TMI Blog2017 (6) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Revenue and it is held that Dry Dock and Fit Out Berth are plant / capital goods. Whether on the purchase of cement, sand, steel, greet, concrete etc. that are used for manufacturing of capital goods viz. Dry Dock and Fit Out Berth, the Dealer is entitled to Input Tax Credit or not? - Held that: - as cement, sand, steel, greet, concrete etc. are required to be used in manufacturing of “Capital Goods” viz. Dry Dock and Fit Out Berth, which is an integral part of the final product of the Dealer are without the Dry Dock and Fit Out Berth, it is not possible for the Dealer to carry on his business which is of ship building / manufacture and repairs of ship and that the Dry Dock and Fit Out Berth are specialized in nature which are required to be constructed specially and specifically for the purpose of business of the Dealer i.e. ship building / manufacture and repairs of ship, applying the “User Test” it is to be held that on purchase of cement, sand, steel, greet, concrete etc. which are used in Dry Dock and Fit Out Berth (Capital Goods), Dealer shall be entitled to Input Tax Credit - answered in favor of assessee. Appeal dismissed - decided in favor of assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LPG and acetylene gas are not fuel as per Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act? (B) Whether the learned Tribunal has erred in holding that the Input Tax Credit is available on purchase of steel, cement, kapachi, greet etc. used for construction of capital goods? [4.0] For the sake of convenience, Tax Appeal No.563/2016 be treated and considered as a lead matter and therefore, the facts in Tax Appeal No.563/2016 are narrated. [5.0] Facts leading to the present Tax Appeal No.563/2016 in nutshell are as under: [5.1] That the respondent Dealer is a Public Limited Company holding registration both under the Gujarat Value Added Tax Act, 2002 (hereinafter referred to as VAT Act ) as well as under the Central Sales Tax Act (hereinafter referred to as CST Act ). That the Dealer is engaged in the business of ship building / manufacture and repairs of ship. That for the aforesaid purpose the Dealer constructed the Dry Dock, Fit Out Berth and during the assessment period 200809 incurred expenses of ₹ 365,03,44,196/. According to the Dealer the Dry Dock and Fit Out Berth is a plant to manufacture the Panamax Ships (large ships). According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Fit Out Berth as plant / capital goods and consequently in holding that on purchase of cement, sand, steel, greet, concrete etc., which are used in construction of Dry Dock and Fit Out Berth, the Revenue has preferred the present Tax Appeal to consider the aforesaid questions of law. [6.0] In Tax Appeal No.99/2015, the additional question is whether the learned Tribunal has erred in holding that the LPG and Acetylene gas are not fuel as per Section 11(3)(b)(iii) of the VAT Act? [7.0] Shri Hardik Vora, learned Assistant Government Pleader has appeared on behalf of the Revenue and Shri Mihir Joshi, learned Senior Advocate has appeared on behalf of the Dealer M/s. Pipavav Defense Offshore Engineering Company Limited in Tax Appeal No.563/2016 and Shri Deven Parikh, learned Senior Advocate has appeared on behalf of the Dealer ABG Shipyard Ltd. in Tax Appeal No.99/2015. [7.1] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue has vehemently submitted that in the facts and circumstances of the case, the learned Tribunal has committed a grave error in holding Dry Dock and Fit Out Berth as plant / capital goods. [7.2] It is vehemently s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods used as raw materials shall be applicable only with respect to section 11(3)(a) (vii) of the VAT Act and shall be applicable with respect to the purchase of taxable goods used as raw material in the manufacture of taxable goods entitled for (i) to (v) of section 11(3)(a) of the VAT Act. [7.6] It is further submitted by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue that therefore, when cement, sand, steel, greet, concrete etc. are used as raw material in the manufacture of capital goods and not in the manufacture of taxable goods intended for (i) to (v) of section 11(3)(a) of the VAT Act, on purchaser of such taxable goods i.e. cement, sand, steel, greet, concrete etc., Input Tax Credit is not allowable. [7.7] Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue has submitted that it is cardinal principle of law that while considering the Taxing Statute, literal meaning of the words used in the Statute are required to be considered and the words used in the Statute are required to be considered as they are. It is submitted that in the present case language of section 11(3) of the VAT Act is very clear. