Kirloskar Oil Engines Ltd vs The Commissioner Of Sales Tax, ...
2017 Latest Caselaw 119 Bom

                                         str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

dik
                IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                   ORDINARY ORIGINAL CIVIL JURISDICTION

                          SALES TAX REFERENCE NO. 8 OF 2009

      M/s Kirloskar Oil Engines Ltd.
      Laxmanrao Kirloskar Road,
      Khadki, Pune 411 003                               ...Applicant.

            vs

      The Commissioner of Sales Tax
      Maharashtra State, Vikrikar Bhavan
      8th floor, Mumbai 400 010.                         ...Respondent.


                                  WITH
                       SALES TAX REFERENCE NO. 9 OF 2009

      M/s Kirloskar Oil Engines Ltd.
      Laxmanrao Kirloskar Road,
      Khadki, Pune 411 003                               ...Applicant.

            vs

      The Commissioner of Sales Tax
      Maharashtra State, Vikrikar Bhavan
      8th floor, Mumbai 400 010.                         ...Respondent.

                                  WITH
                      SALES TAX REFERENCE NO. 10 OF 2009

      M/s Kirloskar Oil Engines Ltd.
      Laxmanrao Kirloskar Road,
      Khadki, Pune 411 003                               ...Applicant.

            vs

      The Commissioner of Sales Tax
      Maharashtra State, Vikrikar Bhavan
      8th floor, Mumbai 400 010.                         ...Respondent.

                                                                             Pg 1 of 18



          ::: Uploaded on - 01/03/2017                  ::: Downloaded on - 02/03/2017 00:56:03 :::
                                                     str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc




                                      ...................................

M r P.V.Surte a/w M r Subhash Surte i/b M /s P.V.Surte & Co. for the
Applicant in all references.


M r V.A.Sonpal, Special Counsel for the R espondent -State.

                                    .......................................

                                             CORAM : S. C. DHARMADHIKARI &
                                                     B.P.COLABAWALLA, JJ.

Reserved On : 13th December, 2016 Pronounced On : 28th February, 2017.

JUDGMENT:- [ Per B. P. COLABAWALLA J. ]

1. By these three Sales Tax References, a larger bench of the

Maharashtra Sales Tax Tribunal, Mumbai (for short the "MSTT")

has referred the following question of law for an opinion of this Court

under Section 61 of the Bombay Sales Tax Act, 1959 ( for short the

"BST Act"). These references have been preferred at the instance of

the applicant - assessee. The question of law referred for our opinion

is as under:-

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the bearings sold by the Applicant were covered by Entry C-II-146 of the Bombay Sales Tax Act, 1959 and not by Entry C-II102(2) as auto parts and C-II- 135 as tractor parts read with Entry A-35 of the Notification Pg 2 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

issued under Section 41 of the Bombay Sales Tax Act, 1959?"

2. The question of law referred for our answer is identical in

all the three references. The only reason why three references have

been preferred is because they relate to three different years,

namely, financial years 1996-97; 1997-98 and 1998-99. Since, the

facts are identical and so is the question of law, before we analyze the

relevant entries in the Schedule to the BST Act, we would like to

advert to some brief facts. They are as follows:-

(a) It is the case of the applicant that it is engaged in the

business of manufacture and sale of oil engines, and parts

thereof. Over and above this, it also undertakes

manufacture of bearings required by the manufacturer of

automobiles and agricultural tractors. These bearings are

manufactured as per the drawings and designs supplied

by the said manufacturers.

(b) Accordingly, the applicant manufactured bearings for

motor vehicles and agricultural tractors. According to

the applicant these bearings were parts of motor vehicles

and parts of tractors, and therefore, classified them

Pg 3 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

under entries C-II-102(2) and C-II-135 read with the

Notification Entry A-35, respectively. It accordingly,

charged sales tax at the rate of 8% and 4% respectively.

However, the Assessing Officer, for the period 1.4.1996 to

31.3.1997 levied sale tax on these bearings at 13% by

classifying them under Entry C-II-146. Similarly, for the

period 1.4.1997 to 31.3.1999, the Assessing Officer levied

tax at 8% as mentioned earlier. This was done on the

basis that bearings fell under Entry C-II-146 whether

they were supplied as parts of a motor vehicle or parts of

an agricultural tractor.

(c) Being aggrieved by this, the applicant approached the

Deputy Commissioner of Sales Tax (Appeals) Pune. This

Appellate Authority confirmed the assessment for the

reasons more particularly set out in its detailed order.

