By TIOL News Service

NEW DELHI, APR 19, 2014: The respondent is a public limited company incorporated under the Companies Act, 1956 engaged in the business of manufacture and sale of Urea Fertilizer. It is a registered dealer under the U.P . Trade Tax Act, 1948 (for short 'the U.P . Act') and the Central Sales Tax Act, 1958 (for short 'the Act').

The respondent - assessee being a manufacturer was entitled to the benefit provided under Section 4-B of the U.P . Act on the purchase of materials required for the use in the manufacture of goods.

The assessee apart from other raw materials had purchased spare valves, cable, pump and transformer at concessional rate of tax for use in the manufacture of its final product, namely urea fertilizer.

The assessing authority issued two notices under Section 3-B of the U.P . Act for assessment years 1979-80 and 1980-81, stating that the purchase of transformer at concessional rate of tax is not covered under the exempted items stipulated in the Recognition Certificate. The assessee submitted a reply to the aforesaid notice stating that the purchase of transformer was covered under "accessories and component parts" as envisaged in the Recognition Certificate. The reply of the assessee was rejected by the assessing authority and consequently tax and the penalty was levelled against the assessee.

Being aggrieved by the said order passed by the assessing authority, the assessee had carried the matter in an appeal before the First Appellate Authority. The First Appellate Authority while rejecting the appeal filed by the assessee had confirmed the orders of assessments passed by the assessing authority.

Aggrieved by the same, the assessee approached the Sale Tax Tribunal against the orders of the First Appellate Authority. The Tribunal has come to the conclusion that the transformer purchased by the assessee is essential for effective functioning of the machinery used for the purpose of manufacture of urea fertilizer and therefore, is covered under the category "accessories and component parts" as envisaged under the Recognition Certificate and accordingly, set aside the orders of assessment for the assessment years 1979-80 and 1980-81 insofar as the levy of sales tax on the purchase of the transformer is concerned by order dated 16.08.1989.

Being aggrieved by the orders so passed, the Revenue had carried the matter by way of tax revision before the High Court. The High Court has reached the conclusion that transformer is covered under the items mentioned in the Recognition Certificate as "accessories" and therefore is an eligible commodity to be granted concessional rate of tax and hence, confirmed the finding of the Tribunal and dismissed the revision petition by judgment and order dated 14.02.2003.

Aggrieved by the judgment and order passed by the High Court, the Revenue is before the Supreme Court in these appeals.

The short question for consideration and decision by the Supreme Court is whether the transformer purchased by the assessee at the concessional rate of tax falls under the category of "accessories and component parts" required for use in the manufacture of notified goods under the U.P . Act.

The Supreme Court noted,

The term "accessory" has been defined by lexicographers broadly to mean as something which contributes to or aids an activity or process. Oxford Advanced Learner's Dictionary defines it as "a thing which can be added to something else in order to make it more useful, versatile, or attractive." According to Merriam Webster Dictionary it is "something added to something else to make it more useful, attractive, or effective." Black's Law Dictionary provides that the term "accessory" means "anything which is joined to another thing as an ornament, or to render it more perfect, or which accompanies it, or is connected with it as an incident, or as subordinate to it, or which belongs to or with it, adjunct or accompaniment, a thing of subordinate importance; aiding or contributing in secondary way of assisting in or contributing to as a subordinate.

The Supreme Court observed,

"Undoubtedly, in the manufacturing process transformer serves the purpose of modifying or controlling the voltage supplied by the utility to the manufacturing unit according to its specific requirements. The transformer installed in the unit would ensure that the electricity is supplied to the unit so as to ensure its optimal performance. It is adjunct to the efficient use of the manufacturing unit. Such being the case, it can be comprehended that the transformers that are purchased by the respondent/ assessee would act to the effective functioning of the machinery installed in the unit used for the purpose of manufacture of urea and fertilizers and hence are accessories to the manufacture of urea and fertilizers. Therefore, the respondent-dealer would certainly fall within the meaning of the expression "goods required for use in the manufacture" appended as explanation to sub-Section (2) of Section 4-B of the U.P. Act."

So, the Supreme Court was of the considered opinion that the impugned judgment and order does not suffer from any error whatsoever and therefore, the Court did not intend to interfere with the findings and conclusion reached by the High Court.

The appeals are dismissed accordingly.

(See 2014-TIOL-41-SC-CT)