M/S Kores INDIA LTD vs. State Of Karnataka By
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Cause title — parties, addresses and appearances
ORDER This Revision Petition is filed by the assessee under Section 65(1) of Karnataka Value Added Tax Act, 2003 (‘KVAT Act’ for short) assailing the judgment of the Karnataka Appellate Tribunal, Bengaluru (‘Tribunal’ for short) dated 12.02.2016 passed in STA Nos.1859 to 1861/2010. 2. The Revision Petition was admitted to consider the following questions of law:
Whether on the facts and in the circumstances of the case, the Karnataka Appellate Tribunal was right in holding that Multi Function Printers sold by the petitioner during the period January to March, 2007 are liable to tax at 12.5% and not at 4% in spite of amendment by way of substitution of Sl.Nos.28 and 29 in Notification No.FD 116 CLS 2006 (9), Bangalore, dated 31.03.2006
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with Sl.Nos.28, 29 and 30 with effect from 1- 1-2007 by Notification No.FD 238 CSL 07, dated 7-7-2007, as Sl.Nos.28 and 29 were included in Notification dated 31-3-2006 w.e.f. 1-1-2007, and accordingly to have passed the impugned order?
Whether on the facts and in the circumstances of the case, the Karnataka Appellate Tribunal was right in holding that the petitioner did not prove that Multi Function Printers sold from 01.01.2007 to 31.03.2007 fell under Central Excise Tariff Entry 8443.31.00 when there was no dispute before the assessing authority and first appellate authority that MFP printers fell under Central Excise Tariff Entry 8443.31.00 and the dispute was whether Entry 8443.31.00 of the Central Excise Tariff Act was brought into Notification No.FD 116 CSL 2006(9), Bengaluru, dated 31.03.2006 with effect from 01.01.2007 by way of amendment and substitution and further when there were no arguments advanced by both the parties that MFP sold by the petitioner did not fall under Entry 8443.31.00?
Whether on the facts and in the circumstances of the case, the Karnataka Appellate Tribunal was right in not appreciating without prejudice to other grounds raised that Multi Function Printers sold by the appellant during the period January to March, 2007 are liable to tax at 4% and not at 12.5% as they also fall under Entry No.8443.32 of Central Exercise Tariff Act and Entry No.8443.32 was covered in the Notification dated 31.03.2006 by virtue of amendment and substitution by Notification dated 04.04.2007?”
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The assessee/petitioner is a company and a dealer registered under the provisions of the KVAT Act. The assessee carries on business of trading of computer and its accessories, printers, stationary items etc. Audit of the books of accounts of the assessee was taken up by the prescribed authority for the tax periods January to March-2007. Pursuant to which, tax was levied on the sale of Multi Function Printers (MFPs) at the rate of 12.5% as unscheduled goods under Section 4(1)(b) of the KVAT Act for these periods, on the ground that the relevant notifications does not cover the printers sold by the petitioner. The assessment orders for the tax periods in question were passed accordingly.
Being aggrieved, the assessee preferred appeals before the First Appellate Authority. The reassessment orders passed for these tax periods were confirmed by the First Appellate Authority holding that MFPs are liable to tax at 12.5% as unscheduled goods. Being aggrieved by the said common order, the assessee preferred appeals before the Tribunal.
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Though the Tribunal held that undoubtedly, the machines which perform two or more of the functions of printing, copying or facsimile transmission, capable of connecting to an automatic data processing machine or to a network classified under sub-heading No.8443.31.00 of the Central Excise Tariff Act, 1985 has been brought within the ambit of the benefit extended in terms of Notification No.FD 116 CSL 2006 (9) dated 31.03.2006, proceeded to dismiss the appeal on the ground that the assessee has failed to prove that whatever MFPs purchased and sold by it falls under Sl.No.8443.31.00 of the Central Excise Tariff Act, 1985 either before the lower authorities or before this Tribunal, so as to extend benefit of Notification dated 31.03.2006 in terms of the explanation (2) and (3). Being aggrieved, the assessee is before this Court raising the substantial questions of law as aforesaid.
