Karnataka High Court
The State Of Karnataka vs M/S Bharath Electronics Limited on 2 December, 2022
Author: P.S. Dinesh Kumar
Bench: P.S. Dinesh Kumar
STRP No.102/2018
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF DECEMBER, 2022
PRESENT
THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON'BLE MR. JUSTICE UMESH M. ADIGA
S.T.R.P No.102 OF 2018
BETWEEN :
THE STATE OF KARNATAKA
REPRESENTED BY THE SECRETARY
FINANCE DEPARTMENT
VIDHANA SOUDHA
BENGALURU-560 001 ... PETITIONER
(BY SHRI. DHYAN CHINNAPPA, AAG A/W
SHRI. JEEVAN J. NEERALAGI, AGA)
AND :
M/S. BHARATH ELECTRONICS LIMITED
JALAHALLI POST, JALAHALLI,
BENGALURU-560 013 ... RESPONDENT
(BY SHRI. G. SHIVADASS, SENIOR ADVOCATE A/W
SHRI. SYED M. PEERAN, ADVOCATE)
THIS STRP IS FILED UNDER SECTION 65(1) OF
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT AND ORDER DATED 22.09.2017 PASSED IN STA
NUMBERS 749 AND 750/0016 ON THE FILE OF THE
KARNATAKA APPELLATE TRIBUNAL AT BANGALORE, PARTLY
ALLOWING THE APPEALS AND FILED AGAINST THE ORDER
DATED 27.08.2016 PASSED IN VAT-AP NO.209/ 15-16 AND
CST AP NO.133/15-16 ON THE FILE OF THE JOINT
COMMISSIONER OF COMMERCIAL TAXES (APPEALS-6),
STRP No.102/2018
2
BANGALORE, DISMISSING THE APPEALS FILED AGAINST THE
REASSESSEMENT ORDER DATED 25.02.2016 IN
NO.DCCT/AUDIT-6.3/ RE-ASST/15-16 PASSED BY THE
DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(AUDIT)6.3, DVO-6, BANGALORE-58 FOR THE TAX PERIODS
OF APRIL 2014 TO MARCH 2015.
THIS STRP, HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 01.09.2022, COMING ON FOR PRONOUNCEMENT
OF ORDERS THIS DAY, P.S. DINESH KUMAR J.,
PRONOUNCED THE FOLLOWING:-
ORDER
This petition by the Revenue directed against the order dated September 22, 2017 in STA Nos.749 & 750/2016 passed by the KAT1 has been admitted to consider four questions of law. Shri. Dhyan Cihinnappa, learned AAG submitted that the Revenue is concerned only with the clarification of EVM machines in this appeal. After hearing learned AAG and Shri. Shivdass, learned Senior Advocate, in our view, following two questions arise for consideration:
1) Whether the Tribunal has erred in failing to follow the binding judgment of the Hon'ble Supreme Court in the case of the Commissioner 1 Karnataka Appellate Tribunal STRP No.102/2018 3 of Customs /Vs/ N.I. Systems India Pvt. Ltd., which clearly holds that a commodity is ought to be classified as per its functionality and cannot be classified as an automatic data processing machine merely because the said commodity may contain an automated data processing machine?
2) Whether the Tribunal has erred in disregarding the functionality of the goods in question, while holding that Electronic Voting Machines and other commodities are classifiable as notified in products machines and thereby eligible to be taxed at the concessional rate of tax under Entry-53 of the III Schedule to the KVAT Act?
2. Brief facts of the case are, respondent - BEL2, a registered dealer under the KVAT Act3 is a Public Sector Undertaking engaged in designing, developing and manufacturing Military Radars, Electronic Warfare systems, Naval systems, Avionics, Defence Communication Equipment, Solar products, Electronic Voting Machines (EVM) etc. 2 Bharat Electronics Ltd., 3 Karnataka Value Added Tax, 2003 STRP No.102/2018 4
3. The Deputy Commissioner of Commercial Taxes(Audit), the Assessing Authority, concluded the re-assessment vide order dated February 25, 2016 under the KVAT Act4 and under Section 9(2) of the CST Act5 read with Section 36 & 72(2) of the KVAT Act in respect of local and Interstate sales turnover of assessee's products sold to various entities including Election Commission of India and Controller of Defence Accounts. The Assessing Officer held that the commodities are taxable at 14.5% under the KVAT Act and not at 5.5%.
