Karnataka High Court
Assistant Commissioner Of Entry Tax vs Mysore Sales Corporation on 10 September, 1991
Equivalent citations: ILR1991KAR3717
JUDGMENT Mohan, C.J.
1. The short question that arises for our consideration is whether sewing machine could be subject to tax under Entry Tax and brought under Entry 7 of the Schedule to the Karnataka Tax on Entry of Goods into Local Areas for Consumption Use or Sale Therein Act, 1979 (Karnataka Act 27/1979) (hereinafter referred to as the 'Act').
2. The learned single Judge while dealing with this issue in series of Writ Petitions by Judgment dated 19-1-1990 considered the scope of this Entry and held that sewing machines do not fit in to the concept of definition of 'Industrial Machinery' under Entry 7, and therefore not exigible to tax under the Act. It is under these circumstances the present Appeals have come to be preferred.
3. The contention of the Revenue which is the appellant before us is, if the sewing machines could be used in garment factory undoubtedly it is an industrial machinery and therefore the learned single Judge ought to have had regard for the user. Merely because a sewing machine could be used domestically it does not cease to par-take the character of industrial machinery. From this point of view the Judgment of the learned Judge cannot be supported in law.
In any event the award of heavy costs is not warranted under the circumstances of this case. More so what the Court was concerned was only with the interpretation of Entry on which two views might be possible.
4. In opposition to this the learned Counsel for the respondents would submit supporting the Judgment of the learned single Judge that the use of sewing machine is immaterial. After all in these cases what one is concerned is only Entry Tax. The nature of the goods at the time of entry alone is material. While dealing with the case of the case of Octroi the Supreme Court in NAGAR MAHAPALIKA BEREILLY v. STATE OF U.P. AND ORS., 70 STC 97 has adopted this test and held that the use of the machinery is not the dominating factor. Applying the same principle it was held in DUNLOP INDIA LIMITED v. UNION OF INDIA, AIR 1977 SC 597, that in case of import the character of the machinery and the nature of the machinery at the time of import alone is material. Then again in construing as to what is 'Domestic Electrical Appliances' it was held in NAT STEEL EQUIPMENT PRIVATE LIMITED v. COLLECTOR OF CENTRAL EXCISE, 69 STC 58 at page 61 that the fact of capable of being used even in industry does not make it any the less domestic electrical appliance. Therefore these are the tests to be adopted. So done, there could be no objection whatever to the Judgment of the learned single Judge.
As regards the costs the learned Counsel leaves it to the Court.
5. In order to appreciate the respective stands we would do well to provide the legal background. The Act was brought into force with effect from 1-10-1980. As the preamble of the Act itself makes it very clear, it is an Act to provide for Levy of Tax on Entry of Goods into Local Area for Consumption. Use or Sale therein. The charging Section of the Act is Section 3, Under Sub-section (1) it says as follows :-
"3(1): There shall be levied and collected a tax on entry of the scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding two percent advalorem...."
Therefore it would be very clear that the levy or collection of tax is on the entry of the scheduled goods. As to what are 'schedule goods' can be gathered from Section 2(7). That says 'Scheduled goods' means goods specified in the Schedule to this Act. Therefore if one turns to the schedule, item 7 says 'industrial machinery and parts and accessories thereof. As the Entry stood sewing machines are not specifically included. However a clarification came to be issued by the Commissioner on 21-12-1987 directing all the authorities to levy tax on sewing machines. The clarification is to the following effect:
21-12-1987 "Sir, Sub: Clarification on entry tax-reg.
Ref: Your letter dated 30-11-1987.
'Sewing Machines' are taxable under Entry 4 of the schedule to the KTEC Act, at the rate of 2% irrespective of its use.
Yours faithfully, Sd/-
Joint Commissioner of Commercial Taxes (L)".
