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2015 (8) TMI 637 - DELHI HIGH COURT

2015 (8) TMI 637 - DELHI HIGH COURT - [2015] 85 VST 90 (Del) - Pre-Determination Deemed Waiver Appellant was informed that next date of hearing would be intimated later, but no subsequent date of hearing was indicated by commissioner Since Commissioner failed to make any determination within prescribed period, proposed determination as indicated by Appellant would have been deemed to be issued by Commissioner Whether tribunal was justified in holding that there was deemed waiver of appli .....

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ination' Tribunal was not right in holding that there was waiver of deemed application for predetermination Appellant would nevertheless not have been able to avail benefit of Section 84(6), since Appellant did not satisfy condition (b) under Section 84 (6) Determination of tax and interest by VATO upheld, but levy of penalty and corresponding interest on such penalty amount set aside Petition disposed of.

Classification of DSCs Fixation of Taxation rate Whether Tribunal w .....

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to change brought DSCs were not part of IT products Entry as it read could not be said to have included DSCs Therefore impugned order of AT upholding determination of VAT and interest thereon not interfered with AT was right in holding that DSCs was not classified and covered by Entry No 41 or 41A Decided partially in favour of Assesse.

(30th November 2005 to 31st December 2007)

Bracket preceding words 'other than' in Item 15 of Entry 41 A, closing with bracket after wo .....

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pparatus' Therefore correct way to read Article 15 in Entry 41A to DVAT Act was to read it without two brackets and to read it in manner that item 'digital still image video cameras' was not excluded from ambit of Entry 15 Thus period between 30th November 2005 to 31st December 2007, Appellant would be liable to pay 4% tax and not 12.5% on turnover of sales of DSCs Decision of Tribunal and VATO hereby set aside Neither interest nor penalty would be liable to be paid Decided in favour o .....

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f 2103 pertains to the period 1st April 2005 to 7th August 2005 and ST Appeal No. 29 of 2103 pertains to the period 30th November 2005 to 31st December 2007. 2. At the hearing of these appeals on 30th July 2013 (along with ST Appeal No.30 of 2013 which pertained to the period 8th August 2005 to 9th November 2005) the Court framed the following questions of law: i) Whether the Tribunal was right in holding that Digital Still Image Video camera is not classified and covered by Entry No.41 or 41A ( .....

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cts 4. The Appellant is a registered dealer under the Delhi Value Added Tax Act, 2004 ('DVAT Act') and is engaged in the sale of wide range of electronic items and information technology ('IT') products across India including Delhi. The appeals concerns the sale by the Appellant of DSCs which according to the Appellant operate on a software system and the pictures of which are processed by a computer system to which the DSCs can be attached through USB cable. 5. At the outset it .....

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essed by the Appellant at the hearing since the Appellant adopted for the 'Delhi Tax Compliance Achievement Scheme 2013' and one of the contentions were availing of the benefit under the said scheme so that any appeal filed by the Assessee would have to be withdrawn. Accordingly, by order dated 9th July 2015, this Court dismissed ST Appeal No. 30 of 2013 as withdrawn. Consequently, the present judgment is in respect of ST Appeals 29 and 31 of 2013 pertaining to the periods 30th November .....

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tele printer and wireless equipment and parts thereof. 41A IT Products notified by the Ministry of IT as specified below: Sr. No. Description (1) (2) (vii) Transmission apparatus other than apparatus for radio or T.V. broadcasting 8. According to the Appellant since at the relevant time the expression 'IT product' was not defined in the DVAT Act, the definition in the Information Technology Agreement ('ITA') of the World Trade Organisation ('WTO'), to which India is a sig .....

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he relevant time described DSCs as under: "Digital cameras record images in digital form... Some digital cameras have the ability to record sequential images with or without an accompanying soundtrack, in a manner similar to video camera recorder. However, this recording capability is limited and it is not their primary function," 10. The Central Board of Excise and Customs ('CBEC') had issued a notification dated 1st March 2005 which provided a list of IT products which are ex .....

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description in column (2) below, as covered under the headings or sub-headings mentioned in column(3), as the case may be, of the Central Excise Tariff Act, 1985 (5 of 1986) Sr.No. Description Central Excise Tariff Heading 15. Transmission apparatus (other than apparatus for radio broadcasting, transmission apparatus incorporating reception apparatus, digital still image video cameras) 8525 Note-(1) The Rules for the interpretation of the provisions of the Central Excise Tariff Act, 1985 read w .....

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his entry and in the entry number 84 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. Note-(3) Subject to Note (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 t .....