4. Respondent/assessee had classified several goods under relevant entries of the Notifications6 issued by the State Government under the KVAT Act and discharged VAT at 5.5%. In respect of 52 items, Assessing Officer rejected the classification claimed by the assessee and held 4 Karnataka Value Added Tax Act, 2003 5 Central Sales Tax Act, 1956 6 page 26 red marked portion STRP No.102/2018 5 that they are taxable at 14.5% under General Entry in terms of Section 4(1)(b) of the KVAT Act and imposed tax, interest and penalty. The Assessment Order was rectified on March 22, 2016 under Section 69 of the KVAT Act and the additional tax levied was corrected as Rs.3,73,89,773/-, interest as Rs.52,37,177/- and penalty as Rs.37,38,977/-. Accordingly demands were raised. Assessee challenged the said orders before the First Appellate Authority, the Joint Commissioner of Commercial Taxes and the said appeals7 stood dismissed.
5. On further appeal, by the impugned order, the KAT has partly allowed the appeal and set-aside the rate of tax at 14.5% applied by the Assessing Authority and determined the rate of tax of the goods dealt under CST and KVAT Act as taxable at 5.5% except in respect of the goods mentioned at Sl. Nos.22-27, 36-38, 41 and A-E of 7 VAT Ap.No.209/15-16 and CST Ap. No.133/15-16 dated 27.08.2016 STRP No.102/2018 6 the table mentioned in the order. In respect of those items, the KAT has directed the AO to decide the rate of tax after examining the description of the item with reference to the Notifications issued under the KVAT Act for the purpose of entry 53 of Schedule III to the Act after providing opportunity to the assessee. Hence, this appeal.
6. Assailing the impugned common order, Shri. Dhyan Chinnappa, learned Additional Advocate General urged following two contentions:
• the assessee has claimed concessional rate of tax in respect of EVMs on the ground that the item is classifiable as Atomatic Data Processing Machines (APDMs) under entry 8471 of the Central Excise Tariff Act specified in Entry 4 of Notification No. FD 116 CSL 2006(9) dated March 31, 2006. But, the EVM is a machine to automate the election and voting process by application of technology. STRP No.102/2018 7 Its primary function is to assist in registering, counting and computing the Votes. It is held in Commissioner of Customs, Bangalore Vs. NI Systems (India) Pvt. Ltd.8, that merely because a system contains an ADPM the same cannot be classified as an ADPM merely because, it contains an ADPM and such interpretation would obliterate the specific functionality test under which the goods are to be classified based on the functions performed by them. Therefore, the EVMs must be regarded as data registering, data counting and displaying machines which cannot be categorized under ADPM; • the other items, viz., Radio Frequency Units, Signal Process Units etc., sold to HAL9 have been rightly classified and taxed at residuary 8 (2010)11 SCC 638 9 Hindustan Aeronautics Ltd., STRP No.102/2018 8 rate of 14.5% as they are not specified in any Notification.
7. With the above submissions, Shri. Dhyan Chinnappa submitted that the impugned order is unsustainable in law and prayed for allowing this appeal.
8. Shri. Shivdass, learned Senior Advocate for the assessee, supporting the impugned order, submitted that:
• the EVM Machines fall under Serial No.4 of the Notification No. FD 116 CSL 2006(9) dated March 31, 2006 and therefore, it is an IT product attracting tax at 5.5% under KVAT Act;
• the EVM, once set for operation will not have any control over election process except processing and storage of data;STRP No.102/2018
9 • Entry 8471 does not contain a condition that only the machines which run without any software are classifiable as ADPM; • EVMs are not used by a common man on an every day basis. Therefore, popular meaning or understanding is of less reference and what is relevant is the technical and scientific meaning.
