Commnr. Of Trade Tax, U.P vs S/S. Parikh Gramodyog Sansthan

1 WITH

CIVIL APPEAL NO. 654 OF 2005

The Commissioner of Trade Tax, U.P. .............. Appellant

Versus

S/S. Pushkar Control Pvt. Ltd. ..............Respondent

WITH

CIVIL APPEAL NO. 655 OF 2005

The Commissioner of Trade Tax, U.P. .............. Appellant

Versus

S/S. Pushkar Control Pvt. Ltd., Noida ..............Respondent

WITH

CIVIL APPEAL NO. 656 OF 2005

The Commissioner of Trade Tax, U.P. .............. Appellant

Versus

S/S. Pushkar Control Pvt. Ltd., Noida ..............Respondent

2 JUDGMENT

H.L. Dattu, J.

1) The question for determination in these Civil Appeals is

whether the `Voltage Stabilizer' manufactured and sold by the

assessee (respondent herein) ought to be taxed as electrical goods

under Entry No. 16 of Schedule to U.P. Trade Tax Act, 1948 or as

electronic goods under Entry No. 74(f) of the Notification No.1223

dated 31st March, 1992?

2) The Revenue contends that the voltage stabilizer is an `electrical

goods'. The stand of the assessee is it is `electronic goods'.

3) The facts and the issues in all these civil appeals are identical

and, therefore, these are all disposed of by this common judgment.

4) The Respondant/Assessee is in the business of manufacture of

voltage stabilizer and sales thereof. The assessing Officer had passed

Assessment Order dated March 31, 1997 under Section 41(8) of the

U.P Trade Tax Act, 1948, directing S/S. Parikh Gramodyog Sansthan

(Respondent) to pay Sales Tax in a sum of Rs. 1,00,875.55 and

19,3438.00 for the assessment years 1994-95 and 1995-96

3 respectively. This quantification was based on the rate applicable to

electrical goods. The Respondents had stated that they were liable to

pay taxes at the rates applicable to electronic goods under the old

Entry 74(f) and the amended Entry 74(a)(iii) of the Notification,

which was 4% for the assessment years 1994-95 and 1995-96.

5) The assessment years and the tax demand vary in each of these

appeals.

6) Being aggrieved by the order passed by the Assessing

Officer dated March 31, 1997, the assessee had preferred an appeal

before the Commissioner of Trade Tax, which was dismissed vide

order dated 29.7.1997. Subsequently, the Respondents filed second

appeal before the Trade Tax Tribunal, Moradabad. The Tribunal while

modifying the order passed by the assessing officer had held that

voltage stabilizers were `electronic' goods and not `electrical' goods,

primarily on the ground that electrical goods involve the consumption

of electricity, whereas an electronic device functions through the

creation of an electron vacuum in the semiconductor material. The

Tribunal also referred to a certificate issued by the Principal Director

of Electronic Service and Training Center of Ram Nagar, Nainital,

which is a government society, that voltage stabilizers are electronic

4 devices. The Tribunal also noted that the Text Book `Basic Electronic

Engineering' by M.L Anumani, categorises voltage stabilizers as

electronic goods. The Tribunal also had taken note of circular issued

by the U.P government dated 31.3.1992 (Notification No. 1223), the

notification issued by the Punjab Government dated 10.11.1987, as

well as Exemption No.12 of Entry No. 23 of the Excise Act, all of

which categorizes voltage stabilizers as electronic goods.

7) Being aggrieved by the aforesaid order, the revenue had filed

Revision Petition in the High Court at Allahabad. Before the High

Court, the revenue had relied on the order passed by the

Commissioner of Commercial Taxes in another assessee's case,

wherein it was held that voltage stabilizers are electrical goods. The

High Court has agreed with the reasoning of the Trade Tax Tribunal.

