Karnataka High Court
State Of Karnataka vs M/S.Infosys Technologies Limited on 18 June, 2014
Bench: N.Kumar, B.Manohar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 18TH DAY OF JUNE 2014
PRESENT
THE HON'BLE MR JUSTICE N KUMAR
AND
THE HON'BLE MR JUSTICE B MANOHAR
STRP NOS.7/2011 & 64-69/2011 & 113-121/11 & STRP
103/11 & 217-236/2011
IN STRP NOS.7/2011 &
64-69/2011 & 113-121/11
BETWEEN:
STATE OF KARNATAKA
BY THE COMMISSIONER OF
COMMERCIAL TAXES
VANIJYA TERIGE KARYALAYA
GANDHINAGAR
BANGALORE - 9. ... PETITIONER
(BY SMT S SUJATHA, AGA)
AND:
M/S INFOSYS TECHNOLOGIES LIMITED
PLOT NO.44/97A
ELECTRONIC CITY, HOSUR ROAD
BANGALORE - 560 100. .. RESPONDENT
(BY SRI T SURYANARAYANA, ADV. FOR
M/S KING & PARTRIDGE)
THESE STRPs ARE FILED UNDER SECTION 65(1) OF
KARNATAKA VALUD ADDED TAX ACT 1957, AGAINST THE
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ORDER DATED 19.01.2010 PASSED IN APPEAL NOS.628
TO 634/2007 & 635-643/2007 ON THE FILE OF THE
KARNATAKA APPELLATE TRIBUNAL, BANGALORE PARTLY
ALLOWING THE APPEALS FILED UNDER PROVISION OF
THE KARNATAKA VALUE ADDED TAX ACT, 2003.
IN STRP NOS.103 & 217 TO 236/2011:
BETWEEN:
STATE OF KARNATAKA
BY THE COMMISSIONER OF
COMMERCIAL TAXES
VANIJYA THERIGE KARYALAYA
GANDHINAGAR
BANGALORE - 9. PETITIONER
(BY SMT SUJATHA, AGA)
AND:
M/S INTEL TECHNOLOGY (INDIA) PTD. LTD.
SY.NO.23-56P,
DEVARABEESANA HALLI VILLAGE
OUTER RING ROAD,
VARTHUR HOBLI
BANGALORE SOUTH TALUK. .. RESPONDENT
(BY SRI HARISH R, ADV. AND SRI.SYED M PEERAN, ADVS.)
THESE STRPs ARE FILED UNDER SECTION 65(1) OF
KVAT ACT, AGAINST THE JUDGMENT DATED 06.10.2009
PASSED IN STA NO.45 TO 65/2008 ON THE FILE OF THE
KARNATAKA APPELLATE TRIBUNAL, BANGALORE PARTLY
ALLOWING THE APPEAL.
THESE PETITIONS COMING ON FOR FURTHER
ORDERS THIS DAY, KUMAR, J., MADE THE FOLLOWING:
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ORDER
These petitions are preferred by the State/revenue challenging the order passed by the Karnataka Appellate Tribunal holding that the goods purchased by the assessee under the nomenclature of 'Work Station' are not items of furniture, they are accessories to the various computer peripherals and the computer itself which are housed at work stations and therefore, the assessee is entitled to 'input tax credit'.
2. The assessee is engaged in the business of development and sale of computer software besides also being engaged in various technical consultancy services. During the course of audit visit by then assessing authority on 8.12.2006, it was found that the assessee has claimed input tax under the nomenclature of work stations. The assessing authority disallowed such input tax on work stations considering them as input tax restricted goods falling 4 under Entry No.5 of the V Schedule read with Section 11(a)(2) of the Karnataka Value Added Tax, 2003 (For short hereinafter referred to as 'KVAT Act'). Against the said order of assessment, the assessee preferred first appeal before the First Appellate Authority. The First Appellate Authority by its order dated 18.7.2007 dismissed the appeal confirming the assessment orders. The assessee challenged the correctness of this order before the Karnataka Appellate Tribunal. The Karnataka Appellate Tribunal by its judgment dated 19.1.2010 allowed all the appeals of the assessee holding that work stations are accessories of technical goods viz., of computer/computer peripherals falling under Entry No.3 of V Schedule read with Section 11(a)(2) of the KVAT Act, 2003.
