THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE N.RAVI SHANKAR WRIT PETITION Nos.19318 and 19425 of 2009 COMMON ORDER: (per THE HON’BLE SRI JUSTICE N.RAVI SHANKAR) These two writ petitions under Article 226 of the Constitution are filed by a company called M/s. A.P. Met Engg. Ltd. questioning two assessment orders passed against it under the Andhra Pradesh Value Added Tax Act, 2005 (for short Act). Respondents are same in both and the main point raised in each of them is similar. An additional point is raised in W.P.No.19425 of 2009 and having regard to the main point both these writ petitions can be disposed of by this common order. To state the points the circumstances which give rise to them should be first noted. 2. The petitioner is a public limited company and is carrying on the business in the Indian Made Foreign Liquor (IMFL) with a licence under our State excise law. It has got its factory at Bollaram, Medak District, and is a registered dealer under the Act on the rolls of the Commercial Tax Officer, Tarnaka Circle, Hyderabad. Under a lease agreement dated 25.02.2008 the petitioner leased out a part of the capacity of its factory including its bottling lines to another company by name M/s.Pernod Ricard India (P) Limited for a certain consideration mentioned in the said agreement. Then under a separate supplemental agreement also dated 25.02.2008 with the above lessee the latter entrusted the job of manufacturing of IMFL to petitioner again with brand names relatable to the lessee. The other details are not necessary. 3. After issuing a show cause notice the Deputy Commercial Tax Officer concerned (respondent in both the writ petitions) who was authorised to make the assessment by his assessment order dated 13.07.2009 levied a tax of Rs.38,18,265/- for the Assessment Year 2008-09. The assessing officer breaking up the total lease amount under the agreement proportionately fixed the lease amount for plant & machinery i.e. bottling lines at a certain amount treating them as goods falling under Section 2(16) of the Act. He then separately assessed the value of the spirit and the value of the sale of raw materials other than spirit sold by the petitioner at certain amounts. He concluded that the consideration received for lease of the bottling lines must be held to be received as consideration for transfer of right to use the same treating them as “goods” and falling under Section 4(8) of the Act. He accordingly levied tax on the said amount at 12.5%. He further levied tax at 12.5% and 4% respectively on the sales of spirit and other raw materials referred to supra and arrived at the total tax payable as Rs.38,18,265/-. Thereafter the said assessing officer passed another revised assessment order dated 21.07.2009 reducing the tax payable to Rs.33,47,641/- after deducting the tax declared and paid. He excluded the amount received for lease of immovable property i.e. land from the assessment. Challenging this assessment the petitioner filed W.P.No.19425 of 2009. So far as levy of VAT on the sale of other raw materials is concerned which is found in the assessment order questioned in this writ petition, it is brought to our notice that there is no dispute. 4. Coming to W.P.No.19318 of 2009 the facts are similar but it relates to the AY 2007-08 and it pertains to lease of another part of the capacity of petitioner’s factory at Bollaram to another company for manufacture of various brands of IMFL. The Deputy Commercial Tax Officer concerned by his assessment order also dated 13.07.2009 fixed the value of the amount received towards lease of bottling lines proportionately at Rs.80,12,656/- and determined the tax payable at Rs.9,72,657/- @ 12.5% after deducting the tax already paid. Here also the Deputy Commercial Tax Officer held that the transaction relating to lease of bottling lines would fall under Section 4(8) of the Act treating them as goods. Questioning this assessment the petitioner filed W.P.No.19318 of 2009. It is brought to our notice that the transactions of leases for the above assessment years of the petitioner are permitted under our State excise laws and this is not disputed by the learned Government Pleader. 5. The main contention of the petitioner is that bottling lines leased out by it to the lessee company are part of its whole IMFL unit or factory which is immovable property and therefore the said bottling lines are also to be treated as immovable property and consequently the transactions relating to them cannot fall under Section 4(8) of the Act as they cannot be treated as goods within the meaning of Section 2(16) of the Act and the assessing officer wrongly assumed jurisdiction and applied the Act though it is not applicable to immovable property. This is the main point raised in both these writ petitions. The other point i.e. the additional point raised in W.P.No.19425 of 2009 is that the spirit in question covered by the impugned assessment therein would fall under Entry/item 93 of schedule IV to the Act and is chargeable to tax at 4% only and not 12.5% as held by the assessing officer. Its plea on this point is that the assessing officer without any basis held that the above Entry/ item 93 is applicable only to spirit obtained from molasses and not from grains and fruits though it makes no such distinction and therefore the assessment is violative of the Act. 6. It should be noted that both the assessment orders are appealable under the Act. The plea of the petitioner however is that the Act is not applicable at all and on both points the assessing officer wrongly assumed jurisdiction and consequently WPs are maintainable even though the impugned assessments are appealable. As the petitioner is challenging the very applicability of the Act on the main point and the wrong application of the Act on point No.2 and as the writ petitions are of 2009, we have taken them up for disposal on merits notwithstanding the availability of alternative remedy. 