While rejecting the stand of the revenue, has observed that the order

of Commissioner of Commercial Taxes, passed under Section 35 of

U.P Trade Tax Act does not give out any reason as to why the

automatic voltage stabilizer should be treated as electrical goods and

not as electronic goods and, therefore, the reliance placed on the order

passed by the Commissioner would not come to the aid of the

5 revenue. Accordingly, the High Court dismissed the Revision

Petition. That is how the revenue is before us in these appeals.

8) The learned counsel Sri Aarohi Bhalla would submit that, the

commodity in question is electrical goods since it works on the

principles of application of electric energy and also facilitates the

distribution and transmission of electrical energy and therefore, it

satisfies the twin tests that are required under Entry 16 of Schedule to

the Act. It is further submitted, that for the goods to be classified as

electronic goods, their functioning or operation must be controlled

and guided by Micro Processing Chips. According to learned counsel,

the voltage stabilizers function as step up or step down transformers

and their working is not controlled by Micro Processing and,

therefore, they are outside the ambit of electronic goods. It is also

submitted that the assessee only imported electrical goods as raw

materials for being used in the manufacture of stabilizers and the use

of the raw material clearly establishes the fact that no microchips have

been used while manufacturing the voltage stabilizers.

9) Per contra, Shri Dhruv Agarwal, learned counsel for the assessee

would submit that the voltage stabilizer is made of electronic components

and since the main component of the stabilizer being a microchip, the

6 commodity in question requires to be classified as electronic goods and,

therefore, falls under Entry 74 (f) of the Notification No. 1223 dated 31st

March, 1992.

10) The relevant entries that are required to be noticed are, Entry 16

and Entry 74 of the Schedule to UP Trade Tax Act, 1948. They are as

under:

16. "All electrical goods, instruments, apparatus, appliances and all such articles the use of which cannot be had except with the application of electrical energy, including fans, fluorescent tubes (including their starters, chokes, fixtures, fittings and accessories), electrical earthenware and porcelain, electrical equipments, plant and their accessories required for generation, distribution and transmission of electrical energy, electric motors and parts thereof, and all other accessories and components whether sold as a whole or in parts, but excluding torches, torch cells, dry cell batteries, torch bulbs and filament lighting bulbs."

74 "(a) Electronic goods made by such tiny units whose investment in plant, machinery, equipment and apparatus as certified by a chartered accountant, does not exceed five lakh rupees and which manufactures and sells electronic goods notified Development Commissioner, Small Scale Industries, Government of India.

(b) Consumer electronic goods that is to say black and white television, tape recorders, and public address system.

(c) Office equipment that is to say data processing system, micro processor based mini/micro computer system, computer peripherals, dot matrix printers, line

7 printers, desk top publishing system, floppy drives, the hard disk drives, video display terminals, key boards, mouse, plotters, digitizers, monitor, cartridge tape, steamer drive, calculators, electronic typewriters, data entry machines, automatic taller machines, cash dispensers.

(d) Photo copiers.

(e) Electronic components, that is to say all types of passive components/resisters, capacitors, diodes and other active components, transistors, integrated circuits, large scale integration/very large scale integration chips, black and white picture tubes, colour picture tubes, power semi conductors, audio tapes and video tapes, printed circuit boards/connectors, relays, upto electronic components, magnetic media, microwave tube, television components, television glass shell, electronic transducers, actuators, display devices that is light emitting diodes/liquid crystal diode, micro meters for video cassette records/video cassette players, crystals, tape deck mechanism, etched and framed foils, electronic tubes, deflection yokes, line out put transformers, electro deposited copper foils printed circuit board laminate, populated printed circuit boards, power supply devices, cabinet.

(f) All other electronic goods, parts and accessories not covered in any of the aforementioned categories."

11) Entry 16 of the Schedule to U.P. Trade Tax Act is an inclusive

definition. It speaks of all electrical goods, instruments, apparatus etc.,

the use of which cannot be had without the application of electrical

energy, including plant and their accessories required for the generation,

distribution and transmission of electrical energy.