Thereafter show cause notices were issued proposing to levy Entry Tax on sewing machines. It was this which was validly questioned before the learned single Judge. We may also state that Explanation-Ill came to be inserted by Karnataka Act 18/1989. That clearly spells out as to what would constitute 'Industrial Machinery' for the purpose of Entry 7:-
"EXPLANATION III:- 'Industrial Machinery' for the purpose of Entry 7 of the Schedule shall mean such machinery which are generally used by an industrial unit whether or not such unit is a factory as defined under the Factories Act, 1948, for manufacturing or processing of goods and includes earth moving machinery and such other machinery used for mining, building, construction (including laying of roads), fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property."
In the light of this background it is necessary "for us to analyse whether Entry Tax could be levied on sewing machines bringing them under Entry-7, viz., Industrial Machinery and Parts and Accessories thereof.
The argument on behalf of the Revenue is, if sewing machines could be used in a garment factory that user is determinative of the fact. We are totally unable to accept that contention. It has already been noted that this is Entry Tax with reference to Octroi. The Supreme Court has laid down in Nagar Mahapalika, Bereilly v. State of Uttar Pradesh that the taxable event for the imposition of octroi is the entry of goods within the Municipal limits, and the nature and type of the goods at the point of entry is the relevant factor in determining the rate of duty and not how the goods are used thereafter. This is a clear pronouncement that the use of sewing machine is irrelevant. Whether it is used in a factory or domestically that user cannot be made a ground for taxation. Even with regard to import the Supreme Court has pointed out in Dunlop India Limited v. Union of India at para-30 as follows:-
"Dealing with the meaning of the term Vegetables' in the Excise Tax Act in KING v. PLANTERS NUT AND CHOCOLATE COMPANY LIMITED, the Exchequer Court observed as follows:
Now the statute affects nearly everyone, the producer or manufacturer, the importer, wholesaler and retailer, and finally, the consumer who, in the last analysis pays the tax. Parliament would not suppose in an Act of this character that manufacturers, producers, importers, consumers, and others who would be affected by the Act, would be botanists. The object of the Excise Tax Act is to raise revenue, and for this purpose to class substances according to the general usage and known denominations of trade. In my view, therefore, it is not the botanists conception as to what constitutes a 'fruit' or Vegetable' which must govern the interpretation to be placed on the words, but rather what would ordinarily in matters of commerce in Canada be included therein, Botanically, oranges and lemons are berries, but otherwise no one would consider them as such.
The Exchequer Court also referred to a pithy sentence from "200 chests of Tea", per story, J., [(1824) 9 Wheaton (US) 435] that "the Legislature does not suppose our merchants to be naturalists, or geologists, or botanists."
Again in Nat Steel Equipment Private Limited v. Collector of Central Excise, at page 61 interpreting domestic electrical applicance the Supreme Court pointed out as follows:-
"A domestic electrical appliance, in our opinion, would be an electrical appliance of a kind generally used for domestic purposes, it may also be used at places other than the home or the house, but that would not destroy the character of a domestic electrical applicance which attaches to it by reason of its being a kind of an electrical applicance generally used for the household. There are several electrical appliances which are generally used in the household, such as electric irons, electrical sewing machines and electrical cooking-ranges which are also used in other establishments. But these electrical appliances do not therefore cease to be domestic electrical appliances. It is of course not necessary that an electrical appliance, in order to satisfy the description of a domestic electrical appliance, must be actually used in the home or the house. What is necessary is that it must be of a kind which is generally used for household purposes and if that test is applied, there is no doubt that electric fans are domestic electrical appliances and the Tribunal was therefore right in holding that they fall within Entry 52 of Schedule B. We agree that it is not necessary to be a domestic electrical appliance that it must be actually used in the home or the house. It must be of a kind which is generally used for household purposes. It appears to us that the types of items concerned in this appeal are generally used for household purposes and that is sufficiently good test for classification in the light of the explanation to tariff item No. 33C."
Thus, we hold that use of a particular sewing machine either for a garment factory or for domestic purpose will not have any bearing with regard to a taxable event. From this point of view we fully agree with the learned single Judge and hold that the sewing machines are not exigible to levy of Entry Tax as Industrial Machinery under Entry-7.
Turning to costs, we find that this is not a fit case for award of costs, more so when the matter rests on interpretation. Accordingly we set aside only that part of the Judgment relating to costs, and confirm the Judgment on merits.