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the learned Tribunal the only submission made on behalf of the State was that the Dry Dock and Fit Out Berth cannot be said to be plant / capital goods. It is submitted that no other submissions were made on behalf of the State which are now made in the present Tax Appeal more particularly on section 11(3)(a) of the VAT Act and that whether cement, sand, steel, greet, concrete etc. can be said to be capital goods or not. It is submitted that so far as the issue / question whether Dry Dock, Fit Out Berth can be said to be the plant / capital goods or not is concerned, the same is now not res integra in view of the decision of the House of Lords in Barclay s case. [8.2] It is submitted by Shri Joshi, learned Senior Advocate that as such the aforesaid is not seriously disputed by the learned Assistant Government Pleader appearing on behalf of the State. It is submitted that therefore, no error has been committed by the learned Tribunal in holding the Dry Dock and Fit Out Berth as plant / capital goods used in manufacture of the taxable goods. [8.3] Now, so far as the submissions made by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steel, greet, concrete etc., which are used in construction of capital goods / plant used in manufacture of final taxable goods, Input Tax Credit is allowable. Therefore, it is requested to dismiss the present Tax Appeal and answer the questions in favour of the Dealer and against the Revenue. [9.0] Tax Appeal No.99/2015 is opposed by Shri Deven Parikh, learned Senior Advocate appearing on behalf of the Dealer. Now, so far as on purchase of cement, sand, steel, greet, concrete etc. used in manufacture / construction of Jetty is concerned, Shri Parikh, learned Senior Advocate appearing on behalf of the Dealer has adopted the submissions made by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer in Tax Appeal No.563/2016, however over and above the decisions which are cited and relied upon by Shri Joshi, learned Senior Advocate appearing on behalf of the Dealer referred to hereinabove, Shri Parikh, learned Senior Advocate has also relied upon the following decisions of this Court as well as other High Courts 1. Commissioner of Income Tax vs. Elecon Engineering Co. Ltd. 1974 (96) ITR 672 (Gujarat) 2. Commissioner of C. Ex., Tiruchirapalli vs. India Cem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the VAT Act or not? While considering the said issue the definition of capital goods contained in section 2(5) of the VAT Act is required to be referred to which reads as under: Section 2(5). Capital Goods means plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable good and accounted as capital assets in the books of accounts; Therefore, considering Capital Goods defined under section 2(5) of the VAT Act, any plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts can be said to be capital goods . It is not in dispute that in the books of accounts the Dealer has accounted expenses incurred on construction of Dry Dock and Fit Out Berth as Capital Assets . Therefore, while considering the issue No.2, next question which is required to be considered is whether such immovable structure shall be categorized as capital goods under the VAT Act can be said to be plant and machinery meant for use in manufacture of taxable goods or not. As such whether the Dry Dock can be said to be considered as plant or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me degree of durability, as for instance, in Hinton v. Maden Ireland Ltd. knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel, the respondent, which ran a hotel installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the definition of plant given in sec. 10(5) of the 1922 Act which was similar to the definition given in Sec. 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France as expounded in Jarrold v. John Good and sons Ltd. held that sanitary and pipeline fittings fell within the definition of plant. 12. In Inland Revenue Commissioner v. Barclay Curle Co. Ltd. the House of Lords held that a dry dock since it fulfilled the function of a plant must be held to be a plant. Lord Reid considered the part which a dry dock played in the assessee company's operations and observed : It seems to me that every part of this dry dock plays an essential part....The whole of the dock is, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to technological advances they might or would in course of time become obsolete. We are, therefore, clearly of the view that the capital asset acquired by the assessee, namely, the technical knowhow in the shape of drawings, designs charts, plans, processing data and other literature falls within the definition of 'plant' and therefore a depreciable asset. 14. Counsel invited our attention to the decision in Commssioner of Income Tax, Gujarat v. Elecon Engineering Co. Ltd. where the Gujarat High Court has, after exhaustively reviewing the case law on the topic, held that drawings and patterns which constitute knowhow and are fundamental to the assessee's manufacturing business are 'plant'. We agree and approve the said view. In the aforesaid decision in the case of Scientific Engineering House (P) Ltd. (Supra), the Hon ble Supreme Court approved the decision of this Court in the case of Elecon Engineering Co. Ltd. (Supra). In the case of Elecon Engineering Co. Ltd. (Supra), the Division Bench of this Court had an occasion to consider in detail what would constitute a plant and while holding the drawings and patterns as plant the Division Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier only if we are not inclined to uphold the alternative decision of the Tribunal. 