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12) Entry 74 of the Notification No.1223 dated 31 st March, 1992 and the

subsequent Notification No. 3420 dated 1st October, 1994 speaks of

electronic goods. There is no material change in these two Notifications,

except change in the rate of tax on certain electronic items. The relevant

entry for the purpose of the present case is Entry 74(f) of the earlier

Notification and 74(a)(iii) of the subsequent Notification. The said

entry speaks of all the other electronic goods not specified any where

else in the Schedule or in any other Notification. The rate of tax during

the relevant assessment years was 4%.

13) Before we consider the specific case of the revenue, it is desirable

to know the meaning of the expression `electrical goods' and `electronic

goods'.

ELECTRICAL GOODS :

The Law Lexicon (Justice T.P. Mukherjee 4th Ed, 1989 pg.574)

defines Electrical Goods as `such articles the use of which cannot be

had except with the application of electrical energy.' It must be kept

in mind that an electronic device can be an electrical device but an

electrical device cannot be an electronic device.

ELECTRONIC GOODS :

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14) Sri M.P. Agarwal in his book Interpretation of Words, Phrases

& Commodities under Sales Tax Laws has stated, `the fact that the

electronic goods cannot be used without the aid of electricity is not the

only criterion to determine whether those goods can be treated as

electrical goods. The really important criterion is whether those goods

are regarded as electrical goods in common parlance. It might consist

of electronic systems, instruments, appliances, apparatus, equipment

operating on electronic principles and all types of electronic

components, parts and materials.

15) Now we will deal with the specific goods which we are

concerned in these appeals. At the outset, we intend to notice what is

a voltage stabilizer, its purpose, components and functions?

Voltage Stabilizer :

A voltage stabilizer is a device which is able to deliver

relatively constant output voltage while input voltage and load current

changes over time. The voltage stabilizer is the shunt regulator such

as a Zener diode or avalanche diode. Each of these devices begins

conducting at a specified voltage and will conduct as much current as

required to hold its terminal voltage to that specified voltage. Hence,

the shunt regulator can be viewed as the limited power parallel

10 stabilizer. The shunt regulator output is used as a voltage reference. A

Zener diode is a type of diode that permits current not only in the

forward direction like a normal diode, but also in the reverse direction

if the voltage is larger than the breakdown voltage known as "Zener

knee voltage" or "Zener voltage". The device was named after

Clarence Zener, who discovered this electrical property. An

avalanche diode is a diode (usually made from silicon, but can be

made from another semiconductor) that is designed to go through

avalanche breakdown at a specified reverse bias voltage and conduct

as a type of voltage reference. (see Wikipedia)

16) The voltage stabilizer is an instrument which can be used by

application of electrical energy and not an instrument for generation,

distribution or transmission of electrical energy, but are used for

regulating the inflow of electrical energy for variety of appliances.

Voltage stabilizers serve the purpose of producing a constant output

voltage from a variable input voltage. As a rule, voltage stabilizers

operate with an in-phase regulated transistor, which has a control

input driven by a stabilized control voltage. It is possible, given a

constant control voltage to largely stabilize the output. Voltage in a

defined operating range, by way of the characteristic response of the

11 transistor acting as the actuator. The stabilized output voltage serves,

as a rule, to supply voltage to electronic circuits which are connected

down stream and often have a dedicated voltage regulator for voltage

supply.

17) Purpose of Voltage Stabilizers :

Voltage stabilizers provide a steady amount of electrical current

to electronic devices when power fluctuates in the house or business

where the devices are located. Power surges and sudden power drops

can cause serious damage to computers and other

sensitive electronics. Voltage stabilizers store power and provide

power from its reserve to attached devices, which bypasses power

fluctuations. Some voltage stabilizers are also incorporated into a

universal power supply (UPS), which is a backup battery system that

allows devices such as computers to continue operating for a limited

period of time in the event of a power failure.