Learned counsel for the assessee inviting the attention of the Court to the various notifications issued with respect to the MFPs argued that Assessing Authority has grossly erred in giving an interpretation to
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the notification dated 07.07.2007 issued by the Government of Karnataka substituting the notification dated 31.03.2006, as not issued under Section 30 of the Act and hence the said notification cannot be given retrospective effect and as such the benefit under the said notification cannot be extended to the assessee for the periods in question. This view has been confirmed by the Appellate Authority and the Tribunal proceeded to hold that the assessee has failed to prove that the MFPs purchased and sold by it would fall within the entry under Sl.No.8443.31 or 8443.32 of the Central Excise Tariff Act, 1985 which was not the controversy involved in, either before the Assessing Authority or before the Tribunal.
Learned counsel argued that the Tribunal having held that the machines which perform two or more of the functions of printing etc., would certainly fall within the subject heading No.8443.31 to 8443.32 of the Central Excise Tariff Act, 1985 ought to have allowed the appeal extending the benefit of said notification levying tax at 4% on the MFPs for the period
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in question. Thus, in support of his contentions, learned counsel placed reliance on the following decisions: 1. 2005 (187) E.L.T. 162 (SC): Government of ILR 2014 KAR 4257 (FB): The Hassan Co- op Milk Producers Societies Union Ltd. & (2015) 31 GSTR 50 (Kar): Commissioner of that the goods/MFPs dealt by it would come within the ambit of this notification, rejected the appeal preferred by the assessee denying the benefit of the notification
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dated 07.07.2007 read with the notification dated 31.03.2006, which has been claimed by the appellant.
Having heard the learned counsel for the parties and perusing the material on record, it is apt to refer to the relevant notifications which are applicable to the facts of the present case and the adjudication of the dispute involved herein would depend upon the interpretation of these notifications. It is not in dispute that the assessee was liable to pay tax under entry 53, III schedule to the KVAT Act till 31.03.2006. The notification dated 31.03.2006 reads thus: “No. FD 116 CSL 2006(9) (KG Extraordinary/31 March, 2006) In exercise of the powers conferred by clause (a) of sub- Section (1) of Section 4 read with entry 53 of the Third Schedule to the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004) and in supersession of Notification No.FD 197 CSL 2005(7), dated 30th April, 2005, the Government of Karnataka hereby specifies with effect from the first day of April, 2006, the goods specified in column (3) of the table below with heading and sub-heading numbers under the Central Excise Tariff Act, 1985 (Central Act 5 of 1986), as IT (Information Technology) products, namely:-
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TABLE
Sl. No . Heading and sub- heading No.
DESCRIPTION (1) (2) (3) 1. 8469.11.00 Word processing machines 2. 8469.12.00 Electronic typewriters
8470.10.00 Electronic calculator capable of operations without an external source of electrical power and pocket size data recording, reproducing and displaying machines with calculating functions (including electronic diaries other than those covered under heading No.8471) or incorporating a printing device
8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data 5. 8473.10.00, 8473.21.00, 8473.30
Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of sub- heading 8469.11.00, 8469.12.00, 8470.10.00 and 8471 6. 8501.10.11 8501.10.12
DC Micro motors and Stepper motors of an output not exceeding 37.5 watts 7. 8503 Parts of goods specified in sub heading 8501.10.11 and 8501.10.12 8. 8504 Uninterrupted Power Supplies (UPS) and their parts 9. 8519.99.40 MP-3 Player
8523 Prepared unrecorded media for sound recording or similar recording of other phenomena, other than products of Chapter 37 of the Central Excise Tariff Act, 1985. 10
8524 Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding gramophone records, audio cassettes and products of Chapter 37 of the Central Excise Tariff Act, 1985. 12. 8529.10 Aerials, antennas and parts; parts of goods specified in sub-headings 8525.10, 8525.20 and 8527.90. 13. 8531 Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED) and parts thereof. 14. 8534
Printed Circuits
8540 Data or graphic display tubes and parts thereof but excluding T.V. picture tubes and parts thereof.
8541 Diodes, transistors & similar semi- conductor devices; photo sensitive semiconductor devices, including photovoltaic cells whether or not assembled in modules or made-up into panels; light emitting diodes; mounted piezo-electric crystals.