3. Being aggrieved by the said judgment, the revenue has preferred STRP Nos.7/2011 and 103/2011 while STRP Nos.18/10 is preferred by the assessee.
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4. The revisions petitions came to be admitted to consider the following substantial questions of law:
1. In the facts and circumstances of the case, whether the Tribunal is justified in classifying the "work stations" of the respondent / company as accessories to the various computer peripherals and falls under Entry No.3 of the V schedule appended to the KVAT Act?
2. In the facts and circumstances, whether the Tribunal is justified in holding that 'work stations' are used as aids or accessories of the computers, computer peripherals and other gadgets for developing the computer software?
3. In the facts and circumstances, whether the Tribunal is right in ignoring the input restrictions provided under Entry No.5 of the V schedule to the KVAT Act r/w Section 11(a)(2) of the KVAT Act?
4. Whether the Tribunal is right in setting aside the orders of the authorities classifying the 'work stations' as furniture falling under input restrictions under entry NO.5 of V schedule to the KVAT Act?6
5. Learned counsel for the revenue assailing the impugned order contends that work stations are nothing but furniture as set-out in Entry No.5 of the V Schedule. Section 11(a)(2) of the KVAT Act puts restriction on claiming input tax. Input Tax shall not be deducted in calculating the net tax payable in respect of tax paid on goods as specified in V Schedule. Therefore, the assessee was not entitled to input tax deduction as wrongly claimed by them. The tribunal was in total error in holding that the work stations are not furniture but it is an accessory of electronic goods viz., of computer/computer peripheral falling under Entry No.3 of V Schedule and therefore, she submits the impugned order requires to be set-aside.
6. Per contra, learned counsel appearing for the assessee submitted that the work stations cannot be construed as furniture at all and therefore, Section 11(a)(2) is not attracted. The corresponding section 7 prior to 2006 was 11(a)(3). Even otherwise, he submits that if the goods is used in the manufacture of goods for sale, the restriction imposed under Section 11 is not attracted. Therefore, seen from any angle the tribunal was justified in holding that the assessee is entitled to the input tax deduction in respect of the work stations.
7. In the light of the aforesaid facts and rival contentions, the substantial question of law that arises for consideration in these petitions are:
"Whether work stations purchased by the assessee which is in the business of development and sale of computer software would fall within the definition of furniture in Entry No.5 of V Schedule and is not entitled to the benefit of Input Tax Deduction".
8. In order to answer the said question, first we have to understand whether this work station is a furniture or not.
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9. What is 'Furniture', has been the subject matter of Judgments of various Courts in the country.
10. The Allahabad High Court in the case of Imperial Surgico Industries, Lucknow Vs Commissioner, Sales Tax, Uttar Pradesh, Lucknow reported in (1969)23 STC 201 has held as under:
"The entry in Notification No.ST-905/X dated 31st March, 1956, speaks of "furniture". Webster defines "furniture" as "that with which anything is furnished or supplied" and "articles used for convenience or decoration in a house or apartment." In Chambers Twentieth Century Dictionary "furniture" is defined as "movables, either for use or ornament with which a house is equipped." Articles which are employed for the purpose of a convenience or for decoration in a dwelling place are described as furniture. They are articles which supply the daily conveniences of the common man in relation to the place where he lives. They may be articles of furniture now deemed essential to civilized living such as chairs, tables, beds and cupboards. They may 9 include articles of greater refinement or luxury, such as sofas, carpets and articles of ornament and decoration. Whether an article can be described as furniture turns upon its function in relation to the delay needs of convenient living.
