TMI Blog2015 (8) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was right in holding that Digital Still Image Video camera was not classified and covered by Entry No.41 or 41A clause 15 and that there was deemed waiver of application for pre-determination – Held that:- (1st April 2005 to 7th August 2005) Term IT products has been described to include computers, peripherals etc but not DSCs which were distinct species as apparent from Entry 8525 40 listed in ITA – Legislature did not included DSCs in Entry 41 till 29th November 2005 – Prior 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 favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in upholding levy of penalty and interest? 3. The Court by the said order observed that it was not inclined to stay the demand raised as it would examine whether digital still image video cameras ('DSCs') could be regarded as information technology products. Background Facts 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 requires to be noted that the dispute concerning the rate of VAT payable by the Appellant Assessee on the DSCs sold by it pertain to three distinct periods. The first is the period from 1st April 2005 to 7th August 2005. The second is the period from 8th August 2005 to 29th November 2005 and the third from 30th November 2005 to 31st December 2007. 6. As regards the period the period 8th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: 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 exempt from customs duty. This list included DSCs covered under tariff heading 8525 40. After the changes to the HSN classification post 1st January 2007 a further amended notification was also issued to substitute entry 8525 80 20 for the entry 8525 40 00. Amendment to Entry 41 from 30th November 2005 onwards 11. An amendment was made to Entry 41 A of the Third Schedule to the DVAT Act with effect from 30th November 2005 as under: Entry No. Commodity 41A Information Technology products as per the 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, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/08-09 in respect of the tax, interest and penalty. 13. As far as the period from 30th November 2005 to 31st December 2007, when the amended Entry 41A including Clause 15 was in force, the VATO by notice dated 13th December 2007 held the Appellant liable to pay VAT at 12.5% for the sale of DSCs and confirmed levy of differential tax together with interest. By order dated 3rdJanuary 2008, the VATO separately held the Appellant liable to pay the penalty for the alleged deficiency in payment of taxes 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, no inference regarding deemed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DSCs were IT products covered under Entries 41 and 41A of Schedule III of the DVAT 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 the Appellant would be deemed to have been issued by the Commissioner. 17. Section 84 (2) of the DVAT Act permits the filing of a determination application in respect of a proposed transaction, a transaction that is being undertaken, or a transaction has been concluded . Under Section 84 (3) an application for determination cannot be made after (a) The Commissioner has commenced the audit of a person pursuant to Section 58 of the Act or; (b) The Commissioner has issued an assessment for the tax period in which the transaction that is the subject of the determinable question occurred. Under Section 84(5), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation on 8th July 2008, it cannot be held to have waived the right to the deemed determination by the Commissioner. However, as far as condition (b) is concerned, it envisages the Assessee implementing the transaction in the manner described in the application. What condition (b) requires is that in respect of the transaction that has been concluded the Assessee should not yet have implemented the determination as proposed by the Assessee prior to the failure by the Commissioner 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 after 8th August 2005. In that view of the matter, with conditions (b) of Section 84 (6) of the Act not being complied with by the Appellant, the Commissioner could not be deemed to have issued the 'proposed determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Technology Act, 2000 in support of the plea for an expanded interpretation of the term for the purposes of VAT as well. Negativing that contention the Court held that going by the principles of common parlance as applicable to be interpretation of entries under the KST Act , an ATM cannot be classified as computer terminal for the purpose of the Act, when it is not specifically included in the entry relating to computer terminals. It was held that if the common parlance test is 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, te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since the Appellant did not satisfy condition (b) under Section 84 (6) of the DVAT Act. iii) As far as the issue of penalty and interest is concerned, the decision of the AT in regard to levy of interest is upheld. However, the levy of penalty on the Appellant appears not to be justified since the 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 November 2005 to 31st December 2007, the question arises whether DSCs is included in IT products under Entry 41-A Clause 15? 33. What is significant is the mention in the amended Entry 41-A of the Central Excise Tariff Act heading 8525. This corresponds to the classification of IT products on the basis of the HSN. It is pointed out that under the ITA dated 1st September 2000 the DSCs w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 adopted by the Empowered Committee in preparing the White Paper has been explained. One of the tasks was to harmonise the tax structure through implementation of uniform floor rates of sales tax and discontinuation of sales tax related incentive schemes . With a view to simplifying the tax structure the Empowered Committee recommended that there should basically be only two rates of VAT i.e. 4% and 12.5%, plus a specific category of tax exempted goods and a special VAT rate of 1% only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till image video cameras and digital cameras'. The Karnataka legislation again reproduces Sub-item 85.25 of the Empowered Committee list as Entry 15 of the table to a notification under Entry 36 of the III Schedule to the VAT 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 entries as recommended by the Empowered Committee particularly with reference to IT products. Secondly, it shows that 'digital still image video camera' was not understood as a sub-species of 'transmission apparatus' but as a separate equipment in itself. Background to the change in the DVAT Act 42. In order to understand how the change came to be brought about in the DVAT Act with effect from 30th November 2005, this Court called for the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the Legislative Council for being placed before the Council of Ministers. The Cabinet Note repeats what is stated in the note and appends the proposed substitute entries at Serial No. 41A. Serial No. 15 in the Cabinet Note contains two brackets, one before the opening bracket before the words 'other than' and the other closing bracket after the words 'video cameras'. There is no indication on what basis the brackets were added when the original entry as proposed by the Empowered Committee as well as the Maharashtra legislation do not contain any brackets at those places. The Cabinet 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 by the Empowered Committee. That being the factual position the inescapable concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that under the garb of interpretation, 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 first place, the submission on behalf of the Respondent that insertion of the brackets was conscious does not appear to be borne out from the notes in the original file of the Respondent or the Cabinet Note containing the proposed amended provision which was placed before the Council of Ministers for approval. As already discussed, the intention was to amend the Entry to bring it in line with the Maharashtra law and also to adopt the HSN classification. Neither the HSN classification (which is fully adopted by the Empowered Committee) nor the entry in the Maharashtra statute contains any brackets preceding the words 'other than' or succeeding the words & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrationality is more readily and easily employed in relation to procedural provisions than with reference to substantive provisions . 52. The Court referred to the following passage in Maxwell on Interpretation of Statutes (12th Edn., pg 228): Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, 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 corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusions in both appeals: (i) For the period 1st April 2005 to 7th August 2005, the Appellant cannot take advantage of Section 86 of the DVAT Act as there is no deemed determination by the Commissioner accepting the proposed determination of the Appellant in terms of Section 84 (5) read with Section 84(6) of the DVAT Act; (ii) For the period between 1st April 2005 to 7th August 2005, DSCs cannot be said to fall within the ambit of IT products under Entry 41 to Schedule III to the DVAT Act; (iii) While the Appellant would be required to pay interest on the differential amount of tax, it is not liable to pay any penalty in terms of Section 86 (12) of the DVAT Act for the period 1st April 2005 to 7th August 2005; (iv) For the period 30th November 2005 to 31st December 2007, in terms of Clause 15 of Entry 41A in the Schedule of DVAT Act, the DSCs would be eligible for 4% VAT and not 12.5% VAT. In other words, the Appellant is not required to pay any further tax on the sales turnover of DSCs beyond 4% already paid by it; (v) The demand of the differential tax, interest and penalty as levied by the VATO and affirmed by the OHA and the AT for the aforementioned period 30th N ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