8542 Electronic Integrated Circuits and Micro-assemblies 18. 8543.20, 8543.90.00
Signal Generators and parts thereof.
8544 Optical fibre cables, Networking cables such as Flat cables, CAT 3 cables, CAT 5 cables, CAT 6 cables, unshielded twisted pair (UTP) cables.
9001.10.00 Optical fibre and optical fibre bundles, cables, other than those of heading 8544.70 21. 9013.80.10, 9013.90.10 Liquid Crystal devices, flat panel display devices and parts thereof.
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9030 Cathode ray oscilloscopes, spectrum analysers, cross talk meters, gain measuring instruments, distortion factor meters, psophometers, network and logic analysers and signal analysers.
9612.10.10
Computer printer ribbon.
Explanations:
(1) The Rules for the interpretation of the Central Excise Tariff Act, 1985 read with the Explanatory Notes as updated from time to time published by the Customs Co- operation Council, Brussels apply for the interpretation of this notification.
(2) Where any commodities are described against any heading or, as the case may be, sub-heading, and the aforesaid description is different in any manner from the corresponding description in the Central Excise Tariff Act, 1985, then only those commodities described as aforesaid will be covered by the scope of this notification and other commodities though covered by the corresponding description in the Central Excise Tariff will not be covered by the scope of this notification.
(3) Subject to Explanation 2, for the purpose of any entry contained in this notification, where the description against any heading or, as the case may be, sub-heading, matches fully with the corresponding description in the Central Excise Tariff, then all the commodities covered for the purposes of the said
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tariff under that heading or sub-heading will be covered by the scope of this notification.
(4) Where the description against any heading or sub heading is shown as “other” then the interpretation as provided in Explanation 2 shall apply.”
This notification was amended by notification FD 43 CSL 07(I) Bengaluru dated 23.03.2007 with immediate effect issued by the Government of Karnataka in exercise of powers conferred by clause (a) of sub-section (1) of Section 4 read with Entry 53 of the Third Schedule to the Karnataka Value Added Tax, 2003 read with Section 32 of 2004 read with Section 21 of the Karnataka General Clauses Act, 1899. In the said notification entries relating to Sl.No.24 to 29 were inserted. The relevant portion of the said notification reads thus:
“9. After Serial Number 23 and the entries relating to Serial Number 23, the following shall be inserted, namely:
“24. 8528.41.00 Cathode Ray Tube Monitors of a kind solely or principally used in a automatic data
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processing system of heading 8471 25. 8528.51.00 Other Monitors of a kind solely or principally used in an automatic data processing system of heading 8471 26. 8528.61.00 Projectors of a kind solely or principally used in an automatic data processing system of heading 8471 27. 8529.90.00 Parts suitable for use solely or principally with the apparatus under 8529.41, 8528.51 and 8528.61 28. 8443.32 Other, capable of connecting to an automatic data processing machine or to a network 29. 8443.99 Parts and accessories of goods of sub-heading 8443.32 including ink cartridges, with print head assembly and ink spray nozzle.”
It is significant to note that due to change in H.S.N. code 8443.31 covering MFP and 8443.32 covering other printers were listed under chapter 84 vide notification 27/2006-CE(NT) dated 29.12.2006 of
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Central Excise Tariff Act, 1985. Consequently with effect from 01.01.2007, the aforesaid goods covered under notification No. FD 116 CSL 2006(9), Bengaluru dated 31.03.2006 was amended and entry relating to 8443.32 covering other printers was listed vide Sl.No.28 as aforesaid.