From a perusal of the catalogues it is obvious that the articles in question were specially designed for use in hospitals. In the case of beds only, it appears that some beds are almost identical with those in domestic use. But there are other beds, apart from fowler beds, which are specially designed for use in a hospital. There is, however, nothing before us to indicate whether the beds supplied by the assessee are of one kind or the other. We may take note of the fact that in the catalogues the articles in question have been described as hospital equipment.
The test, in our opinion, is not whether the articles are capable of being used as furniture; the test is whether they are ordinarily so used and can be accepted as 10 such according to the general or popular notion of what furniture is. Sales tax is a liability which affects the mercantile community and the consumer public. The list of items mentioned in the notification must be construed according to the understanding popular in that community and section of the people. To impose a technical or artificial meaning will result in defeating or stultifying the intention behind the provision".
11. The Apex Court in the case of Indo International Industries Vs Commissioner Of Sales Tax reported in (1981) 47 STC 359 held as under:
"It is well-settled that in interpreting items in statutes like the Excise Tax Acts or Sales Tax Acts, whose primary object is to raise revenue and for which purpose they classify diverse products, articles and substances, resort should be had not to the scientific and technical meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them.11
If any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted.
12. The High Court of Gujarat at Ahmedabad in Chandan Metal Products Pvt. Ltd Vs The State Of Gujarat reported in (1969)23 STC 29 has held as under:
"There is no definition of the word "furniture" in the Act and, therefore, it would be proper to refer to the dictionary. Webster's Dictionary, Second Edition, defines furniture to mean articles of convenience or decoration used to furnish a house. So far as the word "furnish" is concerned, the Shorter Oxford English Dictionary defines the word "furnish", inter alia, as follows:-
"To fit up (an apartment, a house) with all that is requisite, including movable 12 furniture, which is now the predominant notion."
The Shorter Oxford English Dictionary mentions in the meaning of the word "furniture", inter alia, as follows:-
"Movable articles in a dwelling-house, place of business, or a public building."
Therefore, so far as the dictionary meaning is concerned, all articles of convenience or decoration used for the purpose of furnishing a place of business or an office are articles of furniture. SO far as shelving rack is concerned, it is used in an office or an industrial organisation for the purpose of keeping files, papers etc. and, therefore, is an article of convenience, which is used for furnishing a place of business or an office. It is therefore, an article of furniture, and since it is manufactured from iron and steel, it is an article of steel furniture within the meaning of entry 44H of Schedule C".
13. The Apex Court in Annapurna Carbon Industries Co. Vs State Of Andhra Pradesh reported in (1976) 37 STC 379 has held as under:
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"Apparently, the deciding factor is the predominant or ordinary purpose or use. It is not enough to show that the article can be put to other uses also. It is its general or predominant user which seems to determine the category in which an article will fall.
We find that the term "accessories" is used in the schedule to describe goods which may have been manufactured for use as an aid or addition. A sense in which the word "accessory" is used is given in Webster's Third New International Dictionary as follows: "an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else". Other meanings given there are: "supplementary or secondary to something of greater or primary importance"; "additional"; "any of several mechanical devices that assist in operating or controlling the tone resources of an organ". "Accessories" are not necessarily confined to particular machines for which they may serve as aids. The same item 14 may be an accessory of more than one kind of instrument".
