential features of plant and accordingly anything which is used for trading purposes, other than the stockintrade, would be plant provided it is kept for permanent employment.
30. Next in point of time is the decision in J. Lyons & Company Ltd.'s case. The question for consideration there was whether elective lamps and fittings used for lighting a teashop could be properly described as "plant" within the meaning of section 103(5) of the War Damage Act, 1943. In that section, the word "plant" was used throughout as part of the phrases "plant or machinery" and "machinery and plant". Uthwatt J., who decided the case, held in the first place that circumstances did not have "the effect of confining the meaning of the word to such plant as is used for mechanical operations of processes". In the next place, he accepted the definition of Lindley L.J., but to some extent qualified it. Said he (at page 286) :
"..... 'plant' includes whatever apparatus or instruments are used by a businessman in carrying on his business."
31. Then he proceeded to state and we think that the underlined portion contains the qualification which he engrafted :
"The term does not include stockintrade, now does it include the place in which the business is carried on."
32. This decision brings into bold relief two points : first, that the collocation of the words "plant or machinery" does not necessarily mean that an apparatus used by a businessman, in order to qualify as a plant, must be such as is used for mechanical operations or processes and, secondly, that it does not include the place used by a businessman for carrying on his business.
33. Then comes the decision of the House of Lords in Hinton's case. One of the questions in that case was whether knives and lasts which were used in a large number in the making of shoes and the average life of which was about three years were plant within the meaning of section 16 of the Finance Act, 1954. All the Law Lords held that they were. Lord Reid, in the course of his speech, first set out the definition of the word "plant" given in Yarmounth's case and then extracted from the judgment of Uthwatt J. in J. Lyons & Co. Ltd., the passages wherein the learned judge had held that an object, in order to qualify as plant, need not necessarily be used for mechanical operations or processes and that the place in which a businessman carried on his business was not included within the meaning of the word "plant". This would indicate that although Lord Reid does not in terms say so, he adopted the definition of the word "plant" given by Lindley L.J., with the gloss put on it by Uthwatt J. He went on to say (at page 417) :
"Subject to one point, I have no doubt that these knives and lasts are plant in the ordinary sense of the word. It is true that Page 19 of 30 HC-NIC Page 19 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT they are numerous, small and cheap. But one trader may have to use a few large articles while another may have to use a large number of small articles, and I see no good ground for distinguishing between them as regards investment allowance. The one point is the durability of these articles. When Lindley L.J. used the phrase 'permanent employment in his business' he was using it in contrast to stockintrade which comes and goes, and I do not think that he meant that only very long lasting articles should be regarded as plant, But the word does, I think, connote some degree of durability, and I would find it difficult to include articles which are quickly consumed or worn out in the course of a few operations. There may well be many borderline cases, but these articles have an average life of three years, and if their cost can fairly be called capital expenditure I cannot refuse to them the description of 'plant' unless the Act discloses some special reason for doing so."
34. Lord Tucker concurred in the view of Lord Reid and said that he adopted that reasoning and did not desire to add anything thereto. Lord Keith of Avonholm held that the articles in question could "quite properly be described as among the plant to be provided for a similar business set up for the first time, and their replacements must, I think, continue to be plant". Lord Denning in his speech stated (at page 422) :
"These machines are undoubtedly plant. They are plant used by the manufacturers in the factory. Each of the machines each mechanical cobbler is part of the plant. The knives and lasts too are part of the plant."
35. Lord Jenkins referred to the definition of the word "plant" in Yarmouth's case and proceeded to state (at page 424) :
"The reference to 'permanent employment' in the business demands some degree of durability. This, I think, is satisfied in the present case by the life of three years attributed to making and finishing lasts, sometimes extended to four or five years in the case of the latter, and to sole knives. The upper knives are given a life of only 12 months, but the intention, no doubt, is to keep and use them for so long as they are serviceable, and I cannot regard the circumstance that they wear out in that relatively short period as investing them with so transitory a character as to take them out of the category of plant to which they would otherwise belong."
