2002 PLP (Trib (PTD)

(i) The S.R.O. 1307(1)/97 stood rescinded with effect from 1-7-1998 vide S.R.O. 578(1)/98, dated 12-6-1998; (ii) the input tax involved on embossing plates relates to a period starting with effect from September, 1998, that is, much after the period when S.R.O. 1307(1)/97 stood repealed; (iii) there was no cause for imposition of penalty against the appellant; (iv) the lower forums erred in taking the embossing plates within the ambit of Notification No. S.R.O. 1307(1)/97, dated 20-12-1990.

7. To us the issue in the present appeal appears to be with regard to input tax adjustment in respect of embossing plates-in terms of section 8 -of the Sales Tax Act, 1990. The perusal of impugned orders indicate that the lower adjudication officers have based their findings on a report given in respect of disputed items by the sales tax auditors. The relevant part of that report has been reproduced in para. 5 of the order-in-original. For convenience the same is reproduced here: "Embossing plates.

These were the machine parts which had been admitted by them in their reply, therefore, tax credit was not to be allowed under provisions of section 8(a) of the Sales Tax Act, 1990...

8. On the basis of said report, the adjudication officer concluded that embossing plates were machinery parts and, therefore, input tax was inadmissible. The same view was upheld by the Appellate Authority. Hence the present appeal.

9. It would be relevant here to reproduce the provisions of subsection (1) of section 8 of the Sales Tax Act, 1990, the same are as under:

"...8. Tax credit not allowed.

(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on

(a). the goods used or to be used for any purpose other than for taxable supplies made or to be made by him; (b) any other goods which the Federal Government may, by a notification in the official Gazette, specify; and..."

10. From the bare reading of the aforesaid provisions, it would appear that the provisions are restrictive in nature and the restrictions so placed are given in clauses (a) and (b) of subsection (1) of section 8 of the Sales Tax Act, 1990. In other words, goods used for a purpose other than production of taxable supplies or the goods specified by the Federal Government as not qualified for input tax adjustment are prohibited for claiming the input tax adjustment. In the present case, the goods in question are embossing plates used for improving the quality of leather, which is an admitted fact by both the parties.

11. Nevertheless, the input adjustment on the disputed goods has been denied by the Sales Tax Authorities on the ground that goods in question are machinery parts and the same do not conform to the requirements of subsection (1) of section 8 of the Sales Tax Act, 1990.

12. Anything which directly contributes to the production of a taxable supply falls within the ambit of section 8 of the Sales Tax Act, 1990. The word "produce" has been defined in clause (16) of section 2 of the Sales Tax Act. 1990. According to this definition, "produce includes the process of printing, publishing, lithography and engraving. And it also includes preparation of goods by changing it or transforming it. The process of embossing certainly changes and transforms the goods. Thus embossing machinery directly contributes to the production of goods meant for a taxable supply.

13. It must, therefore., follow as a necessary corollary that if any items of goods were purchased by a tax payer as being intended for use as "machinery, plant, equipment, tool, spar a parts etc. for the production of goods meant for taxable supply, they would be eligible for extension of benefit of input tax adjustment. In this regard it would be worth noting for reliance the case of Chowgule & Co. (Pvt.) Ltd, v. Union of India reported as AIR 1961 Supreme Court 1013. "....The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes `process''. We are clearly of the view that the blending of ore in that course of loading through the Mechanical Ore Handing Plant amounted to `processing` of ore within the meaning of section 8(3) (b) and rule 13 and the Mechanical Ore Handling Plant fell within the description of `machinery, plant, equipment' used in the processing of ore for sale. It must therefore, follow as a necessary corollary that if' any items of goods were purchased by the assessee as being intended for use as `machinery, plant, equipment, tools; spare parts, stores, accessories, fuel or lubricants' far the Mechanical Ore Handling Plant, they would be eligible for inclusion in the Certificate of Registration of the assessee.

8. The question which then arises is as to whether items of goods purchased by the assessee for use in carrying the ore from mining site to the river side and from the river side to the Marmagoa harbour could be said to be goods purchased for use in mining or in processing of ore for sale. Blow there can be no doubt, and indeed this could not be seriously disputed that the process of mining comes to an end when ore is extracted from theses, washed, screened and dressed in the dressing plant and stacked at the mining site and the goods purchased by the assessee for use in the subsequent operations could not, therefore, be regarded as goods purchased for use `in mining'. The requirement of section 8(3) (b) and rule 13 is that the goods must be purchased for use 'in mining'. It is only the items of goods purchased by the assessee for use in the actual mining operation which are eligible for inclusion in the certificate of registration under this head arid these would not include goods purchased by the assessee for use in the operations subsequent to the stacking of the ore at the mining site. This view finds support from the decision of this Court in Indian Copper Corporation Limited v. Commissioner Taxes, 16 STC 259; (AIR 1965 SC 891) ...."

14. And as the appellant did qualify as claimant of input tax adjustment in terms of clause 2(i) of section 7 of the Sales Tax Act, 1990, therefore, his action of input adjustment was perfectly in order.

15. A reading of the impugned order reveals that the authorities below did fail to discuss the issue. involved and to provide the reasons on the basis of which they assumed that the tax paid on goods in question can't be reclaimed or deducted as input tax. Simply assuming that a machinery part does not contribute towards the production of goods capable for a taxable supply is not correct. We ate led to believe that a very narrow and restrictive application of law has been made by the tax officials. Whereas, to us the intention of the Statute appears to be that except the restriction placed vide clauses (a) and (b) of subsection (1) of section 8 of the Sales Tax Act, 1990, there is no other operative restriction for allowing or claiming input tax where it is permissible. We are strengthened in this view by a judgment of the Supreme Court reported as Attock Cement Pakistan Ltd. v. Collector of Customs, Quetta 1999 PTD 1892. In this illuminating judgment their lordships have observed as under: "Having come to the conclusion that accessories and spare parts having not been included by the Federal Government under section 8(2) of the Act, the appellant was entitled to claim adjustment of the input tax, and therefore, the impugned show -cause notice issued to the appellant is without lawful authority and jurisdiction ...."

16. In this regard we would also like to mention the judgment of the British Value Added Tax Tribunal. The Tribunal in the case of Braodhead Peel & Co. v. The Commissioner reported as (1984) VATTR 195 decided the admissibility of input tax paid on auto parts in respect of a car used for business. The Tribunal held, that if the car was recognized as a tool for business then its adjuncts will have the same status.. The relevant para. of the decision is reproduced below: " ..once it is accepted that the car had such a purpose, it must in our view follows that, each item as an adjunct of the car was used to fulfil that same purpose and to the same extent."

17. It follows, that the extra items in that case were meant for the purpose of business with the result that claim of input tax was allowed. In this case, the admitted facts are that machinery employed by the appellant is engaged in producing leather goods for making taxable supplies. The embossing plate is a part of that machine which is directly producing goods for taxable supplies. In other words these parts are necessary for the operation of that machinery. And where it is accepted that installed machinery in the unit is meant for the purpose of making goods for taxable supplies, it follows that each item adjunct to the machinery is useable to fulfil the same purpose and to the same extent.

18. As per the provisions of section 8 of the Sales Tax Act, 1990, I tax paid on the goods used for the purpose for producing taxable supplies is deductible. The conclusion arrived at by the Sales Tax Authorities. In E this case does not seem to be based on the correct interpretation of law. We accordingly allow this appeal and set aside the orders passed by the adjudication officer as well as passed by the Collector of Customs (Appeals). The input tax deduction made by the appellant was in order. C.M.A./M.A.K./132/Tax(Trib.) Appeal allowed.