M/s. Coron (India), Bangalore vs State of Karnataka and Another

Y. Bhaskar Rao, J.-These eight revision petitions are filed assailing the order of the Appellate Authority.

The facts of the case are that, the petitioner is a partnership firm engaged in the business of sale of goods known as "Water treatment units", which are used for filtering and purifying water. Upto the end of assessment year 1995, the said goods were assessed to tax as "unclassified goods" under Section 5(1) of the Karnataka Sales Tax Act, 1957 (in short "the Act") and for the assessment year 1988-1992 they were charged by the Assessing Authority at residuary rate under Section 5(1) of the Act. The revisional authority by exercising of the power under Section 21(a) of the Act, revised the assessment and held that the units of the petitioner are coming within the definition of Machinery, so, falling under Entry 20 of Second Schedule to the Act (Part ''M'' vide Entry 1 of II Schedule in the new entry) and directed the payment of the remaining tax. That order was challenged before the Appellate Tribunal, Appellate Tribunal confirmed the said order, and by classifying the units as machinery, the tax under the Sales Tax Act was also assessed, for the units. Aggrieved by those orders of the Appellate Authority, the present revision petitions are filed.

Learned Counsel for the petitioners contended that the water treatment units which are manufactured would not include any complicated functioning of machinery and as such it could never be interpreted as ''machinery'' or as ''machinery parts'', that a chemical reaction in which mobile hydrated ions of a solid are exchanged, equivalent, for ions of like charge in solution, the solid has an open fish net like structure. The mobile ions neutralise the charged or potentially charged groups attached to the solid matrix. The solid matrix is called the ion exchanger. It is contended that basically, the entire functioning of unit is to pass on water to make it potable in as much as to bring in pure water for consumption. Therefore, there is no mechanical operation as the flow of water is maintained by either supplying the water from a overhead tank or by using a pump which is external to the water treatment unit and arranged by the buyers of this unit. Therefore, there is no mechanical process. So, the classification of these units as machinery is not correct.

Learned Government Advocate contends that, though, there is no actual involvement of power or any other fuel for the purpose of functioning of the unit, the process of functioning itself is for the purpose of the getting the purified water finally by removing of the chemicals and other materials which are impure in the water. Therefore, the conclusion arrived by the authorities that it is a machinery is correct.

In view of the above contentions, the important question of law that has to be decided is,

"Whether the water treatment unit in which the water is processed to purify it by making flow of water from the water tanker or pumping into it amounts to a machinery or not".

To appreciate the above contention, it is relevant to extract Section 5(1) of the Act. Section 5(1) reads as follows:

"Levy of tax on sale or purchase of goods.-(1) Every dealer shall pay for each year tax on his taxable turnover at the rate of twelve per cent at the point of first sale:

Provided further that if and to the extent to which such turnover relates to cast-iron castings, all the provisions of this Act including the rate of tax applicable to goods mentioned in sub-item (i) of item (a) of Entry 2 of Fourth Schedule shall apply mutatis mutandis in respect of tax payable under this Act for sale of cast-iron castings:

Provided also that if and to the extent to which such turnover relates to fried gram, all the provisions of this Act including the rate of tax applicable to pulses mentioned in Serial Number 10 of the Fourth Schedule shall apply mutatis mutandis, in respect of tax payable under this Act for sale of fried gram".

Section 5(1) of the Act empowers the authority to collect tax as a residuary power, when it is not provided elsewhere in the Act, if the goods are not classified in the schedule to the Act. Therefore, the question is whether the water treatment unit could be interpreted as a ''machinery'' falling under Entry 20 of Second Schedule or on the residuary goods.

The admitted facts are, that, for this water treatment unit, no power or fuel is used for the purpose of processing nor the construction of the unit itself does have any mechanical parts of machinery. Further, the parts do not have any mechanical movement. The water pumped into it will simply flow in the unit through compartment wise and the same is processed into purified water due to chemical treatment and filtering. Prima facie, it appears that there is no mechanical process.

It is relevant to know what is ''machinery''. The word ''machinery'' has been interpreted by the Privy Council in Corporation of Calcutta v Chairman, Cossipore and Chitore Municipality, AIR 1922 PC 27. Whether the balancing tank in which water is stored and released subsequently when there is a demand, is a machinery or not, has come up for consideration before the Privy Council in the said case. Lord Atkinson speaking for the Court, observed as follows:

"The steel tank with its supporting structure for storage of water is not ''machinery within the meaning of Proviso 3, Section 101 of the Bengal Municipal Act. In assessing the plot on which it stands, the value of the tank and its supporting structure cannot be excluded from consideration.

The determination in any given case of what is or is not machinery must to a large extent depend upon the special facts of that case.

Generally, the word ''machinery'' when used in ordinary language, prima facie, means some mechanical contrivances, which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts generate power or evoke, modify, apply or direct natural force with the object in each case of effecting a definite and specific result".

The Privy Council has laid down that, whether a particular instrument is a machinery or not has to be considered according to the facts of each case and considering the facts of that case, it has been held that the said water balancing tank will not fall within the classification of machinery. This judgment is approved by the Supreme Court.

In Commissioner of Income-tax, Madras v Mir Mohammad Ali, AIR 1964 SC 1693, a question arose before the Supreme Court, under the Income-tax Act, whether the diesel engine which is fitted to a bus is a machinery or not. It was contended before the Supreme Court that, once the diesel engine is fixed to the bus, the whole bus becomes machinery and not a diesel engine individually. The Supreme Court repelling those contentions after referring to the dicta laid down by Lord Atkinson in the above Privy Council case, held that, the diesel engine is a machinery and approved the principle laid down by the Privy Council.

A Division Bench of this Court in KB. Dani v State of Karnataka, 1979 Kar. L.J. (Tri. Supp.) 286 (HC), has considered, whether the trailer attached to a tractor is a machinery, or not. His Lordship Ramajois, J., (as he then was) speaking for the Division Bench, after considering the judgment of the Privy Council, referred to supra, has held that the tractor (trailer) is not a machinery. Therefore in view of the principles laid down in the above judgment, it is manifest that, if an instrument has to be considered as a machinery, there must be some mechanical contrivances. In the absence of it, it cannot be said that it is a machinery. In the water treatment units, there is no mechanical contrivances and only the water is flown from one compartment to another compartment of the unit like an ordinary home filter and due to the chemical treatment during process, the purified water is obtained. Therefore, merely because the water is pumped to it or flown from the water tank, it cannot be said that, by that process itself, a mechanical contrivances is involved in it. Therefore, we hold that the water treatment units cannot be classified as a machinery for the purpose of levying tax under Entry 20 of the Second Schedule. So, it falls under residuary goods and taxable under Section 5(1) of the Act.

Accordingly, these revision petitions are allowed.

The order of the Appellate Authority as well as Revisional Authority are set aside and the order of the Assessing Authority is restored.