Thereupon, the applicant filed second appeals before the

MSTT. Since, the MSTT was of the opinion that there

were conflicting decisions of the Tribunal in the case of

M/s Auto Enterprises and M/s Menon Bearings Ltd.

respectively, it referred the matter to the larger bench.

Finally, on 21st August, 2007, the larger bench decided

Pg 4 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

the issue against the applicant and thereupon the first

bench of the MSTT decided the appeals of the applicant on

16th November, 2007 holding against the applicant (as

per the decision and ratio of the larger bench).

(d) Being aggrieved by the decision of the MSTT holding that

the bearings sold as parts of motor vehicles as well as

parts of agricultural tractors are liable to tax at 13% ( for

F.Y. 1996-97); at 8% (for F.Y. 1997-98) and again at 13%

(for F.Y. 1998-99), the applicant filed three Reference

Applications before the larger bench of the MSTT. The

MSTT, after hearing both sides was inter alia of the

opinion that, since there were contradictory views taken

by two benches of the Tribunal, the matter was debatable

and hence the request of the applicant to refer the matter

as a question of law was required to be accepted. It is, in

these circumstances, that the three references mentioned

above have been forwarded to the High Court for an

answer on the question set out by us earlier.

3. In this factual backdrop, Mr Surte the learned counsel

appearing for the applicant - assessee, submitted that Entry C-II-

Pg 5 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

102(2) refers to components and parts of vehicles specified in sub-

Entry (1), which refers the motor-vehicles and attracts tax at 10%

with effect from 1st October, 1995. This rate of tax is reduced to 8%

for the period from 1st April, 1997 to 31st March, 1999, under Entry

62 of Group-A of the Notification issued under Section 41 of the BST

Act. He submitted that bearings are admittedly parts of a motor

vehicle. It is required to be manufactured as per the drawings and

design supplied by the original Equipment Manufacturer. According

to Mr Surte, it is not capable of being used even for any other make of

a particular vehicle.

4. Similarly, Mr. Surte also submitted that Entry C-II-35

refers to machinery operated by electricity or any other power and

components and accessories thereof, but excluding the machinery

specified in any other Entry of this schedule. In this Entry, for the

period 1st October, 1995 to 30th April, 1998, tax is attracted at 13%.

However, this rate of tax is reduced to 4% in respect of the sales of

components, parts and accessories of agricultural tractors for the

period 1st October, 1995 to 14th August, 1998 under Entry 35 of

Group-A of the Notification issued under Section 41 of the BST Act.

He submitted that what is important to note is that Notification Entry

A- 35 (which relates to sales of components, parts and accessories of

Pg 6 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

agricultural tractors) was amended on 15th August, 1998. By virtue

of this amendment, the sales of bearings, tyres and tubes were

specifically excluded from the aforesaid Entry. He, therefore,

submitted that prior to 15th August, 1998, there was intrinsic

evidence to show that the sales of bearings as components, parts and

accessories of agricultural tractors, clearly fell within the purview of

Notification Entry A-35.

5. Mr Surte submitted that on the other hand, Entry C-II-

146 refers to bearings of all types including ball bearings or roller

bearings and attracted tax at 13%. This rate of tax was reduced to 8%

for the period 1st April, 1997 to 31st March, 1999 under Entry-65 of

Group-A of the Notification issued under Section 41 of the BST Act.

Mr. Surte submitted that the applicant's bearings were sold to motor

vehicle manufacturers like M/s Telco Ltd., M/s Maruti Udyog Ltd.,

M/s Bajaj Ltd. etc. and to tractor manufacturers like M/s Mahindra &

Mahindra Ltd. and M/s Escorts Ltd. etc. He therefore submitted that

the bearings sold by the applicant were parts of a motor vehicle

and/or an agricultural tractor and had to be classified under entries

C-II-102(2) (as parts of a motor vehicle) and C-II-135 read with the

Notification Entry A-35 (as parts of an agricultural tractor). In other

words, Mr. Surte contended that the bearings sold by the applicant

Pg 7 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

had to be assessed to tax as auto parts or as the case may be, tractor

parts, notwithstanding Entry C-II-146 which specifically dealt with

all types of bearings. He submitted that the Assessing Officer as well

as other authorities below had totally misinterpreted the aforesaid

entries by classifying the bearings sold by the applicant under Entry

C-II-146. It is, in these circumstances, Mr Surte submitted that the

question of law framed for our opinion ought to be answered in the

negative and in favour of the applicant and against the Revenue.