Standard Voltage Stabilizer Operation :

The specifics of how a voltage stabilizer operates varies from

one type to another, but the basics remain the same. A voltage

stabilizer is plugged into an outlet, which charges a series of

capacitors or battery units in the stabilizer. These capacitors maintain

12 their charge even if the amount of power from the outlet fluctuates.

Any device plugged into the stabilizer will draw its power from the

capacitors or battery instead of directly from the outlet. The voltage

stabilizer is wired so that the outlet and the devices are on separate

circuits. As a device drains power from the capacitors, the power

coming in from the outlet will continue to recharge them. Due to

resistance in the stabilizer's circuitry, its power to devices is lower

than the ideal voltage from the outlet. This means devices may

function slightly slower when connected to a voltage stabilizer.

Capacitor :

A capacitor (formerly known as condenser) is a passive

electronic component consisting of a pair of conductors separated by

a dielectric (insulator). When there is a potential difference (voltage)

across the conductors a static electric field develops in the dielectric

that stores energy and produces a mechanical force between the

conductors. An ideal capacitor is characterized by a single constant

value, capacitance, measured in farads. This is the ratio of the electric

charge on each conductor to the potential difference between them.

Capacitors are widely used in electronic circuits for

blocking direct current while allowing alternating current to pass.

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18) It is evident from the facts of the case that an automatic voltage

stabilizer involves the operation of a number of electronic components.

A voltage stabilizer might have many components some of which use

electricity. This cannot be the sole reason for classifying it as an

electrical good. As noticed earlier, an electrical device can be an

electronic device, but an electronic device cannot be an electrical device.

The Tribunal which is the last fact finding authority after taking into

consideration the components of voltage stabilizer, the purpose for which

it is used and the principles on which it works has come to the conclusion

that the voltage stabilizer is electronic goods, for the purpose of taxation

under U.P. Trade Tax Act, we are in agreement with the reasoning and

conclusion reached by the Tribunal.

19) The learned counsel for the appellant has placed reliance on the

observations made by Madras High Court in the case of Williams Taks

and Co. Ltd., Madras v. The State of Madras, [AIR 1955 Madras 656

(V.42, C.N.208 Nov.)] and B.P.L. v. State of Andhra Pradesh, [2001

(127) E.L.T. 655 (S.C.)].

20) In the case of Williams Taks and Co. Ltd., Madras v. The State of

Madras, [AIR 1955 Madras 656 (V.42, C.N.208 Nov.)], the question that

came up for the determination before the Court was whether the articles

14 specified within the list mentioned thereby under General Sales Tax Act,

1939 were electrical goods. The Court observed that :

"it is neither possible nor desirable for this Court to embark on a preparation of an exhaustive list of what constitute `electrical goods' within the meaning of section 3(2) (viii) of the Act nor even is it possible to device a formula of universal application."

21) In the case of B.P.L. v. State of Andhra Pradesh, [2001 (127)

E.L.T. 655 (S.C.)], the question that was to be decided by this Court

was "whether Fully Automatic Washing Machine can be regarded as

`electronic goods' so as to attract a lower rate of sales tax." It was

observed that the answer to the question arising in the case depends

upon the interpretation of the definition of the term `electronic goods'.

The Court also pointed out that "on a plain reading thereof, it means

that systems, instructions, appliances, apparatus and equipments,

which are electronic and operate on electronic principle, would be

electronic goods. All types of electronic components, parts or

materials are also electronic goods as per the said definition.............

What has to be seen is whether the automatic washing machines are

electronic appliances or equipments operating on electronic

principle."

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22) In our considered view, these decisions would not assist the

appellants. We, therefore, do not find any infirmity in the impugned

judgment. Accordingly, we dismiss these appeals. In the

circumstances of the case, there will be no order as to costs.

.......................................J. [ D.K. JAIN ]

.......................................J. [ H.L. DATTU ]

New Delhi, August 11, 2010.

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