Mobile Crane Wire Rope fall in entry 155 under Rajasthan VAT being essential part of Mobile Crane–SC

Mobile Crane Wire Rope an essential part of Mobile Crane and therefore, taxable at the rates prescribed for the Mobile Crane under Rajasthan VAT – SC

ABCAUS Case Law Citation:
ABCAUS 2844 (2019) (03) SC

Important Case Laws Cited/relied upon by the parties
M/s Annapurna Carbon Industries vs. State of Andhra Pradesh [(1976) 2 SCC 273 
Commissioner of Central Excise  vs. Insulation Electrical Private Limited (2008) 12 SCC 45)]

In this case, the appeal was filed by the Rajasthan Commercial Tax Department against the order passed by the Hon’ble High Court upholding the view taken by the Rajasthan Tax Board that “Mobile Crane Wire Ropes” were chargeable to tax @ 4% under Entry 155 of Schedule IV of the State VAT Act

The respondent was engaged in the business of trading of spare parts of mining machinery, steel wire ropes, standard wires, wire rods etc.   

These goods were subject to payment of Value Added Tax (VAT) under the Rajasthan Value Added Tax Act, 2003 (VAT Act).

The Commercial Tax Officer (CTO) conducted a survey in the respondent’s business premises and noticed that the respondent was charging VAT at the rate of 4% on “Mobile Crane Wire Ropes”.

Therefore a question arose as to which is the proper Entry under the VAT Act for charging tax on “Mobile Crane Wire Ropes”.

The VAT authorities were of the view that the proper Entry for payment of tax on Mobile Crane Wire Ropes was the Residuary Entry of Schedule V, which prescribes a rate of tax 12.5%. The assessment was accordingly completed and Notice was issued to the respondent to pay the difference amount of VAT along with penalty and the interest payable under the VAT Act.

Deputy Commissioner (Appeals) allowed the appeal of the respondent and set aside the order of the CTO.

The CTO felt aggrieved and filed appeal before the Rajasthan Tax Board under Section 83 of the VAT Act. However, the Board dismissed the appeal and affirmed the order of the Deputy Commissioner.

The CTO filed a revision petition in the High Court. However, the Hon’ble High Court dismissed the appeal and upheld the order of the Board.

This is how the matter travelled to the Hon’ble Supreme Court at the instance of the VAT Authorities.

The Hon’ble Supreme Court noted that the question arose was whether the goods namely “Mobile Cranes Wire Ropes” fall under Entry 155 of Schedule IV liable @ 4% or under the Residuary Entry of Schedule-V of the VAT Act and liable @ 12%.

The Hon’ble Supreme Court noted that as per said Entry 155, the goods called Hydraulic excavators (earth moving and mining machinery), Mobile Cranes and Hydraulic Dumpers (including parts thereof) were chargeable to tax at the rate of 4%.

The Hon’ble Supreme Court pointed out that the expression “including parts thereof” was inserted in the Entry 155 by an amendment which indicated that the parts of the goods specified in the Entry were not chargeable to tax at the rate of 4% prior to the amendment but became chargeable at the rate of 4% only after the amendment.

The Hon’ble Supreme Court pointed out that it had laid down the test as to how the Court should decide the question as to whether a particular item is a part of other.  The Court stated that the said test is “a thing is a part of the other if the other is incomplete without it”.  In other words, “a thing is a part of the other, if the other cannot function without it.”

Applying the above test, the Hon’ble Supreme Court opined that in order to use the Mobile Cranes and make them operational, the use of wire ropes is  essential. If  wire ropes are not fitted in the Mobile Cranes, they will not function much less effectively. 

Thus the Hon’ble Supreme Court held that the wire ropes used in the Mobile Cranes are a part of the Mobile Cranes and thus fall in Entry 155 of  Schedule IV of the VAT Act and therefore taxable at the rate of 4%. 

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