9. With these main submissions, he prayed for dismissing the petition.
10. We have carefully considered rival contentions and perused the records.
11. In substance, Revenue's case is that EVMs do not fall under CTH-8471 dealing with Automatic Data Processing Machines because, the Control Unit is incapable of processing digital data unless specific software is written for such processing and Control units but have specialized STRP No.102/2018 10 structure and specific functions to perform. Therefore, an EVM cannot be classified under CTH-8471.
12. Assessee's case is, it has been clearing the product namely the Display-cum-Processing Cabinets by classifying them under CTH-8471 and the same has never been disputed by the Excise Authorities.
13. The relevant tariff item under the Central Excise Tariff Act reads as follows:
Tariff Item Description of goods 8471 Automatic data processing machines and units thereof;
magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included.
8471 90 00 - Other STRP No.102/2018 11
14. The KAT has recorded that the relevant portion in the Notification at Sl. No.4 reads as follows:
Heading and Sl.
sub-heading Description
No.
No.
4 8471 Automatic data processing machines
and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data
15. In Chapter 85 an ADPM is described as under:
"Note 5 of Chapter 85 defines the expression "automatic data processing machine" as under:
"5(A) For the purpose of heading 8471 expression "automatic data processing machine" means a machine capable of :
(i) storing the processing programme or programmes and at least the data immediately necessary for the execution of the programme;
(ii) being freely programmed in accordance with the requirements of the user;
(iii) performing arithmetical computations specified by the user; and STRP No.102/2018 12
(iv) executing, without human intervention, a processing programme which requires them to modify their execution, by logical decision during the processing run.
(Emphasis Supplied)"
16. The KAT has rightly recorded in para K12 that an ADPM is a machine capable of storing the processing programs or the data necessary for execution of program being freely programmed in accordance with the requirements of the user, performing user specified Arithmetical computations and executing without human intervention. It has further held that the Display cum Processing cabinet is intended to integrate display processing and signal processing functions of a sonar system. The mother Board and the data cards are housed in an enclosure used to process the active and passive digital signals. The display-cum processing cabinet aids the operator to detect, track and classify the target by processing the data received. STRP No.102/2018 13
17. The description of goods in Tariff item No.8471, contained in the Central Excise Tariff Act and the one contained in the Notification are identical. The Central Excise Authority has accepted clearance of AVMs under 8471 90 00.
18. It is settled that if an item is cleared under a particular tariff, by the Central Excise Authority, the same is not disputable by the VAT Authorities. In Samsung India Electronics Pvt. Ltd., V/s. State of Gujurat10, relied upon by Shri.Shivdass, it is held that a Computer which contains additional function of calling feature and its principal function is that of Automatic Data Processing Machine does not cease to be an IT product. It is further held that the excise classification is binding on the VAT authorities. 10
2020(2) TMI 1247 STRP No.102/2018 14
19. Thus, it is not in dispute that EVM Machines are classified under 8471 and ADPM is described at Sl. No.4 in the Notification. It is also not in dispute that assessee has been clearing the EVMs under tariff item 8471.
20. The Gujrat High Court in Samsung India has held that the VAT authorities are bound by the classification accepted by the Central Excise Authorities. We respectfully agree with the said view.
21. We have carefully perused the Notification FD 116 CSL 2006(9) dated March 31, 2006 and it reads as follows:
"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-STRP No.102/2018 15
heading numbers under the Central Excise Tariff Act, 1985 (Central Act 5 of 1986), as IT (Information Technology) products, namely:-"
22. Thus, the Notification makes it clear that the goods specified under respective headings and sub-headings in the Central Excise Tariff Act, 1985 as IT Products. Admittedly, Central Excise has accepted clearance of EV Machines under Tariff Head 8471. Therefore, the principal contention of Revenue that an EVM does not process anything, is untenable because, the KVAT Authority is bound by the classification accepted by the Central Excise Authority.
23. In view of the above, following:
ORDER
(a) Petition is dismissed.STRP No.102/2018
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(b) The questions of law are answered in favour of the assessee and against the Revenue.
No costs.
Sd/-
JUDGE Sd/-
JUDGE SPS