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ction 33 of the DVAT Act on the ground that the Appellant was liable to pay penalty under Section 86 (12) of the DVAT Act. The objection filed by the Appellant to the above notices was rejected by the Joint Commissioner-I, Value Added Tax Deptt. (KDU, Policy) by an order dated 16th May 2006 holding that the DSC was not covered in any schedule to the DVAT Act and was accordingly taxable at 12.5%. Aggrieved by the above order, the Appellant filed VAT Appeals No.36-40/ATVAT/06-07 and 323-332/ATVAT/ .....

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s during the relevant period. The objections of the Appellant to the above order were rejected by the Additional Commissioner- III by order dated 29th August 2008. Against the said order the Appellant filed VAT Appeal Nos.419-420, 232-241 and 455-480, both in respect of the tax, interest and penalty before the AT. Impugned order of the AT 14. By the common impugned order dated 9th April 2013, the AT held as follows: (i) As regards the demand for the period from 1st April 2005 to 7th August 2005, .....

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ountant who appeared at the hearing on behalf of the Appellant. (ii) As regards the period between 1st April 2005 to 7th August 2005, relying on the judgment of the Karnataka High Court in Diebold Systems (P) Ltd. v. Commissioner of CT (2006) 144 STC 59, it was held that in terms of the natural meaning of the language used in Entry 41, DSCs was not covered in the said entry as an IT product. (iii) On the question whether under Entry 41 A Clause 15 DSCs was an IT product for the period with effec .....

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30th November 2005 till date was also held to be without reason. Deemed determination by the Commissioner 15. As regards the period from 1st April 2005 to 7th August 2005, in respect of which ST Appeal No. 31 of 2013 has been filed, in addition to the common question whether the natural meaning of the language used in Entry 41 covered DSCs as an IT product, the Appellant has raised the question of deemed acceptance of the determination application of the Appellant under Section 84 (5) read with .....

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and therefore exigible to the tax at the rate of 4%. The application was fixed for hearing on 25th January 2006. The Appellant's counsel sought adjournment as he was not available beyond 1 pm on that date. He was informed that the next date of hearing would be intimated later, but no subsequent date of hearing was indicated. It is contended by the Appellant that since the Commissioner failed to make any determination within the prescribed period, the proposed determination as indicated by t .....

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r the tax period in which the transaction that is the subject of the determinable question occurred. Under Section 84(5), the Commissioner has to mandatorily decide the determination application within the prescribed period. Under Rule 58 (5) of the DVAT Rules, the Commissioner is required to pass an order on the said application within the period of six months from the date of the submission of question, failing which Section 84(6) would apply. 18. Section 84(6) of the DVAT Act reads as under: .....

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alled the "proposed determination"); the Commissioner shall be deemed for the purposes of this Act to have made and issued to the person on the day after the expiry of the prescribed period, a determination of the determinable question in the terms of the proposed determination." 19. A careful perusal of Section 84(6) of the Act reveals that there are three conditions to be satisfied cumulatively; (a) the Commissioner must fail to decide the application for determination within a .....

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g provision i.e. Commissioner having deemed to have issued the determination in terms of the proposed determination will not come into play. 20. In the present case while conditions (a) and (c) above were satisfied, condition (b) was not. The Court here concurs with the finding of the AT as far as condition (a) is concerned that the Appellant did not withdraw its determination application on 29th January 2006. The Court is also prepared to accept the plea of the Appellant that by merely filing a .....

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oner to decide the application within the prescribed period. 21. In the present case, the application for determination was made on 8th August 2005 in respect of all transactions that took place between 1st April 2005 and 7th August 2005. Admittedly, the Appellant had already applied to those transactions the proposed determination of the rate tax at 4% . The Appellant did not wait to do that till such time the Commissioner failed to decide the application i.e., after the expiry of six months af .....

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plea of the Appellant is accepted, and it is held that the term "IT products' includes DSCs, then for the period under consideration the rate of VAT that would apply is 4%. If not, the rate would be 12.5% 23. During the aforementioned period 1st April 2005 to 7th August 2005, Entry 41 included IT products including computers, telephone and parts thereof, tele-printer and wireless equipment and parts thereof. Although DSCs do not find mention in Entry 41, it is urged by the Appellant th .....

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ntion that DSCs are IT products. It is stated that the Authority for Clarification and Advance Ruling in terms of the AP VAT Act 2005 issued an order on the application of the Appellant holding that DSCs attract the Harmonised System of Nomenclature ('HSN') Code 8525 and are liable to tax at 4% in accordance with Entry 39 (15) of Schedule IV of the AP VAT Act. 25. As far as the first contention is concerned, the Court finds that the term IT products has been described to include computer .....

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en referred to by the AT in the impugned order, does support the case of the Revenue as far as the period between 1st April to 7th August 2005 is concerned. There the Court was examining the question whether an ATM machine was a 'computer' with reference to Entry 20 (2) (b) of Part C of the Second Schedule to the Karnataka VAT Act, 2003 captioned 'Computer Terminals'. The Assessee there sought to rely on the definition of the expression 'computers' in the Information Tech .....