Again by notification FD 238 CSL 07 dated 07.07.2007, the Government of Karnataka has amended the notification dated 31.03.2006 and the said notification reads thus: “In exercise of the powers conferred by clause(a) of sub-section(1) of section 4 read with entry 53 of the Third Schedule of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004), read with section 21 of the Karnataka General Clauses Act, 1899 (Karnataka Act III of 1899), the Government of Karnataka hereby makes the following amendments to Notification No.FD 116 CSL 2006(9), dated 31st March 2006 published in Part-IV A of the Karnataka Gazette, Extra-ordinary, dated 31st March, 2006 namely: In the said notification, in the Table, for serial numbers 28 and 29 and the entries
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relating thereto, the following shall be substituted, namely:
“28. 84443.31.00 Machines which perform two or more of the functions of printing, copying or facsimile transmission, capable of connecting to an automatic data processing machine or to a network. 29. 8443.32.00 Other, capable of connecting to an automatic data processing machine or a to a network. 30. 8443.99.00 Parts and accessories of goods of sub-headings 8443.31 and 8443.32 including ink cartridges, with print head assembly and ink spray nozzle.”
The assessing authority placing reliance on the clarification dated 29.02.2008 issued by the Commissioner of Commercial Taxes in respect of other dealers dealing with MFPs proceeded to analyse these notifications. Merely for the reason that the notification dated 07.07.2007 was not issued under Section 30 of the KVAT Act, the Tribunal held that the said notification could not be applied restrospectively and it is not an amendment to the notification dated
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2006. Thus, the effect of said notification is held to be prospective. This approach of the Assessing Authority is wholly unjustifiable for the reason that the said notification dated 07.07.2007 has been issued by the Government of Karnataka exercising the powers conferred by clause (a) of Sub Sec.(1) of Sec.4 read with entry 53 of third schedule of the KVAT Act read with Sec.21 of the General clauses Act, 1899. 14. This amendment was brought to the notification dated 31.03.2006 with respect to Sl. Nos. 28 and 29 and the entries relating thereto, by way of substitution. The word ‘substitution’ has been subjected to judicial scrutiny by various Hon’ble Courts and it has been interpreted that the word ‘substitution’ ordinarily would mean to replace. In this context, it is beneficial to refer to the judgment of the Hon’ble Apex Court in reported in 2005 187 ELT 162 SC wherein, the Hon’ble Apex Court held thus:
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“23. If the Central Government intended to extend the benefit to the members of the Respondent-Association only with prospective effect, it could have said so explicitly. Such a benefit could also have been extended by taking recourse to the proviso appended to sub- clause(iv) of clause (2) of the notification dated 7.4.1997. It may, therefore, be safely concluded that by reason of the amended notification, the Central Government only intended to rectify a mistake and, thus, the same will have retrospective effect and retroactive operation.
In Zile Singh v. State of Haryana & Ors. [(2004) 8 SCC 1] wherein the effect of an amendment in the Haryana Municipal Act, 1973 by Act No.15 of 1991 whereby the word “after” was substituted by the word “upto” fell for consideration; wherein Lahoti, C.J. speaking for a three-Judge Bench held the said amendment to have a retrospective effect being declaratory in nature as thereby obvious absurdity occurring in the first amendment and bring the same in conformity with what the legislature really intended to provide was removed, stating:
“23. The text of Section 2 of the Second Amendment Act provides for the word “upto” being substituted for the word “after”. What is the meaning and effect of the expression employed therein - “shall be susbsituted”?.
The substitution on one text for the other pre-existing text is one of the known and well-recognised practices employed in legislative drafting. ‘Substitution’ has to be distinguished ‘supersession’ or a mere repeal of an existing provision.