7. We have heard the learned counsel appearing for petitioner in both the writ petitions and also the learned Government Pleader for Commercial Taxes at length on the above points. The main point relating to the question whether or not the bottling lines have to be treated as “goods” or “immovable property” is first taken up. 8. The learned counsel for petitioner invited our attention to the terms and conditions of lease agreements in question and argued that in the circumstances of this case, the bottling lines have to be treated as ‘immovable property’ like other immovable property of the factory and that the assessing officer did not consider this aspect in detail and he jumped to the conclusion that the bottling lines have to be treated as goods. Elaborating on this contention he pointed out that the bottling lines are embedded to the earth in the factory and that embedment or annexation is for the beneficial enjoyment of the whole factory including its land and buildings which are immovable property and the bottling lines cannot be removed and shifted elsewhere without damaging the same and they have to be treated as immovable property only. He further relied upon Md.Ibrahim v. M.C.F. Trading Co.[1], Addu Achiar v. The Custodian Evacuee Property, Hyd-Deccan[2], J. Kuppanna Chetty, Ambati Ramayya Chetty and Co., v. Collector of Anantapur[3] and Bamadev Panigrahi v. Smt. Monorama Raj[4] and argued that basing on the propositions laid down in the said decisions the bottling lines have to be treated as ‘immovable property’. 9. On the other hand, the learned Government Pleader supporting the assessment orders relied upon a decision of the Supreme Court given in Commissioner of Central Excise v. Solid and Correct Engineering Works[5] and another decision of this court given in Ad Age Outdoor Advertising Private Limited v. Government of Andhra Pradesh[6] and contended that basing on the principles laid down in these decisions, the bottling lines have to be treated as ‘goods’ or ‘movables’. He pointed out that bottling lines are not embedded in the earth but are fixed to the floor in the factory only for the purpose of giving stability to them to facilitate a stable and rattle free or wobble free operation and can be removed and replaced or shifted elsewhere and are separable or severable and therefore they have to be treated as movables or goods. In the light of the above contentions, the main point is now taken up. 10. Dealing with the nature of the property in bottling lines the assessing officer concluded that they should be treated as goods on the following reasoning given by him in the assessment order pertaining to AY 2008-09 and the same reasoning has been given in the other assessment order also. The reasoning of the assessing officer is as follows. “The contentions put forth by the assessee examined carefully and found untenable in view of the fact that the plant & Machinery is movable property. To ascertain the facts about the plaint & Machinery, the factory premises was visited on 10-07-2009. On such visit it is found that the plaint & machinery consists (5) five lines and each line consists the following items:- 1. Rinsing machine to clean the bottles 2. Filling machine to fill the IMFL in the bottle 3. Capping machine to seal the bottle with cap 4. Labeling machine to paste the label on the bottle 5. Conveyer belt connecting the above machines to move the bottles from one machine to another machine orderly. 6. Lab equipment 7. Storage tanks which are kept on the base over the land. It is incorrect to say that all the machines are embedded in the earth. The machines & storage tanks, in fact, attached to the earth, though undoubtedly it is for the beneficial enjoyment of the machine & storage tanks itself and in order to use the machines & storage tanks, it has to be attached to the earth and attachment lasts only so long as the machine and storage tanks are used and when not used, it can be detached and shifted to some other place; and such attachment in such case does not make the machine and storage tanks a part of the land hence it is a movable property.” 11. A perusal of the above reasoning of the assessing officer would show that he did not consider in detail the nature of the attachment of the above machines to the earth in the factory of the petitioner and whether they can by reason of such attachment be regarded as immovable property or not. He concluded that not all machines are embedded to the earth and some machines in storage tank are in fact attached to the earth and all the machines have been attached to the earth or embedded only for their beneficial enjoyment and not for the whole of the factory in which they have been attached or embedded. It may be noted that whether bottling lines in this case embedded or attached to the earth can be treated as ‘movable property’ or ‘immovable property’ depends upon the facts of each case and the object of attachment and the nature of its use and this question has to be determined with reference to the definitions of ‘movable property’ and ‘immovable property’ and also with reference to the definition of ‘goods’ found in Section 2(16) of the Act and also clause 12 of Article 366 of the Constitution which defines ‘goods’ as inclusive of all material, commodities and articles. 