6. On the other hand, Mr Sonpal, learned counsel appearing

on behalf of the Revenue, sought to support the orders passed by the

authorities below. He submitted that Entry C-II-146 covered

bearings of all types and being a specific Entry with reference to all

types of bearings, the Assessing Officer as well as the authorities

below had correctly classified the bearings sold by the applicant

under Entry C-II-146. He submitted that there being a specific Entry

with reference to bearings, it was irrelevant whether the sale of those

bearings was effected as parts of a motor vehicle or parts of an

agricultural tractor, as sought to be contended by the applicant. In

support of this proposition, Mr Sonpal placed reliance on a decision of

the Supreme Court in the case of the State of Maharashtra Vs.

Pg 8 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

Bradma of India Ltd.1 Relying upon the aforesaid decision, Mr

Sonpal submitted that a specific Entry in the schedule to a taxing

statute would override a general Entry. Resort has to be had to the

residuary or general Entry only when a liberal construction of the

specific Entry cannot cover the goods in question.

7. In the facts of the present case, Mr Sonpal submitted that

Entry C-II-146 was a specific Entry relating to all types of bearings.

This being the case, there was no question of classifying the bearings

sold by the applicant to the motor vehicle manufacturers as auto

parts, or to tractor manufacturers as tractor parts. There being a

specific Entry in the taxing statute for bearings, the same had to be

classified under the specific Entry namely, Entry C-II-146. In these

circumstances, Mr Sonpal submitted that the question of law referred

for our opinion be answered in affirmative and in favour of the

Revenue and against the applicant - assessee.

8. We have heard the learned counsel for parties at length

and perused the papers and proceedings in all the aforesaid three

references. Before we deal with the rival contentions, it would be

necessary to set out the relevant entries that would arise for our

1 (2005) 2 SCC 669 : [2005] 140 STC 17 Pg 9 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

consideration. Schedule Entry C-II-102 reads as under:-

Entry Description of the goods Rate Period 102(1) Motor vehicles including motor cars and 10 per 01.04.1996 motor vehicles primarily designed for the cent to 31.03.1999 transport of persons or goods, public transport type passenger motor vehicles, special purpose motor vehicles other than those principally designed for transport of persons or goods; motorcycles (including scooters and mopeds and cycles fitted with auxiliary motor, with or without sidecars), chassis of motor vehicle and bodies or tanker built or meant for mounting on chassis of motor vehicles, but excluding tractors specifically designed for agricultural use.

102(2)     Components and parts          of   vehicles 10 Percent 01.04.1996 to
           specified in sub-entry (1)                             31.03.1999

9. As can be seen from the aforesaid Entry, it deals with

motor-vehicles including motor cars and motor vehicles primarily

designed for the transport of persons or goods etc. The same includes

scooters, mopeds and cycles fitted with an auxiliary motor, with or

without sidecars. However, it specifically excludes tractors designed

for agricultural use. As far as Schedule Entry 102(2) is concerned, it

deals with components and parts of vehicles specified in sub-Entry

(1). It is relying upon Entry C-II-102(2) that Mr Surte would contend

that bearings sold by the applicant to motor vehicle manufacturers

Pg 10 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

would fall within the aforesaid sub-Entry as it covers components or

parts of a motor vehicle.

10. The next entries that we would like to make a note of is

Schedule Entry C-II-135 and Notification Entry No.A-35. They read

as under:-

Entry       Description of the goods                   Rate           Period
135         Machinery operated by Electricity or any 13 per           01.04.1996
            other power but excluding machinery cent                  to 30.04.1998
            specified in any other entry of this
            schedule     and    components,    parts
            accessories thereof
135         Machinery operated by Electricity or any 13 per           01.05.1998 to
            other power and components, parts and cent                31.03.1999
            accessories     thereof   but    excluding
            machinery & component, parts and
            accessories thereof specified in any other
            entry in this schedule
Notifica    Sales or purchases by a registered dealer 4 per cent 01.04.1995 to
tion        of tractors specifically designed for                14.08.1998
Entry A-    agricultural use and components, parts and
35          accessories thereof covered by entry 135
            of Part-II of Schedule
Notifica    Sales or purchases by a registered dealer 4 per cent 15.08.1998 to
tion        of tractors specifically designed for                31.12.1999
Entry A-    agricultural use and components, parts and
35          accessories thereof (excluding bearing
            tyres and tubes) covered by entry 135 of
            Part-II of Schedule

