Kerala High Court
M/S. Accudata Tech Solutions Pvt.Ltd vs The Intelligence Officer (Ib) on 20 December, 2014
Author: A.M. Shaffique
Bench: A.M.Shaffique
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
FRIDAY, THE 25TH DAY OF NOVEMBER 2016/4TH AGRAHAYANA, 1938
WP(C).No. 3029 of 2016 (C)
---------------------------
PETITIONER(S):
-------------
M/S. ACCUDATA TECH SOLUTIONS PVT.LTD
HOLY TUESDAY BUILDING, MATHRUBHUMI, KALOOR,
KOCHI-17, REPRESENTED BY ITS MANAGING DIRECTOR,
MR.SHOBY T PAUL.
BY ADVS.SRI.ANIL D. NAIR
SRI.R.SREEJITH
SMT.O.A.NURIYA
KUM.SOUMYA PRAKASH
KUM.MEKHALA M.BENNY
RESPONDENT(S):
--------------
THE INTELLIGENCE OFFICER (IB)
OFFICE OF THE DEPUTY COMMISSIONER (INTELLIGENCE),
COMMERCIAL TAXES, ERNAKULAM AT EDAPPALLY-682024
BY GOVERNMENT PLEADER SMT.M.M.JASMIN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 25-11-2016, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
bp
WP(C).No. 3029 of 2016 (C)
---------------------------
APPENDIX
PETITIONER(S)' EXHIBITS
-----------------------
EXHIBIT-P1: TRUE COPY OF THE SUMMONS DATED 20.12.2014 TO
THE PETITIONER.
EXHIBIT-P2(A): TRUE COPY OF THE NOTICE DATED 26.10.2015 FOR
THE PERIOD 2011-12.
EXHIBIT-P2(B): TRUE COPY OF THE NOTICE DATED 26.10.2015 FOR
THE PERIOD 2012-13.
EXHIBIT-P2(C): TRUE COPY OF THE NOTICE DATED 26.10.2015 FOR
THE PERIOD 2013-14.
EXHIBIT-P3(A): TRUE COPY OF THE REPLY DATED 7.11.2015 FOR THE
PERIOD 2011-12.
EXHIBIT-P3(B): TRUE COPY OF THE REPLY DATED 7.11.2015 FOR THE
PERIOD 2012-13.
EXHIBIT-P3(C): TRUE COPY OF THE REPLY DATED 7.11.2015 FOR THE
PERIOD 2012-13.
EXHIBIT-P4 : TRUE COPY OF THE NOTE SUBMITTED BY THE
PETITIONER.
EXHIBIT-P5(A): TRUE COPY OF THE PENALTY ORDER DATED
14.12.2015 FOR THE PERIOD 2011-12.
EXHIBIT-P5(B): TRUE COPY OF THE PENRALTY ORDER DATED
14.12.2015 FOR THE PERIOD 2012-13.
EXHIBIT-P5(C): TRUE COPY OF THE PENALTY ORDER DATED
14.12.2015 FOR THE PERIOD 2013-14.
EXHIBIT-P6: TRUE COPY OF THE ORDER NO.C7 49912/05/CT DATED
13.3.2006.
EXHIBIT-P7: TRUE COPY OF THE ORDER NO.C3/4174/0/CT DATED
31.3.2010.
RESPONDENT(S)' EXHIBITS : NIL.
//TRUE COPY//
P.S. TO JUDGE
bp
A.M. SHAFFIQUE, J.
===============
W.P. (C) No. 3029 of 2016
==================
Dated this, the 25th day of November, 2016
J U D G M E N T
This writ petition is filed challenging the penalty orders issued by the 1st respondent as Ext.P5 series.
2. The facts involved in the writ petition would disclose that the petitioner claims to be a company engaged in the business of providing domain and server space, web designing and development, search engine optimization and other related services. With reference to assessment years 2011-12, 2012-13 and 2013-14, petitioner was served with notices under Section 67(1) of the KVAT Act, 2003 alleging suppression of turnover. The main contention urged is that the business carried on by the petitioner attracts payment of VAT and the petitioner having not taken registration was indulging in an activity by non payment of tax, as a result of which, action was proposed against the petitioner for imposing penalty. Petitioner submitted a detailed objection to the notices inter alia stating that services rendered by the petitioner do not attract VAT in so far as the petitioner is not engaged in the development and sale W.P(C) No.3029/16 -:2:- of software and therefore, it does not amount to sale or purchase of goods as contemplated under the KVAT Act. However, the Intelligence Officer in the penalty orders observed that the business undertaken by the petitioner includes sale of software and therefore it is liable to be taxed under Entry 69(5) of the 3rd Schedule to the Act. On this basis, it is observed that since the petitioner has evaded payment of tax, he is liable to pay penalty and accordingly for the respective assessment years, penalty had been imposed on the petitioner.