36. This decision is important in many respects. The definition of plant in Yarmouth's case was approvingly referred to and applied in interpreting the word "plant" in the context of a taxing statute by three Law Lords. They also explained that when Lindley L.J. used the phrase "permanent employment in his business" what he really meant was that the article in question should have "some degree of Page 20 of 30 HC-NIC Page 20 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT durability" and that it was not intended to suggest that only very long lasting articles should be regarded as "plant". Three years' life of an article was considered to meet the test of durability in the facts of the case. The other two Lords, though they did not specifically refer to this aspect, concurred in the ultimate decision on this point and, therefore, they must also be deemed to have agreed with this view. Lord Reid in his speech also approved of course by implication the gloss put on the definition of Lindley L.J., by Uthwatt J. and further indicated that articles or objects, although they might be "numerous, small and cheap", might still qualify as plant.
37. Next we must refer to the decision of the Court of Appeal in Jarrold's case. The question in that case was whether certain movable office partitions installed in the office of the assessee could be regarded as plant for the purposes of initial allowance and annual allowance under the relevant provisions of the Income Tax Act, 1952. The principal contention on behalf of the revenue in that case was that movable office partitions were not apparatus or instruments used by the assessee in carrying on its business but they were merely the "setting" in which the businesses were carried on. A subsidiary contention was that "plant" would only comprise an apparatus or instrument used in carrying out the actual operations of the trade, that is, such parts of the equipment of the works as perform something more than a passive role. Ormerod L.J., who delivered the leading judgment, referred to the definition of the word "plant" given in Yarmouth's case and described it as the "best known.... and most generally invoked". He then referred to the qualification engrafted on it by Uthwatt J. in J. Lyons & Co. Ltd's., case and observed that Lord Reid in Hinton's case must be taken as having approved of the definition of the word "plant" as given by Lindley L.J., with the qualification superimposed thereon by Uthwatt J. Dealing with the principal contention of the revenue, he observed (at page 693) :
"The dividing line between what is "plant" and what is not is a narrow one, and the facts of this particular case come near to that dividing line. But, in my judgment, in the circumstances of this case and I think each case does depend largely on its own circumstances the partitions should be regarded as something more than a mere setting for the carrying out of the trade; in other words as coming within the definition of "plant" as contained in section 279."
[10.4] In another decision in the case of Saurashtra Bottling (P.) Ltd. (Supra), while considering the bottles and wooden shells (crates) purchased by the assessee for bottling and distribution of its products as "plant", it is observed and held that a "plant" would mean an equipment or article necessary for the purpose of that business.
Page 21 of 30HC-NIC Page 21 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Considering the aforesaid decision of the House of Lords in the case of Barclay, Curle & Co. Ltd. (Supra) and the decision of the Hon'ble Supreme Court in the case of Scientific Engineering House (P) Ltd. (Supra) and the decisions of the Division Bench of this Court referred to hereinabove and the definition of the "Capital Goods"
contained in section 2(5) of the VAT Act, Dry Dock and Fit Out Berth which are necessary for the purpose of business of the Dealer, the same are to be treated and held as "plant".
[10.5] Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of Sales India Corporation (Supra) relied upon by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue in support of his submission that the Dry Dock and Fit Out berth cannot be said to be capital goods is concerned, at the outset it is required to be noted that in the said case the Division Bench was considering Entry 42A and Entry 58A of Schedule II of the VAT Act and the words used in Entry 58A i.e. "plant and machinery" and the subject matter was found to be only "machinery" and not "plant", the Division Bench held that the subject matter would not fall under Entry 58A. Even in the said decision the Division Bench made some passing remarks with respect to the "Capital Goods" defined in section 2(5) of the VAT Act and it is observed that the definition of the term "Capital Goods" contained in section 2(5) of the VAT Act is worded as to mean "plant and machinery" used for manufacture of taxable goods and the word "and" in the said definition it seems to have been used to convey the expression "as well as" and therefore, a plant as well as machinery would therefore be capital goods if it is meant for manufacture of taxable goods. Therefore, question No.2 is held in favour of the Dealer and against the Revenue and it is held that Dry Dock and Fit Out Berth are plant / capital goods.
[11.0] The next question which is posed for consideration of this Page 22 of 30 HC-NIC Page 22 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Court is whether on the purchase of cement, sand, steel, greet, concrete etc. that are used for manufacturing of capital goods viz. Dry Dock and Fit Out Berth, the Dealer is entitled to Input Tax Credit or not?