11. On a plain reading of these entries, it is clear that they

apply to machinery operated by electricity or any other power but Pg 11 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

excluding machinery, components, parts and accessories specified in

any other Entry in this Schedule. Notification Entry A-35 deals with

the sale or purchases by a registered dealer of tractors specifically

designed for agricultural use and the components, parts and

accessories thereof covered by Entry C-II-135. Relying upon the

aforesaid two entries, Mr Surte would contend that the bearings sold

by the applicant - assessee to tractor manufacturers such as M/s

Mahindra & Mahindra Ltd. and M/s Escorts Ltd. would fall under this

Notification Entry No. A-35, and therefore, liable to tax at four per

cent. To buttress this argument, Mr Surte contended that Entry A-35

was amended in the year 1998. It was only then that bearings, tyres

and tubes were specifically excluded from the said Entry. Placing

heavy reliance upon this amendment, Mr Surte contended that this

was intrinsic evidence to show that bearings sold by the applicant -

assessee to tractor manufacturers such as M/s Mahindra &

Mahindra and M/s Escorts Ltd., prior to 15 August, 1998, would fall

within the Notification Entry No. A-35 and would, therefore, be taxed

at four per cent.

12. The last entries that we need to make a note of is

Schedule Entry C-II-146 and Notification Entry No. A-65 which read

thus:-

Pg 12 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

Entry Description of the goods Rate Period 146 Bearings of all types including Ball or thirteen 01.04.1996 to Roller Bearings percent 31.03.1999 Notifica Sales or purchases by a registered dealer eight 01.04.1997 to tion of bearings covered by Entry 146 in Part - percent 31.03.1999 Entry A- II of Schedule C for the period ending 65 31.03.1999

13. As can be seen from the aforesaid Entry C-II-146,

bearings of all types including Ball or Roller bearings are covered

under the aforesaid Entry. The Notification Entry A-65 reduces the

tax of sales or purchases by a registered dealer of bearings covered

by Entry 146 to eight per cent for the period 1.4.1997 to 31.03.1999.

According to the Revenue, the bearings sold by the applicant -

assessee would have to be classified under the aforesaid two entries.

14. Having noted aforesaid entries, in the facts of the present

case, it is the case of the applicant that these bearings are

manufactured by the applicant as per the particular drawing and

design of the motor vehicle and tractor manufacturers and can be

used exclusively in the said motor vehicles or tractors. They are auto

parts or tractor parts of motor vehicles and tractors respectively.

These bearings have exclusive use or application in the motor

vehicle, or as the case may be in the tractor and they have no general

Pg 13 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

application in practice other than in motor vehicles and/or tractors.

It is, in these circumstances, that the applicant would contend that

these bearings would classify as auto parts or as the case may be,

tractor parts for the purpose of levy of sales tax.

15. We are unable to agree with the submissions of the

applicant on this point. As far as the bearings are concerned, there is

special Entry which deals with bearings of all types including Ball or

Roller bearings. This Entry is Schedule Entry C-II-146. There being a

specific / special Entry for bearings (Entry C-II-146), we are unable

to hold that the bearings sold by the applicant would fall either under

Entry C-II-102(2) [as a components, parts of a motor vehicle] or

under Entry C-II-135 read with the Notification Entry A-35 [as a

components and/or parts of tractors specifically designed for

agricultural use]. When there is a specific Entry in the schedule to a

Taxing Statute, the same would override a general Entry. In fact,

resort should be taken to the general Entry only when a liberal

construction of the specific Entry would not cover the goods in

question. As far as bearings sold by the applicant are concerned, it

can hardly be disputed that Entry C-II-102(2) and C-II-135 read with

the Notification Entry A-35 would be general entries in comparision

to Entry C-II-146 which specifically deals with all types of bearings.

