Madras High Court Says Precision Instruments Used In Manufacturing Eligible For 3% Sales Tax Rate

The Madras High Court has held that precision instruments such as Vernier Calipers, Depth Gauges and Cylinder Gauges used by manufacturers in Tamil Nadu qualify for a 3% concessional tax rate when sold against Form XVII declarations, even though the instruments are not consumed in the manufacturing process

A Division Bench of Justice Anita Sumanth and Justice E. Manoharan observed that the benefit under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959 extends to “any goods” used in manufacturing in Tamil Nadu, even if such goods are not consumed or incorporated into the finished product.

The Court was dealing with a dispute concerning the sale of precision equipment such as Vernier Calipers, Depth Gauges and Cylinder Gauges.

The assessee had purchased the instruments from an importer at Kandla Port and sold them to manufacturers in Tamil Nadu against Form XVII declarations.

For the assessment period 2004-05, the Form XVII declaration was not produced at the assessment stage but was subsequently produced during the first appeal. The assessee's claim for the concessional rate was rejected by the authorities on the ground that the instruments did not satisfy the conditions under Section 3(3).

The Revenue argued that the benefit was confined to goods such as consumables, packing material, labels, component parts and raw materials used in the manufacturing process. Since precision instruments were not consumed during manufacture, it contended that the concessional rate was unavailable.

The assessee, on the other hand, relied on the wording of Section 3(3), which covers “any goods” used in manufacture, and cited various judicial decisions, including the Supreme Court's decision in Member, Board of Revenue, West Bengal v. Phelps & Co. Pvt. Ltd.

The High Court accepted the assessee's contention and opined that the benefit under Section 3(3) was available in respect of “any goods” as long as they were used in manufacture in Tamil Nadu.

The Bench observed that the provision was inclusive in nature and excluded plant and machinery. Since the precision instruments were neither plant and machinery nor consumables, but had admittedly been used in the manufacture of goods in Tamil Nadu, they fell within the scope of “any goods”.

"Section 3(3) is an inclusive provision that extends the benefit of lower rate of tax to any goods, including consumables and excluding plant and machinery. As the subject goods fall neither within the ambit of plant and machinery or consumables, but have admittedly, been used in the manufacture of goods in Tamil Nadu, they would stand covered by the ambit of the phrase 'any goods'.", the Court said.

The Court also relied on the Supreme Court's decision in Phelps & Co. Pvt. Ltd., which dealt with industrial gloves used as an aid in the manufacturing process even though they were not consumed in the manufacture.

The Revenue also relied on the Madras High Court's recent decision in Sony India Ltd. v. The Commercial Tax Officer and Others. In that case, the assessee had been relegated to the statutory remedy in a challenge concerning classification of imported goods.

The Bench, however, distinguished the decision on facts, noting that Sony India concerned a challenge to the classification of imported goods through a writ petition, whereas the present case involved goods purchased against Form C and subsequently sold to manufacturers in Tamil Nadu against Form XVII.

The Court consequently granted the assessee the benefit of the 3% concessional rate for the sales covered by Form XVII declarations.

For the other assessment period, where the Form XVII declaration had not been produced, the Court upheld the Revenue's contention that the imported precision instruments attracted the 20% rate under Entry 9 of the Eleventh Schedule.

The Court accordingly allowed the Revenue's challenge concerning that assessment period while granting the assessee the benefit of the 3% concessional rate for the sales covered by Form XVII declarations.

For Petitioner: Mr.I.Dinesh Additional Government Pleader

For Respondent: Mr.N.Prasad Advocate