Substitution of a provision results in repeal of the earlier provision and its
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replacement by the new provision (See Principles of Statutory Interpretation, it is to be found in West U.P. Sugar Mills Assn. V. State of U.P., State of Rajasthan V. Mangilal Pindwal, Koteswar Vittal Kamath V. K.Rangappa Baliga and Co. and A.L.V.R.S.T. Veerappa Chettiar V. S.Michael. In West U.P. Sugar Mills Association case a three-Judges Bench of this Court held that the State Government by substituting the new rule in place of the old one never intended to keep alive the old rule. Having regard to the totality of the circumstances centring around the issue the Could held that the substitution had the effect of just deleting the old rule and making the new rule operative. In Mangilal Pindwal case this Court upheld the legislative practice of an amendment by substitution being incorporated in the text of a statute which had ceased to exist and held that the substitution would have the effect of amending the operation of law during the period in which it was in force. In Koteswar case a three-Judge Bench of this Court emphasized the distinction between ‘supersession’ of a rule arid ‘substitution’ of a rule and held that the process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place.”
In the case of The Hassan Co-operative Milk Producers Societies Union Limited and Others vs. State of Karnataka, Department of Co-operative Societies and Others reported in ILR 2014 KAR 4257 the Full Bench of this Court collated the judgments inasmuch as the interpretation of the word ‘substitution’ and has held thus:
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“22. The State Government, in the present case, by substituting new provisions of the Act in the place of old one, in our opinion, did not intend to keep alive and old provisions, otherwise, it would have made its intention clear in the amending Act No.3 of 2013. Having regard to the totality of the circumstances centering around the issue, we have not hesitation to hold that substitution, by the amending Act No.3 of 2013, had the effect of just deleting the old provisions and making the new provisions operative as if the same were in existence from inception. It is well settled that the process of substitution consists of two steps, first, the old Rule is made to cease to exist and, next, new rule is brought into existence in its place Having regard to this principle, we find that all the substituted provisions introduced by was of Amending Act No.3 of 2013, have retrospective operation. Thus, the rule against retrospectively is not applicable when an amendment is made to a provision by way of substitution. Considering that the elected members of the Managing Committee do not have any substantive/vested right and their term is governed by the provisions, in particular, the amended sub-Section (4) of Section 28-A of the Act, shall continue till the expiry of the period of
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five years from the date of their election. We do not agree with the view taken by the Division Bench in S.M.Kelageri.”
At this juncture, it is profitable to refer to the judgment of the Hon’ble Apex Court in the case of AIR 1952 SC 324 wherein it has been observed that:
“The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all.”
In the light of these legal principles enunciated by the Hon’ble Courts, it is well settled that the substitution has two steps. First, the old provision is made seized to exist and next, the new provision is brought into existence in its place. Both these steps are
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taken simultaneously thereby replacing old provision with the new provision. The notification dated 07.07.2007 would certainly indicate that the substitution has been made to Sl.Nos. 28 and 29 and entries relating thereto, existing in the notification dated 31.03.2006. Thus, it could not be said gainsaid that this notification has to be given prospective effect. However, we have observed that the notification dated 31.03.2006 was amended by notification dated 04.04.2007 by giving effect to the entries at Sl.Nos.28 and 29 with effect from 01.01.2007, this notification dated 07.07.2007 with respect to item Nos. 28 and 29 came into effect from the 01.01.2007. 18. These aspects though have been analysed by the Tribunal and benefit has been denied under this notification dated 07.07.2007, on different ground altogether, which was not the subject matter of the appeal. Hence, we have no hesitation to hold that the Tribunal has exceeded its juri iction in adjudicating upon other issues which were not considered by either the Assessing Authority or Appellate Authority for
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denying the benefit of notification dated 07.07.2007 or in other words, to levy taxes under the residual entry on these MFPs for the periods in question.
For the reasons aforesaid, we answer the questions of law in favour of the assessee and against the revenue.
In the result, revision petition is allowed. The orders impugned are set aside. Assessing authority is directed to re-compute the levy of tax at 4% on MFPs under entry 53 of the third Schedule of the KVAT Act for the tax periods January, February and March 2007 and shall issue the demand notice accordingly. JUDGE JUDGE BVK
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.