Pg 14 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

16. The proposition that where there is a specific Entry in the

schedule to a Taxing Statute, the same would override a general

Entry, is very well settled and in this regard Mr Sonpal has correctly

laid stress on the decision of the Supreme Court in the case of

Bradma of India Ltd.1 In this decision the Respondent before the

Supreme Court manufactured electronic cash registers. In addition

to the usual functions of a cash register, the Respondent's models

performed various other functions. The question before the Supreme

Court was whether such cash registers are classifiable under Entry

90 or under Entry 97(b) of part II of Schedule C of the BST Act. It is

whilst construing these entries that the Supreme Court held thus:-

"6. The High Court answered the questions framed in favour of the assessee. Contrary to the opinion expressed by the Tribunal, the High Court was of the view that Entry 90 was the general entry and Entry 97(b) the special entry. Since there was no controversy that the electronic registers sold by the assessee were operated electronically, the High Court thought that it would more appropriately fall under Entry 97(b) and not under Entry 90. In arriving at this conclusion, the High Court relied upon a Bench decision of the Andhra Pradesh High Court in State of A.P. v. Apex Agencies[(1997) 104 STC 44 (AP)].

7. We are of the opinion that the High Court was wrong. Both the Tribunal and the High Court commonly enunciated the principle that a specific entry would override a general entry. In addition we would add, and as has been held in CCE v. Wood Craft Products Ltd. [(1995) 3 SCC 454] , SCC at p. 462, resort has to be had to the residuary heading only when by a liberal construction the specific heading cannot cover the goods in question. The language of Entry 97(b) clearly shows, by use of the phrase "other

1 (2005) 2 SCC 669 : [2005] 140 STC 17 Pg 15 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

than those specified elsewhere" that it is not only a residuary entry but also that electronic systems, instruments, etc. may be classified under other entries. Entry 90 on the other hand does not contain any words of limitation. The items mentioned therein would cover every species thereof irrespective of the mode of their operation. Cash registering machines are specifically mentioned. In the absence of any limitation or qualification as to the different kinds of cash registering machines, there is no reason to read in any such qualification and limit the entry to particular kinds of cash registering machines. It is significant that by contrast, data processing machines have expressly excluded computers. Were it not so excluded, computers would have also fallen within Entry 90. In fact computers are separately dealt with in Entry 97(a). But the exclusion of computers from data processing machines would indicate that the items mentioned in Entry 90 are generic covering all species of such items. Given the language of the two entries we fail to understand how the High Court could have come to the conclusion that Entry 97(b) was the specific entry and that Entry 90 was the general entry. Such an interpretation goes against the express language of the two entries."

17. To our mind, the ratio of this judgment would apply to the

facts of the present case with full force. Even in the facts of the

present case, the Schedule Entry C-II-135 categorically states "but

excluding machinery and components, parts and accessories thereof specified in any

other entry in this Schedule". This would clearly go to show that the

Schedule Entry C-II-135 read with Notification Entry A-35, as far as

bearings are concerned would be the general Entry and C-II-146

would be the specific Entry. We, therefore, find that the authorities

below have correctly classified the bearings sold by the applicant

under Schedule Entry C-II-146.

Pg 16 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

18. There is yet another reason why we have come to the

aforesaid conclusion. Notification Entry A-35 talks about sale or

purchases by a registered dealer of tractors specifically designed for

agricultural use and components, parts and accessories thereof

covered by Entry C-II-135. From a plain reading of the said

Notification Entry, it is clear that it applies to sales or purchases only

by a registered dealer of tractors specifically designed for

agricultural use and the components, parts and accessories thereof.

Admittedly, the applicant does not sell or purchase tractors for

agricultural use and neither is it a registered dealer thereof as

contemplated under Notification Entry A-35. We, therefore,

additionally find that the bearings sold by the applicant to tractor

manufacturers could never be classified under Notification Entry A-

35 and have to be classified only under Schedule Entry C-II-146.

19. Once we have taken this view, then the amendment that

was done to the Notification Entry No.A-35 in 1998 pales into

insignificance. Once we find that the said Entry A-35 cannot apply to

the bearings sold by the applicant, the effect of the amendment is

irrelevant because the said Notification Entry itself does not apply as

it stood in its original form or even after the amendment.

Pg 17 of 18

str.8,9,10.2009.dated.16.2.2017 (Colabawalla).doc

20. In view of the foregoing discussions, we have no

hesitation in holding that the bearings sold by the applicant would

fall under Schedule Entry C-II-146. The question of law, as framed by

us earlier, is therefore, answered in affirmative and against the

applicant and in favour of the Revenue. All the three Sales Tax

References are, therefore, answered in the aforesaid terms.

However, in the facts and circumstances of the case, there shall be no

order as to costs.

( B. P. COLABAWALLA J. ) ( S. C. DHARMADHIKARI J )

Pg 18 of 18