[11.1] It is the case on behalf of the Revenue that as the aforesaid materials are not used as raw material in manufacturing of the taxable goods, but are used in manufacturing of the capital goods, considering subsection (3) of section 11 of the VAT Act, on purchase of such raw materials which are not used in the manufacturing of the taxable goods, but are used in manufacture of capital goods, the Dealer shall not be entitled to Input Tax Credit. It is the case on behalf of the Revenue that only those materials which are used in manufacture of taxable goods, the Dealer shall be entitled to the Input Tax Credit. Therefore, it is the case on behalf of the Revenue that "raw materials" shall be applicable with respect to clause (i) to clause (vi) of subsection (3) of section 11 of the VAT Act and the same shall not be applicable to clause (vii) of sub section (3) of section 11 of the VAT Act. However on the other hand it is the case on behalf of the Dealer that by applying the "User Theory" as applied by the Hon'ble Supreme Court and many High Courts, on all the materials used in manufacture of capital goods, the Dealer shall be entitled to Input Tax Credit.
[11.2] While considering the said issue, two decisions of the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. and Ors. (Supra) and Rajasthan Spinning and Weaving Mills Limited (Supra) are required to be referred to. There are other decisions of various High Courts on the issue which can be said to be in favour of the Dealer, however in all the decisions the concerned High Courts have considered and followed the decisions of the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. (Supra) and Rajasthan Spinning and Weaving Mills Ltd. (Supra) and therefore, we would like to consider the aforesaid two decisions of the Hon'ble Supreme Court only.
Page 23 of 30HC-NIC Page 23 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT [11.3] In the case of Jawahar Mills Ltd. (Supra), it was the case of allowability of MODVAT on power cables and capacitors, control panels, cables, distribution boards, switches and starters, air compressors and electric wire cables and the question before the Hon'ble Supreme Court was whether the aforesaid goods can be said to be "Capital Goods". It was the case on behalf of the Revenue that as the aforesaid items in question were not used for manufacture of final product and therefore, the same cannot be treated as "Capital Goods" for the purpose of availing of MODVAT. The Hon'ble Supreme Court negatived the aforesaid and not accepted the case on behalf of the Revenue and has held that the question whether item falls within the definition of "Capital Goods" would depend upon the use it is put to. While holding so in para 6 the Hon'ble Supreme Court has observed and held as under:
"6. The contention of learned Additional Solicitor General that the aforesaid decision and other decisions referred by the Tribunal in the impugned order were cases involving sales tax and income tax and, therefore, the Tribunal should not have relied on those decisions is without any substance because the real question is that of the principle laid down by a decision. In view of the liberal language of the provision, Mr. Rohtagi fairly and very rightly did not seriously dispute that if any of the items enumerated in explanation 1(a) is used for any purpose mentioned therein for the manufacture of final products, it would satisfy the test of `Capital goods'. The main contention of Mr. Rohtagi, however, is that the question whether an item falls within the definition of `Capital goods' would depend upon the user it is put to. The submission is that parts of the items in respect whereof availing of Modvat credit has been allowed by the Tribunal could not be treated as 'Capital goods' as the manufacturer could not establish that the entire item was used in the manufacture of final product. To illustrate his point, Mr. Rohtagi submitted that part of a cable may go into the machine used by the manufacturer and, thus, may qualify the requirement of clause 1(a) and, at the same time, another part of the cable which is used only for lights and fans would not so qualify. We have no difficulty in accepting the contention of the learned Additional Solicitor General that, Page 24 of 30 HC-NIC Page 24 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT under these circumstances, user will determine whether an item qualifies or not the requirement of clause 1(a). However, in the present cases this aspect has no relevance. It was not the case of the revenue at any stage before the authorities that an item does not satisfy the requirement of `Capital goods' within the meaning of the Rule on the ground of its user as it now sought to be urged by the learned counsel. The case of the revenue has all through been that the items in question per se are not `Capital goods' within the meaning of the expression as defined in Explanation 1(a). In respect of the cables of which Mr. Rohtagi gave example, the stand of the revenue before the Tribunal was that the cables per se cannot be treated as `Capital goods'. The stand of the revenue was not as has been projected now by Mr. Rohtagi. In this view, the question of directing remand of these matters for fresh decision by the Tribunal does not arise. On the facts and circumstances of these cases, therefore, the stand that the items in question are not used for manufacture of final product cannot be accepted for the reasons aforestated."
