Judgment:
S.R. Rajasekhara Murthy, J.
1. In all these cases, a common question arises, namely, whether the purchase turnover of Vee belts of the petitioners can be subjected to levy of entry tax under entry 7 of the Schedule. Entry 7 reads thus :
'7. Industrial machinery and parts and accessories thereof.'
Prior to the amendment of the Schedule by Act 38 of 1984 with effect from April 1, 1982, this item was subjected to tax under entry 4. Explanation III was inserted by Act 18 of 1989 with effect from April 1, 1989, defining 'industrial machinery' for the purpose of entry 7. The said explanation reads thus :
'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.'
2. In the first batch of the Writ Petitions Nos. 8549 to 8551 of 1988, assessments have been completed after the writ petitions were filed. The petitioners challenged the proposition notices proposing to levy entry tax on Vee belts and the writ petitions were amended challenging the assessment orders also.
3. The writ petitions were entertained because of the clarification issued by the Commissioner of Commercial Taxes in Clarification No. 204/87-88 dated January 19, 1988.
'Vee belts are taxable under entry 7 from April 1, 1982, as accessory to industrial machinery.'
4. The petitioners have approached this Court at various stages. In view of the circular issued by the Commissioner, the assessing authorities are left with no choice except to tax Vee belts under the Entry Tax Act treating it as accessories to industrial machinery under entry 7. The contention of the petitioners in the writ petitions is that the petitioners are dealers exclusively in Vee belts of all types and are not dealers in machinery or industrial machinery.
5. Entry 7 relating to the industrial machinery was introduced for the first time by Act 38 of 1984 with effect from April 1, 1982.
6. In the case of the petitioner in W.P. No. 13284 of 1988, in the first of the assessment years in the assessment orders for 1982-83 and 1983-84, the returns filed by the assessee were accepted and Vee belts were not subjected to tax. However, for the subsequent year ending May 31, 1985, a proposition notice was issued by the assessing authority to levy tax on Vee belts. This is the subject-matter of the writ petition.
7. That the proposition notices came to be issued on account of the clarification of the Commissioner (annexure E) is not in dispute. This petitioner and the other petitioners have challenged the action taken by the department to levy entry tax on Vee belts.
8. Several contentions are urged on behalf of the petitioners opposing the levy. It is submitted that Vee belts are not component parts or accessories of the industrial machinery in order to attract levy under entry 7. Support for this argument is taken from the manner in which the similar entry in Karnataka Sales Tax Act, 1957, has been understood by the department. In Karnataka Sales Tax Act, there is a slight difference in entry 20 of the Second Schedule.
'All machinery and spare parts and accessories thereof' are brought to tax.
By insertion of entry 141 by Act 18 of 1978 with effect from September 1, 1978,
'Transmission, conveyor or elevator belts or belting of vulcanised rubber whether combined with any textile material or otherwise.'
were brought under separate entry 141(v) and subjected to levy at the same rate as machinery.
9. It is also the argument of the petitioners that prior to the insertion of entry 141(v), Vee belts were being taxed under section 5(1) and were not treated as accessories of machinery under entry 20.
10. The learned counsel for the petitioners has produced before me the clarification dated March 30, 1976, issued by the Commissioner of Commercial Taxes clarifying that 'Vee belts' are taxable at 4 per cent multi-point under section 5(1) of the Karnataka Sales Tax Act, 1957. Therefore, the learned counsel has sought support from the interpretation of the entries in Karnataka Sales Tax Act as understood by the department in support of the arguments opposing the levy under the Entry Tax Act. That this was the view accepted by the department so far as Karnataka sales tax is concerned cannot be disputed. Therefore, the argument that is developed on the basis of this interpretation placed on the entries in Karnataka Sales Tax Act is that Vee belts cannot receive a different construction/ interpretation for purposes of Entry Tax Act. The additional argument that is advanced is that the 'machinery' referred to in entry 7 being 'industrial machinery' Vee belts which are dealt with by the petitioners in all these cases cannot be treated as parts and accessories of the industrial machinery as further described in explanation III.
11. In support of the contentions, the learned counsel has relied upon several decisions of the Supreme Court and of other High Courts in which similar interpretation was called for. In support of the first proposition, the decision of the Andhra Pradesh High Court in [1973] 32 STC 309 (Ramaswamy v. State of Andhra Pradesh), [1988] 69 STC 1 (MP) [FBI (Jagdamba Industries v. State of Madhya Pradesh) and : [1976]3SCR966 (State of Orissa v. Dinabandhu Sahu & Sons) are relied upon. Dealing with the last of the cases in [1976] 37 STC 583 (State of Orissa v. Dinabandhu Sahu & Sons), the Supreme Court held that the administrative instructions are binding on the assessing officers under the Act. The Andhra Pradesh and the Madhya Pradesh High Courts took a similar view. The Full Bench of the Madhya Pradesh High Court in [1988] 69 STC 1 (Jagdamba Industries v. State of Madhya Pradesh) further held that 'A uniform long standing practice consistently followed under any statute, rule or regulation and inaction of the Legislature to amend the same, are important factors to show that the practice so followed was based on correct understanding of the law. A uniform and consistent departmental practice arising out of construction placed upon an ambiguous statute by the highest executive officers at or near the time of its enactment and continuing for a long period of time is also an admissible aid to the proper construction of the statute by the court and would not be disregarded except for cogent reasons'. The Madhya Pradesh High Court followed the ratio of the decision in : [1976]3SCR966 (State of Orissa v. Dinabandhu Sahu & Sons).
