The Hindu Business Line : No entry for earthmovers

ENTRY tax was first levied by Karnataka in 1979 on certain specified goods. The constitutional validity of entry tax was confirmed by the Supreme Court in State of Karnataka vs Hansa Corporation (AIR 1981 SC 463).

It is important to note that this decision was rendered in 1980 and was based on certain important factors which prevailed at that point of time.

Entry tax on motor vehicles was introduced by certain States to prevent diversion of trade and consequent loss of revenue.

This tax was basically considered as a deterrent for customers resorting to purchase from neighbouring Union Territories and States at zero or lower rates of tax. Most of the States, except Gujarat, also thought it convenient to interpret the words `brought from a place outside the State' to include imports from abroad in the purview of entry tax.

Under most of the State legislation, the term `motor vehicle' has been assigned the same meaning as defined under the Motor Vehicles Act, 1988:

`"Motor vehicle' or `vehicle' means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty five cubic centimetres."

A perusal of the aforesaid definition indicates that the expression "motor vehicle" means any mechanically propelled vehicle adopted for use upon roads but excludes vehicles of special type adapted for use in any enclosed premises.

Thus, all mechanically propelled vehicles, which are adapted for use upon roads, would be included within the definition of motor vehicle.

However, all vehicles of special types, which are mainly adapted for use in any enclosed premises, would stand excluded from this definition of motor vehicle.

It is important to note that since the above definition specifically excludes the vehicles adapted for use in enclosed premises, the vehicles which are primarily adapted for such use would not be covered by the definition, even if they are capable of use upon roads.

The construction of the definition suggests that only those vehicles which are primarily adapted for use upon roads would be covered therein. In other words, the vehicles primarily adapted for use in enclosed premises, though they may be capable of use upon roads, would be excluded from the definition.

The aforesaid conclusion is also strengthened by the fact that the expression "adapted for use" has been used in the definition instead of "capable of use". The word `adapted' means altered or modified for a new use, the new condition, and so on, and to adapt something is to modify it for one's own purposes.

The Calcutta High Court, in Jafrul Islam vs District Magistrate (AIR 1956 Cal 542), has defined the expression "adapted for use" as something that has been made suitable for use by alteration and as made useable with something or for some purpose for which not ordinarily used.

The aforesaid meaning of the expression `adapted for use', when applied to the definition of `motor vehicle', would mean that even though a vehicle/equipment might be capable of use upon roads, it would stand excluded from the definition if it has been modified/adapted for use in enclosed premises.

Thus, vehicles which are primarily adapted for use in enclosed premises would not be included in the subject definition of `motor vehicle', even if they are capable of use upon roads also.

In this regard, attention is also invited to a three-judge Bench decision of the Supreme Court in Goodyear India Ltd vs UOI (1997 92 ELT 14). In this case, the question which was posed before the Supreme Court was whether the tyres meant for fitment to earthmovers would be classifiable as `tyres for motor vehicles'. The apex court, in this case, observed in Para 10 thus:

A close reading of the definition "motor vehicle" in Item 34 reveals that the striking ingredient thereof is that it should have been "adapted for the use upon roads".

Merely because the areas on which such heavy movers traverse might sometimes include roads also is not enough to hold that they were "adapted for use upon roads".

Such use of the heavy mover on the road may only be ancillary or incidental to the main use of it.

Emphasis in the definition must be on the words "use upon road" as these would denote the principal or dominant use and not where it may move incidentally.

In this case the Supreme Court categorically held that an essential ingredient of the definition of motor vehicle is that it should have been adapted for use upon roads and, hence, emphasis in the definition must be on the aforesaid words as they denote the principal or dominant use and not where it may move incidentally.

The apex court consequently held that a mere ancillary or incidental use of earthmovers on roads is not sufficient to cover it within the definition of `motor vehicle' and the dominant use of such equipment should be the guiding principle.

The court accordingly held that the earthmovers are not covered within the definition of motor vehicle.

It may also important be noted that a two-judge Bench of the Supreme Court, in Bose Abraham vs State of Kerala (2001 (43) RLT 267), held that the excavators are motor vehicles for the purpose of the Motor Vehicles Act.

However, a perusal of this decision indicates that the earlier ruling of the three-judge Bench in the Goodyear case (supra), though cited before the Bench, was not discussed at all by the Supreme Court.

Further, the last paragraph of the apex court judgment indicates that the decision is based on the specific admissions made by the assessee in the case to the effect that the subject excavators were merely intended for use in the enclosed premises.

It can therefore be concluded that the decision of the Supreme Court in Bose Abraham case (supra) is based upon the peculiar facts obtaining in that case and it does not lay down any general principles regarding the interpretation of the definition of motor vehicle.

On the other hand, the three-judge Bench in the Goodyear case (supra) clearly laid down the principle that the dominant, and not ancillary or incidental, use of the excavator would determine its character.

It is, therefore, possible to take a view that the Supreme Court decision in the Goodyear India case would prevail over its decision in the Bose Abraham case (supra).

In view of the above legal position, motor vehicles of special type, which are mainly adapted for use in any enclosed premises, would stand excluded from the definition of motor vehicle and accordingly, entry tax would not be applicable to earthmoving machinery.

(The authors are with PricewaterhouseCoopers.)

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