S.2(e) UPVAT | Plant, Machinery Sold After Closure Of Business Are Capital Goods, Excluded From Levy Of Tax: Allahabad High Court

The Allahabad High Court has held that plant and machinery sold after the closure of business are capital goods under Section 2(f) of the Uttar Pradesh Value Added Tax Act, 2008 and are excluded from levy of tax under the amended definition of 'business' under Section 2(e) of the Act.

The definition of 'business' under Section 2(e)(iv) of the Uttar Pradesh Value Added Tax Act, 2008 was amended in 2014 to include any transaction, even after the closure of business, if it relates to sale of goods acquired during the period in which business was carried out. Section 2(f) defines 'capital goods' as plant, machine, machinery, equipment, apparatus, tool, appliance or electrical installation used for manufacture or processing of any goods for sale by the dealer.

Section 2(m) of the Act defined 'goods' as every kind or class of movable property including all materials, commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to, or fastened to anything permanently attached to the earth which, under the contract of sale, are agreed to be severed, excluding actionable claims, stocks, shares or securities.

“It is to be noted that the amended definition of Section 2(e) of the Act only includes the sale of goods acquired during the period in which the business was carried out. This definition pre-supposes that the goods were acquired during the period in which the business was carried out and were subsequently sold after the closure of the business. The definition could very well have been amended to include all kinds of goods including capital goods,” held Justice Shekhar B. Saraf.

The Court held that vide the amendment to Section 2(e) of the UPVAT Act, the levy of tax has been limited to sale of “goods” as defined under Section 2(m) of the Act for the goods acquired during the course of business excluding capital goods falling under the definition of 'capital goods' under Section 2(f) of the Act. Accordingly, it was held that the plant and machinery sold after the closure of business is not 'sale of goods' under Section 2(e) of the Act.

Case Background

The issue before the Court was whether the sale of old machinery worth Rs.41,73,994/- and sipper box and rack, MS table and moulds, laboratory equipments, office equipments, fire extinguisher, stabilizer and delivery vehicle worth Rs.91,46,845/- are liable to tax as per the amended definition of “Business” under Section 2(e) of the UPVAT Act.

Counsel for revisionist-department argued that after the amendment to the definition of “business”, any transaction made even after the closure of the business in relation to the sale of goods acquired during the period in which the business was carried out, would be liable to tax. It was argued that movable assets which have been sold fall within the definition of 'goods' under Section 2(m) of the Act.

Counsel for assessee-respondent argued that the goods in question are 'capital goods' under Section 2(f) of the Act and do not fall under 'business' where only sale of goods is taxable. Reliance was placed on Narmada Bearing (P) Limited v. Commissioner of Trade Tax, U.P., Lucknow and Rajesh Paper Mills Limited v. Commissioner, Commercial Tax to argue that plant and machinery are not goods and are not liable to be taxed under the UPVAT Act.

High Court Verdict

The Court observed that Tribunal had recorded a specific finding that the goods sold after the closure of business were capital goods as they were plant and machinery. Accordingly, the Tribunal had excluded the sale of plant and machinery from taxability under Section 2(e)(iv) of the Act. Upholding that the finding of the Tribunal, Justice Saraf held that while exercise revisional jurisdiction the Court cannot enter findings of fact unless they are “factually unbelievable and perverse.”

“The Tribunal being the last fact finding authority, its findings are paramount and should not be interfered with by this Court unless the same are patently illegal and perverse.”

The Court held that the amended definition of 'business' under Section 2(e) of the Act presumes that the goods which are being sold were acquired during the active period of business and sold after its closure. However, capital goods were intentionally left out by the legislature while amending the definition.

“The legislature has limited itself to only sale of “goods”, and therefore, the definition of goods as per the Section 2(m) of the Act has to be taken into account and not the goods which fall under the definition of capital goods in Section 2(f). In light of the same, plant and machinery sold after the closure of business shall have to be excluded from the scope and ambit of the levy of tax.”

Accordingly, the revision filed by the Department was dismissed in favor of the assesee.

Case Title: The Commissioner, Commercial Tax U.P. v. M/S R.P. Milk Made Products (P) Ltd. 2024 LiveLaw (AB) 328 [SALES/TRADE TAX REVISION No.123 of 2023]

Case citation: 2024 LiveLaw (AB) 328

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