12. In Md.Ibrahim’s case (1 supra) for the purposes of Registration Act it was held that a bone crushing mill located in the premises of a factory where it was installed on a small cement platform to which it was fixed by means of bolts at the four corners was held to be immovable property as the owner of the factory intended to keep the machinery of the mill and the land together and as the said machinery itself was intended for more beneficial enjoyment of the land. Then in Addu Achiar’s case (2 supra) for the purpose of Stamp Act where an ice factory fixed on the land alone was sold it was held that it was not immovable property as the equipment could be beneficially enjoyed by itself. Then in J.Kuppanna Chetty’s case (3 supra) a groundnut decorticating factory which was fixed and embedded in the factory building was treated as immovable property on the ground that the said attachment was more for the beneficial use of the factory building and therefore the provisions of the Madras Revenue Recovery Act relating to sale of immovable property were applicable and not those relating to the sale of movables. Then in Bamadev Panigrahi’s case (4 supra) the court was dealing with a situation where an usufructuary mortgagee of land running a touring talkies installed certain cinema equipment such as projector, a diesel oil machine etc. in a temporary shed or pandal on the land which was used as a temporary cinema theatre. It was held that the intendment and object of installing the equipment was only to have the beneficial enjoyment of the very equipment during the period of the mortgage and not to benefit the land which did not belong to the usufructuary mortgagee and in that view of the matter it was held that it was movable property. 13. In Solid and Correct Engineering Works case (5 supra) (relied upon by the learned Government Pleader) their lordships of the Supreme Court were considering the question whether setting up of an asphalt drum mix plant by using duty-paid components tantamounts to manufacture of excisable goods within the meaning of Section 2(d) of the Central Excise Act, 1944. After considering the definitions of ‘movable property’ and ‘immovable property’ contained in the Central General Clauses Act, 1897, and the definitions of the expressions ‘immovable property’ and ‘attached to earth’ contained in the Transfer of Property Act, 1882, the Supreme Court concluded in the affirmative and rejected the contention of the assessee that after the plant was set up it becomes immovable property. After considering the previous case law on the point their lordships held that the purpose of attachment or embedding the things should be looked into and once it is found that such attachment or embedment or annexation of any machine or anything is intended not for the enjoyment of that thing itself but for the beneficial enjoyment of the land or any other thing permanently attached to the land then alone it can be regarded as immovable property. On this test, their lordships held that the plants in question in that case did not constitute immovable property. In that connection their lordships also observed that mere attachment of plant & machinery with the help of nuts and bolts to a foundation of not more than 1½ feet deep intended to provide stability to the working of the plant and prevent wobble free operation does not qualify for being described as attached to the earth under any one of the three clauses of the definition ‘attached to the earth’ found in the Transfer of Property Act, 1882, and therefore by reason of such attachment the plant cannot be treated as immovable property. 14. Thus going by the proposition laid down in the Solid and Correct Engineering Works case (5 supra) in the case of plant & machinery i.e. bottling lines in the present case, the test is to look at the purpose of attachment or embedment of the bottling lines to the soil or the earth. If such attachment is for the convenient enjoyment of only the bottling lines themselves then they cannot be treated as immovable property and on the other hand if the attachment is intended for a beneficial or profitable enjoyment of the entire factory consisting of land and buildings in which they are attached as a whole unit then in such a case the plant & machinery can also be treated as part of immovable property to which they are attached. The same test has been applied in the precedents relied upon by the learned counsel for the petitioner and also in Ad Age Outdoor Advertising Private Limited case (6 supra) and relied upon by the learned Government Pleader. 15. The assessing officer did not consider the nature of the lease agreements and the subject matter of the lease elaborately with regard to the above test. The assessment orders themselves would show that the lease amount was fixed for the entire premises including the bottling lines and the assessing officer has upon his own calculation of-course after giving an opportunity to the petitioner has proportionately fixed the lease amounts for the land and buildings, plant & machinery i.e. bottling lines and other items by breaking up the total lease amount fixed for the entire factory. This itself would show that the lease was a composite lease. That being the situation the assessing officer did not keep in view the above tests to determine whether the bottling lines in question should be treated as movables or they should be treated as part of the land and buildings which were also let out. In other words without determining the question whether the petitioner installed the bottling lines for beneficial enjoyment of both the land and buildings along with the bottling lines or to enjoy merely the bottling lines, he concluded that the bottling lines are easily detachable and therefore they should be treated as movable property or goods. This approach cannot be said to be correct. Of-course he did not consider one clause in the lease agreements which provides for replacement of the bottling lines and this may also have a bearing on this question. Further he did not also consider whether petitioner had ownership in the land and buildings or whether petitioner itself was lessee in respect of them and this will also have a bearing on the question. The entire material is not before us to answer the main points on merits. 