3. The main contention urged by the petitioner is that their nature of business/activity had not been properly considered by the Intelligence Officer while passing the impugned orders. The Officer proceeded on the basis of two clarifications. One dated 13/3/2006 and the other dated 31/3/2010, which are produced as Exts.P6 and P7, which, according to the learned counsel, have no application to the factual issue involved in the matter. Further, even the Intelligence Officer was not clear about the fact as to whether there is any development of software in the matter relating to the business being carried out by the petitioner. When there is no clarity in the issue, penalty W.P(C) No.3029/16 -:3:- proceedings could not have been taken against the petitioner. It is submitted that, so far, assessment proceedings had not been completed and therefore the proceedings initiated under Section 67(1) was totally unwarranted under the factual circumstances.
4. On the other hand, learned Government Pleader relying upon the counter affidavit filed by the 1st respondent supports the stand taken by the officer. It is contended that the 'goods' as defined under the VAT Act has to be given a wide interpretation as held by the Apex Court in Tata Consultancy Services v. State of Andhra Pradesh [2004 (271) ITR 401]. Further, the clarifications issued by the Commissioner of Commercial Taxes as referred to in the penalty orders are also relevant to be considered and therefore petitioner cannot escape from the liability to pay tax. For that reason itself, since there was clear evasion, the Officer was justified in imposing penalty.
5. Heard the learned counsel appearing for the petitioner and the learned Government Pleader appearing for the respondent.
6. The short question to be considered is whether the activity undertaken by the petitioner would amount to Entry 69(5) W.P(C) No.3029/16 -:4:- of the 3rd Schedule namely "IT Software of any media". The contention urged is that though IT software can as well be taxed under the aforesaid entry, when the petitioner is only involved in web designing and optimization of search engines, it does not come under the category of IT Software, in which event, it was apparent that no tax was leviable. Perusal of Ext.P5 series of orders would show that the assessing officer has observed as under:
"The following facts have to be considered in relation to the above. A software is simply defined as the programs and other operating information used by a computer. Search engine means a program that searches for and identifies items in a database that correspond to keywords or characters specified by the user, used especially for finding particular sites on the World Wide Web. Web design encompasses many different skills and disciplines in the production and maintenance of websites. The different areas of web design include web graphic design; interface design; authoring, including standardised code and proprietary software; user experience design; and search engine optimization. Search engine optimization means the process of maximizing the number of visitors to a particular website by ensuring that the site appears high on the list of results returned by a search engine. All W.P(C) No.3029/16 -:5:- the above shows that some sort of coding programs etc. are used in the above functions and that definitely will fall under customized or non customized software and it is clear that software is not something that is distinct from web designing, web development, providing domain and server space, space engine optimization etc."
7. Even going by the aforesaid observation, it is rather clear that the officer himself has only come to an assumption that the web designing includes an application of software which is being sold as goods. Though he had arrived at a finding that the activity undertaken by the petitioner amounts to customized or non customized software, it is evident that no scientific material had been relied upon to arrive at such a finding. He relies upon Tata Consultancy Services (supra) in which there is no doubt about the proposition laid down. The question is whether the activity undertaken by the petitioner falls under Entry 69(5) of the 3rd Schedule or not, for which, the requirement is to find out whether petitioner was dealing in software development, sale etc. The officer further refers to clarification orders which are now produced as Exts.P6 and P7. Perusal of Ext.P6 would show that the question considered was whether the applicant being a 100% W.P(C) No.3029/16 -:6:- EOU rendering rendering software and technological support service to various clients around the world is required to take registration under the KVAT Act, 2003 and it is found that they are liable to take such registration. In the clarification, the Commissioner of Commercial Taxes has not dealt with the issue as to whether the web service offered by the petitioner would come within the realm of Entry 69(5) of the 3rd Schedule. In Ext.P7 also, the question considered was whether the service tax of the firm forms part of the turnover which apparently has nothing to do with the issue involved in the present case. In Ext.P7 it was held that the service tax paid would form part of the sale price and consequently would form part of the turnover of the dealer, exigible to VAT. This situation may arise only in a case where the dealer is liable to pay tax under Entry 69(5) of the 3rd Schedule.
8. Having regard to the fact that there is no clarity in the matter, necessarily the Intelligence Officer ought to have kept the matter pending until the assessing officer had come to a proper finding on the basis of the materials made available.
Taking into consideration the aforesaid facts, I am of the W.P(C) No.3029/16 -:7:- view that the writ petition is liable to be allowed and accordingly this writ petition is allowed.
(i) Ext.P5 series are set aside.
(ii) The Intelligence Officer shall take further steps in the matter only on completion of the assessment proceedings.
(iii) If at all any proceedings are taken in this regard, it shall be considered based on the materials made available by the petitioner also.
Sd/-
A.M. SHAFFIQUE, JUDGE Rp25/11/2016 //True Copy// P.S to Judge