TMI Blog2010 (12) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... is preferred against the order of the Sales Tax Appellate Tribunal (hereinafter referred to as, the STAT ) in T. A. No. 344 of 2009 dated March 25, 2010, whereby the order of the Appellate Deputy Commissioner (CT), Guntur, in Appeal No. 103/08-09/ NNLR dated June 28, 2009, was confirmed. The petitioner registered itself as a dealer, under the Central Sales Tax Act, 1956 (hereinafter called, the Act ), from April 1, 2008 as they intended to develop, distribute and sell electricity along with scrap material. It is in the process of setting up an ultra mega power project at Krishnapatnam in Nellore District. The project involves evolving, designing, developing, constructing and operating a power plant, and allied buildings and support structures to generate, transmit and distribute electricity. The petitioners are also registered under the A. P. VAT Act. They were issued a certificate under section 8(3)(b) of the Act, read with rule 13 of the CST (Registration and Turnover) Rules, 1957 (hereinafter called, the Rules ). In their application seeking registration, the petitioner sought inclusion of various items including goods, machinery equipment, building material, etc., which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he labour colony near the plant; such a requirement was not integrally connected with the activity of the plant; it was not commercially inexpedient to run the plant without a labour colony near the plant; the labour colony could not be treated as a part of the power plant, much less an integral part; and it could not be said that construction and maintenance of the labour colony were allied facilities integrally connected with the power plant for generation and distribution of power. With regards the requirement of an office building, the STAT held that the petitioner did not state as to what activities would take place in the said office building; it was also not stated whether there was a separate administrative building constructed or under contemplation, and what were the activities that may take place therein, if any; the office building did not constitute a part of the apparatus to be employed for carrying on activities integrally connected with the generation and distribution of power; the office building, which was not an integral part of the power plant and power house building, could not be said to be integrally connected with the construction of a power plant for genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Sri S. Ganesh, learned senior counsel appearing on behalf of the petitioner, would contend that inclusion in the certificate of registration, of goods used for construction of the labour colony, the administrative building, and the compound wall, would enable the petitioner to claim a concessional rate of tax of two per cent; except for these three items, the Commercial Tax Officer and the Appellate Deputy Commissioner had included all other items sought to be included by the petitioner in the certificate of registration; the cost of materials and goods used for construction of the labour colony was Rs. 340 crores; the cost of material used for construction of the compound wall (outer perimeter security wall) was Rs. 12 crores; and the cost of goods used for construction of the office building/administrative office was Rs. 25 crores. According to the learned senior counsel, the aforesaid three works were an inextricable and integral part of the power plant, and were recognized as such by the statutory provisions relating to the establishment of a power project; the correct legal test to be applied, for inclusion of goods in the certificate of registration, was not physical impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary material before it to justify inclusion of these goods in the certificate of registration. Under section 8(3)(b) of the Act, subject to any rules made by the Central Government in this behalf, goods used in the generation or distribution of electricity is entitled for a concessional rate of tax. Rule 13 of the Rules stipulates that the goods, referred to in section 8(3)(b) of the Act, which a registered dealer may purchase, shall be the goods intended for use by them as raw materials, processing materials, machinery, plant, equipment, tools, stores, accessories, fuel or lubricants, in the generation or distribution of electricity or any other form of power. The expression in the generation or distribution of electricity or any other form of power in section 8(3)(b) and rule 13 cannot be read to mean in the business of generation or distribution of electricity or any other form of power. Such goods must be intended for use only in the actual activity of generation or distribution of electricity. A similar expression in mining , used in section 8(3)(b) and rule 13, fell for consideration in Indra Singh Sons (P.) Ltd. v. Sales Tax Officer [1966] 17 STC 510 (SC), wherein no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these goods are required to control the operations and maintenance of the power station, and they are an inseparable part of the power plant/ project. In Orissa Power Generation Corporation Limited [2008] 15 VST 587 (Orissa), on which reliance is placed by the learned senior counsel, the petitioner-company sought inclusion of the following items in their certificate of registration: 1. Survey and drawing instruments like adulates, levels, levelling stands, chains, measuring chains, etc., for taking level for laying the foun dation of the power house building, and associated structures; 2. Building material like cement, steel, structural steel, chips, sand, doors and windows, paints, roofing materials, distemper, fencing materials like barbed wires, sati pillars, etc., for construction of power house building, and other associated civil works; 3. H.S. meters, G.I. pipes, street light fittings, etc., for construction of power house, and