12. The argument developed on the basis of these decisions is, that for purposes of Karnataka sales tax the Vee belts which were shown separately under a different entry 141(v) with effect from April 1, 1985, is indicative of the fact that 'Vee belts' were not treated either as part or accessory of the machinery under entry 20 of the Second Schedule. Even prior to the insertion also, Vee belts were being taxed, as already stated under section 5(1).
13. In support of the contention that the subsequent amendment, viz., insertion of entry 141(v) should provide a useful guide in understanding the effect of the insertion, the learned counsel has cited the decision in : ILR1979KAR2315 (Dani v. State of Karnataka).
14. The second proposition of the learned counsel is that 'Vee belts' at any rate cannot be treated as parts or accessories of industrial machinery.
15. It is the case of the petitioners as set out in the writ petitions that the Vee belts are not supplied and they do not come along with the industrial machinery and the petitioners undisputedly deal with Vee belts of all types exclusively and with industrial machinery. It is therefore argued that 'Vee belts' cannot be treated as components or integral parts of industrial machinery. In support of this contention, the learned counsel relied on three decisions
1. [1970] 26 STC 87 (Mys) [Stage of Mysore v. Kores (India) Ltd.]
2. [1979] 43 STC 76 (All.) (Commissioner of Sales Tax v. Subash Mill Stores)
3. [1979] 43 STC 141 (All.) (Commissioner of Sales Tax v. Punjab Gramophone House)
dealing with similar situations under different entries in Karnataka Sales Tax Act.
16. There can be no an analogy either in the identity of the articles or the arguments advanced on the basis of the description of goods arising under different circumstances. The High Courts were dealing with different entries and were interpreting with reference to the various entries. The decision in [1979] 43 STC 76 (All.) (Commissioner of Sales Tax v. Subash Mill Stores) is nearest to the point. The High Court was dealing with rubber beltings and whether they formed part or component of machinery failing under the general heading was the question. The High Court held that Vee belts are not tools or spare parts. This opinion was given by the High Court in the context of the contention of the State that rubber beltings are not tools or spare parts or component parts of machineries on which they are used and they were not covered by the term 'mill stores and hardware'.
17. Reliance was also placed on the decision of the Gujarat High Court in [1966] 17 STC 96 (Vithal Chhagan & Sons v. State of Gujarat) and an earlier Full Bench decision of the Allahabad High Court in [1971] 28 STC 736 (Commissioner, Sales Tax v. Ram Niwas Puskar Duti). Their Lordships adopted the reasoning in the said two decisions in holding that rubber beatings cannot be treated as accessories of machinery. While rejecting the contention of the State, their Lordships held that rubber beltings cannot be treated as components of the machineries on which they are used and merely on the basis of the user of the rubber beltings, it cannot be treated as an accessory.
18. In the other decision, viz., [1979] 43 STC 141 (Commissioner of Sales Tax v. Punjab Gramophone House), the Allahabad High Court held that 'gramophone needles cannot be treated as part of the gramophones and held that the gramophone needles do not constitute one of the integral parts which combine to make up a gramophone. In (This reference appears to he State of Mysore v. Kores (India) Ltd. [1970] 26 STC 87 (Mys)). 36 STC 87 (Amir Chand Sadhu Ram v. Excise and Taxation Commissioner), this Court held that the typewriter ribbon did not form part of a typewriter.
19. What follows from these decisions is, that the argument of the State advanced in this case that without the 'Vee belts', the machinery cannot be worked for transmission of the power, has to be rejected on the ground that the user test cannot be applied in order to levy tax on Vee belts.
20. In the statement of objections, it is not disputed that the petitioners are exclusively dealing in 'Vee belts' of all types though 'Vee belts' are purchased and used by the customers for transmission of energy from the motor for various purposes. The argument of the learned Government Pleader that the test must be one of user must therefore be rejected.
21. For the above reasons, the clarification issued by the Commissioner in Circular dated January 19, 1988 (annexure E) is declared as not binding.
22. In the result, the further proceedings pursuant to the proposition notices wherever stayed by this Court and the assessment orders wherever they are completed, are quashed. The tax paid pursuant to the interim order made by this Court in any of these cases shall be refunded to the petitioners.
23. Writ petition allowed.