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s applied, then ATMs would be considered as electronic devices and not computer peripherals. 27. Applying the above test, it can safely be concluded that as regards the period 1st April to 7thAugust 2005, since Entry 41 only talked of IT products in the broad sense of including computers, telephone and parts thereof, tele-printer and wireless equipment and parts thereof etc. and not DSCs, the plea of the Appellant that DSCs are IT products must fail. 28. As regards the second contention, the Cou .....

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ts as may be notified'. Thereafter by a separate notification various kinds of IT products were notified for the concessional rate of duty @ 4%. The product at Serial No. 15 of this notification more or less reads like Clause 15 under Entry 41A of the DVAT Act with effect from 29th November 2005 but without the brackets. 29. The upshot of the above discussion is that the wording of the Entry 41 in the DVAT Act prior to 29th November 2005 cannot be read in the manner suggested by the Appellan .....

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cceptance. In other words, the conduct of the Appellant cannot be characterised as a deliberate attempt to avoid paying the applicable rate of VAT so as to warrant the levy of penalty. Conclusion as regards ST App 31 of 2013 31. In respect of ST Appeal No. 31 of 2013, in respect of the period from 1st April 2005 to 7th August 2005, the three questions of law are answered as under: (i) The AT was right in holding that DSCs is not classified and covered by Entry No 41 or 41A; (ii) Although the AT .....

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Appellant was under the bona fide belief that it was entitled to charge the concessional rate of tax at 4%. (iv) Resultantly, as far ST Appeal No.31 of 2013 for the period 1st April 2005 to 7th August 2005 is concerned, the determination of tax and interest by the VATO is upheld, but the levy of penalty and the corresponding interest on such penalty amount is hereby set aside. The period 30th November 2005 to 31st December 2007 32. Now turning to ST Appeal No. 29 of 2013 for the period 30th Nov .....

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gital still camera fitted with a Charge Coupled Device (CCD) and based on video camera recorder technology. It records, processes and stores images in digital format. It features a built-in, high resolution. 1.8" colour LCD screen that is used as a viewfinder when shooting images and as a monitor when viewing recorded or uploaded images. The images can be transferred to an automatic data processing machine by means of an optional accessory package for viewing and storing on an automatic dat .....

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25 8020 and this is under the overall description under Chapter 85 relating to ITA bound expositions. By a circular dated 10th September 2007, there was a clarification issued by the CBEC on exemption to DSCs. There was a doubt whether the entry covered "such digital cameras which are capable of both still image figure as well as video shooting". The circular clarified that DSCs fall under tariff item 8525 8020 but DSCs that can take still images and moving images like camcorder and vi .....

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avoid unhealthy competition and have certain features of VAT common to all the States. The said features were to constitute the basic design of VAT. It was expected that at the same time, the States would have freedom for appropriate variations consistent with the basic design. The White Paper was a collective attempt of the States to strike a balance between this need for commonality and the desired federal flexibility in the VAT structure. 36. In para 1.4 of the White Paper, the methodology a .....

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for gold and silver ornaments etc. It was suggested that "under 4% VAT rate category, there will be the largest number of goods (about 270), common for all the States, comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods". 37. The list of goods with 4% floor rate as finalized by the Empowered Committee of State Finance Minister contains about 41 items under the table "Goods with 4% Floor Rate .....

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s, digital still image video cameras." 38. The above entry three types of IT products i.e. (i) transmission apparatus other than apparatus for radio broadcasting or TV broadcasting; (ii) transmission apparatus incorporating reception apparatus; (iii) digital still image video cameras. Corresponding entries of other state legislations 39. This Court has been shown VAT legislations of the States and in particular, the legislations of Andhra Pradesh, Assam, Bihar, Gujarat, Karnataka, Maharasht .....

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apparatus (b) Communication jamming equipment (c) Wireless Microphone (d) Still image video cameras & other video camera recorders; digital cameras." 40. Entry 15 in Part B of Schedule II of Assam VAT legislation reproduces Entry 85.25 of the list prepared by the Empowered Committee. In other words there is absolutely no change including the placement of commas. Turning to the Bihar legislation, Part II of Schedule III has Entry 14 which reproduces the entry as per the Empowered Committ .....

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AT Act. While the same three categories are retained, they are separated by semi colon rather than comas. The Maharashtra legislation reproduces Sub-item 85.25 as it is. The Mizoram legislation again reproduces Sub-item 85.25 as recommended by the Empowered Committee. The Orissa VAT Amendment Act 2005 which encloses Entry 69(O) in Part II reproduces the exact wording of Sub-item 85.25. 41. The above narration is useful in understanding that there is a uniform adoption by several states of the en .....