14. The word 'furniture' has not been defined under the Act. In Chambers 20th Century Dictionary 'furniture' is defined as movables either for use or ornament with which a house is equipped. In the Webster Dictionary II edition, it is defined to mean articles of convenience or decoration used to furnish the house. Insofar as the word 'furnished' is concerned, the Shorter Oxford English Dictionary defines the word 'furniture' has to fit up with all that is requisite including moveable furniture which is now predominant notion. Shorter Oxford English dictionary gives the meaning of the word 'furniture' as movable articles in a dwelling house, place of business or a public building. Therefore, insofar as the dictionary meaning is concerned, it means all articles of convenience or decoration used for the purpose of furnishing a place of business or office or a house as articles of furniture. If any term or 15 expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted. Apparently, the deciding factor is the predominant or ordinary purpose or use. It is not enough to show that the article can be put to other uses also. It is its general or predominant user which seems to determine the category in which an article will fall. The test, is not whether the articles are capable of being used as furniture; the test is whether they are ordinarily so used and can be accepted as such according to the general or popular notion of what furniture is. Sales tax is a liability which affects the mercantile community and the consumer public. The list of items mentioned in the notification must be construed according to the understanding popular in that community and section of the people. To impose a technical or artificial meaning will result in 16 defeating or stultifying the intention behind the provision. According to the general or popular notion of what furniture is, whether the article can be described as furniture turns upon its definition in relation to daily needs of a convenient living. It is the general or predominant user which determines the category in which an article will fall and therefore, the nomenclature given to an article is not decisive.
15. In this background when we look at the relevant provisions under the Act, the claim is made by the revenue in view of entry 5 of the V Schedule which reads as under:
FIFTH SCHEDULE [Section 11(3)] Input Tax Restricted Goods Description of Goods (1) x x x (2) x x x (3) x x x (4) x x x
5. Furniture including slotted angles and ready to assemble parts of furniture, stationery articles including paper, sanitary fittings, cement and other construction 17 materials including bricks, timber, wood, glass, mirrors, roofing materials, stones, tiles and paints, toilet articles."
Section 11 of the Act deals with input tax restrictions which reads as under:
"11. Input tax restrictions
(a) Input tax shall not be deducted in calculating the net tax payable, in respect of:
(1) tax paid on purchases attributable to sale of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India;
(2) tax paid on goods as specified in the Fifty Schedule subject to such conditions as may be specified, purchased and put to use for purposes other than for -
(i) resale, or
(ii) manufacture or any other process of other goods for sale"
16. From the aforesaid provisions, it is clear that input tax paid by an assessee in purchasing the goods 18 on set out in V Schedule are not eligible for input tax deduction. That rule has an exception. That is, if the goods mentioned in V Schedule are resold then Section 11 is not attracted. Similarly when the goods mentioned in the V Schedule are used for manufacture or any other process of other goods for sale, even then Section 11 is not attracted. But the question in this case is, whether the goods in respect of which input tax rebate benefit is claimed is a goods which fall within V Schedule .
17. Section 11 is an exception to the general rule that an assessee is entitled to input tax deduction while computing its tax liability. If the input tax is paid in respect of goods which does not fall under V Schedule, Section 11 is not attracted and the assessee is entitled to the benefit under Section 10 of the Act. It is in this context, we have to see whether this work station purchased by the assessee falls within V Schedule under the head 'Furniture'. 19
18. The Work stations may be a computer or device such as computer work station, a high performance desktop computer as may be designed for scientific or engineering applications or a music work station. The work station or a cubicle is used to sit and operate a computer with all attendant accessories. It is a nature of accessory for use in the manufacture or processing of goods for sale and those are used in computing etc. In common parlance it is not understood as a furniture for a convenience or a decoration. It is not used as chairs, tables, cupboards etc. The purpose for which the said work station is used is in reality for a manufacturing process as a part of manufacturing process. At any rate, it is so understood in the trade. A work station includes a cubicles, a computer on the top of cubicle and chair in front of the computer to sit and work on the computer and also electrical connections for getting electricity as well as internet connections. Therefore, a work station is not used as a convenience or for 20 decoration in a dwelling place or used to furnish a place of business. Therefore, it is not possible to accept the view of the revenue that a cubicle or a work station would fall within the meaning of the word 'Furniture' and therefore, the assessee is not entitled to the benefit of input tax paid for acquiring such work stations. Therefore, we answer the said substantial question of law in favour of the assessee and against the revenue.
19. Accordingly, the petitions are dismissed.
Sd/-
JUDGE Sd/-
JUDGE BRN & RS/*