26. The word plant , though an ordinary English word, is not altogether an easy word to construe. It may have a more or less extensive meaning according to its context. It has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import susceptible of diverse meanings depending upon its setting in the scheme of the statute. Almost all cases bearing upon the interpretation of the word plant decided in England and in this country were cited before us and the following enumeration would show as to what an amazing variety of articles, objects or things have been held to be plant or not plant : PLANT (i) Horse, Yarmouth v. France; (ii) knives and lasts used in manufacture of shoes, Hinton v. Maden lreland Ltd.; (iii) aircraft engine which was being dismantled, Watts v. Enfield Rolling Mills (Aluminium) Ltd.; (iv) moveable office partitions, Jarrold v. John Good Sons Ltd.; (v) concrete dry dock, Inland Revenue Commissioner v. Barclay, Curle Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is the meaning of the expression plant in any one of dozen other statutes, but what is its meaning in section 32 of the Act and it cannot be resolved by reference to the decisions given under different statutes. We shall, therefore, look at only those out of the numerous cases cited before us from which any general principles can be deduced which might guide us in deciding the question on hand. For the reasons stated above, we hope that we shall not be taken as neglecting the arguments advanced before us if we make no special reference to each and every case cited before us. With this prefatory remark, we proceed to refer to the relevant decisions. 28. The locus classicus for the definition of plant is in the words of Lindley L.J., in Yarmouth's case, which despite the great technological advances since those days is still of great help and has been adopted for the purposes of the incometax law. The question in that case was whether a horse could be regarded as plant and the main issue was whether the word plant must be confined to inanimate objects or whether it would also include animate objects. The learned judge said at page 658 of the report : There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 16 of the Finance Act, 1954. All the Law Lords held that they were. Lord Reid, in the course of his speech, first set out the definition of the word plant given in Yarmounth's case and then extracted from the judgment of Uthwatt J. in J. Lyons Co. Ltd., the passages wherein the learned judge had held that an object, in order to qualify as plant, need not necessarily be used for mechanical operations or processes and that the place in which a businessman carried on his business was not included within the meaning of the word plant . This would indicate that although Lord Reid does not in terms say so, he adopted the definition of the word plant given by Lindley L.J., with the gloss put on it by Uthwatt J. He went on to say (at page 417) : Subject to one point, I have no doubt that these knives and lasts are plant in the ordinary sense of the word. It is true that they are numerous, small and cheap. But one trader may have to use a few large articles while another may have to use a large number of small articles, and I see no good ground for distinguishing between them as regards investment allowance. The one point is the durability of these articles. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained that when Lindley L.J. used the phrase permanent employment in his business what he really meant was that the article in question should have some degree of durability and that it was not intended to suggest that only very longlasting articles should be regarded as plant . Three years' life of an article was considered to meet the test of durability in the facts of the case. The other two Lords, though they did not specifically refer to this aspect, concurred in the ultimate decision on this point and, therefore, they must also be deemed to have agreed with this view. Lord Reid in his speech also approved of course by implication the gloss put on the definition of Lindley L.J., by Uthwatt J. and further indicated that articles or objects, although they might be numerous, small and cheap , might still qualify as plant. 37. Next we must refer to the decision of the Court of Appeal in Jarrold's case. The question in that case was whether certain movable office partitions installed in the office of the assessee could be regarded as plant for the purposes of initial allowance and annual allowance under the relevant provisions of the Income Tax Act, 1952. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s plant . [10.5] Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of Sales India Corporation (Supra) relied upon by Shri Vora, learned Assistant Government Pleader appearing on behalf of the Revenue in support of his submission that the Dry Dock and Fit Out berth cannot be said to be capital goods is concerned, at the outset it is required to be noted that in the said case the Division Bench was considering Entry 42A and Entry 58A of Schedule II of the VAT Act and the words used in Entry 58A i.e. plant and machinery and the subject matter was found to be only machinery and not plant , the Division Bench held that the subject matter would not fall under Entry 58A. Even in the said decision the Division Bench made some passing remarks with respect to the Capital Goods defined in