The aforesaid decision of the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. (Supra) again came to be considered by the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd. (Supra) and applying the law laid down in the case of Jawahar Mills Ltd. (Supra), the Hon'ble Supreme Court has observed and held that steel plates and MS Channels used in the fabrication of chimney or diesel generating set, applying "User Test", would fall within the ambit of "Capital Goods" and therefore, on such the assessee is entitled to the MODVAT Credit. In the said decision even the Hon'ble Supreme Court considered the amended definition of "Capital Goods" in Rule 57Q, however applying the "User Test" as was applied by the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. (Supra), it was held that steel plates and MS Channels, used in the fabrication of chimney would fall within the ambit of "Capital Goods". In para 14 the Hon'ble Supreme Court has observed and held as under:
"14. Applying the "user test" on the facts in hand, we have no hesitation in holding that the steel plates and MS channels, Page 25 of 30 HC-NIC Page 25 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT used in the fabrication of chimney would fall within the ambit of "capital goods" as contemplated in Rule 57Q. It is not the case of the Revenue that both these items are not required to be used in the fabrication of chimney, which is an integral part of the diesel generating set, particularly when the pollution control laws make it mandatory that all plants which emit effluents should so equipped with apparatus which can reduce or get rid of the effluent gases. Therefore, any equipment used for the said purpose has to be treated as an accessory in terms of Serial No.5 of the goods described in Column (2) of the Table below Rule 57Q."
[11.4] Similar view has been expressed by various High Courts in the following cases.
1. Commissioner of Income Tax vs. Elecon Engineering Co. Ltd. 1974 (96) ITR 672 (Gujarat)
2. Commissioner of C. Ex., Tiruchirapalli vs. India Cements Ltd. 2012 (285) E.L.T. 341 (Mad.)
3. Commissioner of C. Ex. & Service Tax vs. India Cements Ltd. 2014 (310) E.L.T. 636 (Mad.)
4. Orissa Power Generation vs. Commissioner, Commercial Taxes 105 (2008) CLT 442 (Decided on 14.02.2008 by Orissa High Court)
5. Commissioner of Incometax vs. Kiran Crimpers (1997) 94 Taxman 502 (Guj)
6. Commissioner of Incometax vs. Saurashtra Bottling (P.) Ltd. (1998) 232 ITR 270 (Guj) [11.5] Following the law laid down by the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. (Supra) and Rajasthan Spinning and Weaving Mills Ltd. (Supra) to the facts of the case on hand and as cement, sand, steel, greet, concrete etc. are required to be used in manufacturing of "Capital Goods" viz. Dry Dock and Fit Out Berth, Page 26 of 30 HC-NIC Page 26 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT which is an integral part of the final product of the Dealer are without the Dry Dock and Fit Out Berth, it is not possible for the Dealer to carry on his business which is of ship building / manufacture and repairs of ship and that the Dry Dock and Fit Out Berth are specialized in nature which are required to be constructed specially and specifically for the purpose of business of the Dealer i.e. ship building / manufacture and repairs of ship, applying the "User Test" it is to be held that on purchase of cement, sand, steel, greet, concrete etc. which are used in Dry Dock and Fit Out Berth (Capital Goods), Dealer shall be entitled to Input Tax Credit. Any other interpretation would defeat the object and purpose of granting Input Tax Credit and would defeat the grant of Input Tax Credit as per Section 11 of the VAT Act.