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preceding the words 'other than' in Item 15 of Entry 41 A, closing with the bracket after the words 'digital still image video cameras' is certainly unique to the Delhi statute. The exercise was to find whether this was a mere misprint. 43. When the file was produced before the Court on 11th November 2014, the Court noted as under: 'Relevant file has been produced. As per the said file the bracketed portion end with the words "digital still image video cameras" but .....

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ommittee was processed by the Respondent, as well as "the notes that led to the drafting of the relevant entries of the DVAT Act". At the hearing on 16th July 2015, the file was produced by the Respondent. There is a note in the file prepared on 10th October 2005, with specific reference to amendment to the Third Schedule of the DVAT Act. Under para (M) (ii), it is noted that a representation has been received from "Progressive Channels Association of Information Technology" .....

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iption of I.T. products as adopted by Maharashtra and provide HSN codes along with the items describing I.T. products". In other words the proposal was that the description as adopted by Maharashtra and the corresponding HSN codes should be adopted for Delhi as well. 45. The draft notifications incorporating the changes by way of amendment along with the draft Cabinet Note was placed before the Legislative Council for being placed before the Council of Ministers. The Cabinet Note repeats wh .....

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inet Note appears to have received the approval on 21st November 2005. The amendment was notified on 30th November 2005 in the Gazette. The file, therefore, is unhelpful in knowing the real reasons why the brackets were added particularly when the intention of following the Maharashtra legislation is evident from the notes on file. 46. To recapitulate as far as Entry 15 to the notification issued under the Maharashtra VAT Act 2002, Entry 85.25 is a replica of the corresponding entry as proposed .....

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d meaning has been sought to be given to Item 15 of Entry 41 A. In other words, the entry is sought to be read by the Department as essentially containing only one item, viz., 'transmission apparatus' with all other items contained in the brackets that immediately follow the said words as being excluded from the entry. Interpreting Item 15 of Entry 41-A 48. As rightly pointed out by Mr. Tarun Gulati, learned counsel for the Appellant, it appears that this was a mistake. The brackets, if .....

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tretch of imagination can be construed to be a sub-species of 'transmission apparatus'. Therefore the exclusion of such item from 'transmission apparatus' makes no sense at all. A 'transmission apparatus' refers to something which is capable of receiving the transmission signals. For e.g., a walkie talkie set or a cellular phone. A DSC does neither. It falls outside the category of transmission apparatus. This explains why in some state legislations, following the descrip .....

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terpretation, the Court should not read the entry in such a way that it renders the brackets, which have been consciously inserted, otiose. He referred to the decision of this Court in N.G. Sheth v. CBI 151 (2008) DLT 789, which discusses the implications of use of the phrase 'other than'. He submitted that although the brackets may be superfluous they were meant to emphasise the exclusion of all items within the brackets from the main entry, viz., transmission apparatus. 50. In the firs .....

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adopted by the Empowered Committee) nor the entry in the Maharashtra statute contains any brackets preceding the words 'other than' or succeeding the words 'video cameras'. The addition of brackets appears to be unintended. Secondly, there can be no doubt that DSCs are not transmission apparatus and therefore the brackets could not have brought out the unintended result of excluding such equipment, viz., DSCs from the first item viz., 'transmission apparatus'. 51. In the .....

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ed Tribes Order (Amendment) Act that "punctuation marks by themselves do not control the meaning of a statute when its meaning is otherwise obvious". In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. Pvt. Ltd. (2010) 8 SCC 241 the Supreme Court dealt with at length on the basic rules of interpretation of statutes. While the general rule was that provisions which are clear and unambiguous should be given their plain and normal meaning "without adding or rejecting any .....

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n the Statute. When faced with an apparently defective provision in a statute, courts prefer to assume that the draftsman had committed a mistake rather than concluding that the Legislature has deliberately introduced an absurd or irrational statutory provision. Departure from the literal rule of plain and straight reading can however be only in exceptional cases, where the anomalies make the literal compliance of a provision impossible, or absurd or so impractical as to defeat the very object o .....

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nt, or to some inconvenience or absurdity, hardship or injustice, which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere correctio .....

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of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature". Quoting the opinion of Lord Reid in Luke vs. IRC (1966 AC 557), it was said 'Where to apply words literally would "defeat the obvious intention of the legislation and produce a wholly unreasonable result" we must "do some violence to the words" and so achieve that obvious intention and produce a rational construction'. 54. In the present .....

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he anomalous result of totally excluding the said item from the entry and that clearly was not the intended result. The Cabinet Note itself was triggered by the representation of the industry regarding exclusion of certain kinds of IT products. Also the intention was to adopt the Maharashtra pattern which did not exclude DSCs. The uniform pattern adopted by several states to bring the statutes in line with the nomenclature as suggested by the Empowered Committee meant that DSCs were not to be ex .....

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