16. Now this court sitting under Article 226 of the Constitution cannot determine this point by applying the above test as it requires material to be gathered from both sides and if necessary from the subject matter of the lease itself by an inspection of the same. These aspects will constitute disputed questions of fact which have to be determined by the assessing officer himself. For the aforesaid reasons we are of the opinion that the impugned assessments cannot be sustained and the matters have to be remitted back to the assessing officer to decide this main point afresh. In deciding the matters afresh, the assessing officer may keep in view not only the tests laid down in the aforesaid decisions but also the definitions of ‘goods’ contained in the Act, Article 366 (12) of the Constitution, the definitions of ‘immovable property’ and ‘attached to the earth’ given in the Transfer of Property Act, 1882 which deals with transfers of immovable properties including their leases, the definitions of ‘immovable property’ and ‘movable property’ contained in the A.P. General Clauses Act, 1891, as the present Act is our State Act and also the other aspects mentioned above. 17. We will now take up the additional point raised in W.P.No.19425 of 2009. Entry 93 in IV schedule to the Act relates to Extra Neutral Alcohol (ENA) and Rectified Spirit. All goods mentioned in the IV schedule are chargeable to VAT at 4% on sale of such goods vide Section 4(1) of the Act. Before the assessing officer, the assessee claimed that the amount realised on the sale of spirit should be taxed at the rate of 4% basing upon the IV schedule rates. 18. The assessing officer while answering the contention of the petitioner rejected it giving the following reasons and that portion of the assessment order is reproduced below for convenience. “The contentions put forth by the assessee is examined carefully and found untenable in view of the fact that the Extra Neutral Alcol (ENA) and Rectified Spirit (R.S) which are obtained from “Molasses” by distillation alone eligible for VAT @ 4% enumerated under the entry 93 of IV schedule to the APVAT Act 2005; Molasses is nothing but a thick dark syrup drained from “Raw Sugar” during refining process; where as the spirit sold by the assessee i.e. “Vatted Malt Spirit” “Grain Neutral Spirit” “Grape Spirit” which are obtained from grains and fruits can not fall under the entry 93. This means, the spirit obtained from other than molasses is falls under residuary item of V schedule and liable to tax @12.5%. Therefore, the proposed levy of VAT @ 12.5% on the above goods are hereby confirmed.” 19. The above passage shows that the assessing officer distinguished between spirit obtained from molasses and the spirit obtained from grains and fruits and held that only spirits obtained from molasses would fall under Entry 93 of the IV schedule. It may be noted that the very order of the assessing officer would show that spirit can be obtained from the above two sources and he held that only the spirit obtained from molasses is covered by Entry 93. The assessing officer has not given any reasons for the above classification or distinction showing on what basis he concluded so. Even in the counter affidavit filed by one Sri M.Yadagiri, Deputy Commercial Tax Officer what is stated in the assessment order is merely reiterated without giving reasons. The learned Government Pleader also could not bring to our notice any basis or material to support the above classification. 20. Now two courses are open for this court on this point. The first is to uphold the contention of the petitioner as Entry 93 does not by itself make any distinction between a spirit obtained from molasses and a spirit obtained from fruits and grains. The second is to remit the matter back to the assessing officer on this point also directing him to support his conclusion by clear cut reasons and analysis as to how this spirit sold by the petitioner would not fall under Entry 93 and would be covered by the residuary schedule having regard to any principles on the subject of Spirit. As we decided to set aside both the assessment orders and remit the matters to the assessment officer for a fresh assessment on the main point, we are of the opinion that the second course is desirable on this point. 21. Accordingly both the writ petitions are allowed setting aside the impugned assessments and remitting the matters back to the assessing officer for fresh assessments on both the points as indicated above. No costs. _______________________ GODA RAGHURAM, J _______________________ N. RAVI SHANKAR, J 11th November, 2011 CVRK [1] AIR (31) 1944 MADRAS 492 [2] AIR 1953 HYDERABAD 14 [3] AIR 1965 AP 457 [4] AIR 1974 AP 227 [5] (2010) 5 SCC 122 [6] (2011) 39 VST 323 (AP)