[11.6] Now, so far as the submission on behalf of the State that one is required to read the provision of the Statute as it is and therefore, considering the wordings used in section 11(3) of the VAT Act i.e. "...on his purchase of taxable goods which are intended for the purpose of goods which are intended for the purpose of use as "Capital Goods"
meant for use in manufacture of taxable goods only on purchase of those capital goods only which are meant for use in manufacture of taxable goods, the Dealer shall be entitled to the Input Tax Credit is concerned, at the outset it is required to be noted that in light of the decisions of the aforesaid two decisions of the Hon'ble Supreme Court in the case of Jawahar Mills Ltd. (Supra) and Rajasthan Spinning and Weaving Mills Ltd. (Supra) and applying the "User Test", the aforesaid is not required to be accepted. Even otherwise as per the cardinal principle of law a particular provision in the Statute is required to be read purposely and therefore, on purposive interpretation of the aforesaid provision and applying "User Test", it is to be held that on purchase of cement, sand, steel, greet, concrete etc. which is used in the manufacture of capital goods meant for use in manufacture of taxable goods, the Dealer shall be entitled to the Input Tax Credit under Section 11(3)(vii) of the VAT Act.Page 27 of 30
HC-NIC Page 27 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT Even the aforesaid submission is required to be viewed from another angle as inasmuch as so far as the Dry Dock which as observed hereinabove can be said to be "plant" and consequently "Capital Goods"
is concerned, it is practically and physically not possible to construct without the aid of steel, cement, sand, greet, concrete etc. It is also not possible to purchase the Dry Dock individually and put the same in use in manufacture of taxable goods. Therefore also, the cement, sand, steel, greet, concrete etc. are required to be treated as "Capital Goods" meant for use in manufacture of taxable goods and therefore, on purchase of those goods which are used in manufacture of "Capital Goods" as capital goods meant for use in manufacture of taxable goods, the Dealer shall be entitled to the Input Tax Credit, otherwise the Dealer shall not be allowed / granted the Input Tax Credit either on the Dry Dock and Fit Out Berth. That would defeat the grant of Input Tax Credit under section 11(3)(vii) of the VAT Act. Therefore, on purposive interpretation of the said provision also, the submission on behalf of the State that only on purchase of taxable goods which are intended for the purpose of use as capital goods meant for use in the manufacture of taxable goods alone, the Dealer shall be entitled to the Input Tax Credit, cannot be accepted.
[12.0] In view of the above and for the reasons stated above, even question No.1 in both the Tax Appeals i.e. whether the learned Tribunal has erred in holding that Input Tax Credit u/s.11(3)(a)(vii) of the Gujarat Value Added Tax Act, 2003 is available for purchase of cement, sand, steel, greet, concrete etc. that are used for manufacture of capital goods or not, is held to be in favour of the assessee - Dealer and against the Revenue.
[13.0] Now, so far as the additional question in Tax Appeal No.99/2015 i.e. whether the LPG and Acetylene Gas can be said to be fuel or not as per section 11(3)(b)(iii) of the VAT Act is concerned, at the outset it is required to be noted that the said issue is now already Page 28 of 30 HC-NIC Page 28 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT covered against the Revenue in light of two decisions of the Division Bench of this Court in the case of SAL Steel Limited (Supra) and another decision of the Division Bench of this Court in the case of Balram Cement Ltd. (Supra). In the case of SAL Steel Limited (Supra), the coal used in the manufacture of sponge iron is held to be raw material and therefore, the Dealer is held to be entitled to Input Tax Credit on the same applying section 11(3)(b)(iii) of the VAT Act.
[13.1] Similarly in the case of Balram Cement Ltd. (Supra), the petroleum coke used as fuel in the process of manufacturing cement is held to be the raw material in manufacture of the final product and consequently it is held that the Dealer is entitled to the Input Tax Credit on the same as per section 11(3)(b)(iii) of the VAT Act. Shri Vora, learned Assistant Government Pleader has not pointed out any contrary decision to the aforesaid two decisions of this Court.
[13.2] In view of the above even the additional question in Tax Appeal No.99/2015 whether the LPG and Acetylene Gas can be said to be fuel or not as per section 11(3)(b)(iii) of the VAT Act is held in favour of the assessee and against the Revenue.
[14.0] In view of the above and for the reasons stated above, both these Tax Appeals fail and deserve to be dismissed and are, accordingly, dismissed. The respective questions of law are held in favour of the assessee - Dealer and against the Revenue. No costs.
OJ Civil Application No.312/2016 In view of dismissal of main Tax Appeal No.563/2016, OJ Civil Application No.312/2016 also stands dismissed.
Sd/ Page 29 of 30 HC-NIC Page 29 of 30 Created On Tue Aug 15 12:53:28 IST 2017 O/TAXAP/563/2016 CAV JUDGMENT (M.R. SHAH, J.) Sd/ (B.N. KARIA, J.) Ajay Page 30 of 30 HC-NIC Page 30 of 30 Created On Tue Aug 15 12:53:28 IST 2017