central room required for operation and maintenance; 4. Road materials like chips, tars, road rollers, concrete mixer and vibrator, manure, water treatment plants, filtrations plants and associated materials, etc., for the purpose of wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a thermal power plant can take place bereft of a power house plant. Therefore the findings arrived at by the Commissioner, Commercial Taxes, with regard to item at serial No. 1 is erroneous. Applying the 'functional test' it would be clear that it would be clearly practically not possible to consider establishing a thermal power plant without a power house building and therefore, the Commissioner is clearly in error of law in coming to hold that a power house building is meant to be a place where the business activities were carried on. So far as item No. 2 is concerned, the same also relates to construction of the power house building and associated civil structure and the reasons referred to above, it has to be accepted to constitute an integral part of the plant. Without this construction, it would not be possible on the part of the petitioner to engage in the generation of electricity and distribution thereof and therefore, findings of the Commissioner without scrutiny of the law as laid down by the apex court, are also erroneous. (emphasis1 supplied) In Orissa Power Generation Corporation Limited [2008] 15 VST 587 (Orissa), the Division bench of the Orissa High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n their accessories and spare parts including tyres and tubes are also necessary for the same purpose. The business of the Electricity Board being not only of generation or manufacture of electrical energy but also of supply, distribution and transmission thereof and, as such, the principles laid down by their Lordships of the Supreme Court in the Indian Copper Corporation's case [1965] 16 STC 259 (SC) are applicable to the facts of these reference cases. The same principles were applied by their Lordships of the Bombay High Court in the Kolhapur Electric Supply Co.'s case [1976] 37 STC 587 (Bom), while holding that electric meters used for the measurement of electricity were used in the manufacture or processing of goods, namely, electrical energy, without which there could be no supply or sale of electricity to the consumers. In the Madhya Pradesh Electricity Board's case [1970] 25 STC 188 (SC), which is equally applicable to the facts of the present case, their Lordships of the Supreme Court held that the Electricity Board was a 'dealer' in respect of its activities of generation, distribution, sale and supply of electrical energy and that electrical energy c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 8(3)(b) of the Act read with rule 13 of the Rules, observed (page 90 in 104 STC): . . . In so far as soaps, paints and varnishes are concerned, the High Court rightly upheld the finding of the Board of Revenue that they were permissible only in so far as they were intended to be used for the purpose of cleaning boilers and machinery and other equipment and for the purpose of painting machinery and electrical goods. Raincoats could be purchased at the concessional rate of tax so far as they were necessary for the use of linesmen working on transmission lines during the rainy season and winter; similarly, battery cells to the extent they were necessary for use by linesmen for working on trans mission lines during the night. The learned counsel for the appellant-State drew our attention to the judgment of this court in J. K. Cotton Spinning Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563 (SC); [1965] 1 SCR 900. We do not find anything in that judgment that runs counter to the view taken by the High Court. It was held in J. K. Cotton Spinning Weaving Mills' case [1965] 16 STC 563 (SC); [1965] 1 SCR 900 that if a process or activity was so integrall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16 STC): Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the 1 Here italicised. meaning of rule 13, as raw materials in the manufacture or processing of goods or even as 'plant'. It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a 'plant' within the meaning of rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under section 8(3)(b) goods must be intended for use of the nature mentioned in rule 13, in the manufacture of goods. Building materials used as raw materials for construction of 'plant' cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under section 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the company in that behalf. (emphasis 1 supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions so as to make them goods intended for use in those operations. Counsel for the Corporation contended that the expression 'equipment' used in rule 13 is wide enough to include hospital equipment, furnishings and fittings and maintenance of such equipment being made obligatory by statute, it fell within rule 13. But rule 13 requires that the goods including equipment should be intended for use by the owner as equipment in the manufacture or processing of goods for sale or mining operations. If the equipment is not so intended to be used, rule 13 will not be attracted. For reasons already mentioned, we are unable to hold that hospital equipment, furnishings and fittings fall within the description of equipment intended for use in the manufacture or processing of goods for sale or in mining operations. The High Court was therefore right in declining to specify hospital equipment, furnishings and fittings. The same considerations would apply to medical supplies (item (iv)). In respect of household furnishings and fittings, there is not even a statutory obligation to which our attention has been invited which requires the Corporation to provide them. The goods falling und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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