section 2(5) of the VAT Act and it is observed that the definition of the term Capital Goods contained in section 2(5) of the VAT Act is worded as to mean plant and machinery used for manufacture of taxable goods and the word and in the said definition it seems to have been used to convey the expression as well as and therefore, a plant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Jawahar Mills Ltd. (Supra), it was the case of allowability of MODVAT on power cables and capacitors, control panels, cables, distribution boards, switches and starters, air compressors and electric wire cables and the question before the Hon ble Supreme Court was whether the aforesaid goods can be said to be Capital Goods . It was the case on behalf of the Revenue that as the aforesaid items in question were not used for manufacture of final product and therefore, the same cannot be treated as Capital Goods for the purpose of availing of MODVAT. The Hon ble Supreme Court negatived the aforesaid and not accepted the case on behalf of the Revenue and has held that the question whether item falls within the definition of Capital Goods would depend upon the use it is put to. While holding so in para 6 the Hon ble Supreme Court has observed and held as under: 6. The contention of learned Additional Solicitor General that the aforesaid decision and other decisions referred by the Tribunal in the impugned order were cases involving sales tax and income tax and, therefore, the Tribunal should not have relied on those decisions is without any substance because the real question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Jawahar Mills Ltd. (Supra) again came to be considered by the Hon ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd. (Supra) and applying the law laid down in the case of Jawahar Mills Ltd. (Supra), the Hon ble Supreme Court has observed and held that steel plates and MS Channels used in the fabrication of chimney or diesel generating set, applying User Test , would fall within the ambit of Capital Goods and therefore, on such the assessee is entitled to the MODVAT Credit. In the said decision even the Hon ble Supreme Court considered the amended definition of Capital Goods in Rule 57Q, however applying the User Test as was applied by the Hon ble Supreme Court in the case of Jawahar Mills Ltd. (Supra), it was held that steel plates and MS Channels, used in the fabrication of chimney would fall within the ambit of Capital Goods . In para 14 the Hon ble Supreme Court has observed and held as under: 14. Applying the user test on the facts in hand, we have no hesitation in holding that the steel plates and MS channels, used in the fabrication of chimney would fall within the ambit of capital goods as contemplated in Rule 57Q. It is not the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the submission on behalf of the State that one is required to read the provision of the Statute as it is and therefore, considering the wordings used in section 11(3) of the VAT Act i.e. ...on his purchase of taxable goods which are intended for the purpose of goods which are intended for the purpose of use as Capital Goods meant for use in manufacture of taxable goods only on purchase of those capital goods only which are meant for use in manufacture of taxable goods, the Dealer shall be entitled to the Input Tax Credit is concerned, at the outset it is required to be noted that in light of the decisions of the aforesaid two decisions of the Hon ble Supreme Court in the case of Jawahar Mills Ltd. (Supra) and Rajasthan Spinning and Weaving Mills Ltd. (Supra) and applying the User Test , the aforesaid is not required to be accepted. Even otherwise as per the cardinal principle of law a particular provision in the Statute is required to be read purposely and therefore, on purposive interpretation of the aforesaid provision and applying User Test , it is to be held that on purchase of cement, sand, steel, greet, concrete etc. which is used in the manufacture of capital goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Balram Cement Ltd. (Supra). In the case of SAL Steel Limited (Supra), the coal used in the manufacture of sponge iron is held to be raw material and therefore, the Dealer is held to be entitled to Input Tax Credit on the same applying section 11(3)(b)(iii) of the VAT Act. [13.1] Similarly in the case of Balram Cement Ltd. (Supra), the petroleum coke used as fuel in the process of manufacturing cement is held to be the raw material in manufacture of the final product and consequently it is held that the Dealer is entitled to the Input Tax Credit on the same as per section 11(3)(b)(iii) of the VAT Act. Shri Vora, learned Assistant Government Pleader has not pointed out any contrary decision to the aforesaid two decisions of this Court. [13.2] In view of the above even the additional question in Tax Appeal No.99/2015 whether the LPG and Acetylene Gas can be said to be fuel or not as per section 11(3)(b)(iii) of the VAT Act is held in favour of the assessee and against the Revenue. [14.0] In view of the above and for the reasons stated above, both these Tax Appeals fail and deserve to be dismissed and are, accordingly, dismissed. The respective questions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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