HCL Comnet Limited vs State of Karnataka

Dilip B. Bhosale, J.—Heard learned Counsel for the parties. Though these revision petitions are placed before us for admission, by consent, those were heard for final disposal at this stage.

In the memorandum of revision petitions, the petitioner have raised several questions of law. Sri K.P. Kumar, learned Senior Advocate appearing for the petitioners, however, submits that only the following questions deserve consideration:

(A) Whether on the facts and in the circumstances of the case, the Tribunal as well as the authorities below, in law, were justified in holding that VSATs are not covered by Entry 53 in the Third Schedule to the Karnataka Value Added Tax Act, 2003 (for short, "the Act") overlooking item 5 in the notification dated 6-4-2006 issued by the Government of Karnataka?

(B) Whether the Tribunal and the authorities below were justified in interpreting the relevant Entry 5 in the notification dated 6-4-2006, overlooking the Rules for interpretation of the Central Excise Tariff Act, 1985 (for short, "the Tariff Act") read with the explanatory notes therein, and rejecting the petitioner''s claim that VSATs are covered by Entry 53 of the Third Schedule of the Act.

(C) Whether there is sufficient material on record to hold that the entire turnover of the petitioner was through sale of VSATs and whether the Appellate Tribunal was justified in not interfering with the order of the Assessing Authority?

Sri K.P. Kumar, learned Senior Advocate for the petitioners, fairly submitted that the case of the petitioners is not covered by the Notification No. FD 116 CSL 2006(9), dated 31-3-2006 under Sl. No. 12 bearing Heading 8529.10 under the description Aerials, Antennas and parts; parts of goods specified in sub-headings 8525.10, 8525.20 and 8527.90, and therefore, the question raised in the memorandum of revisions, based on this notification does not arise in the present case.

These revision petitions are basically directed against the common judgment and order dated 21-6-2013 rendered by the Karnataka Appellate Tribunal at Bangalore (for short, ''the Tribunal''), in STA Nos. 1804 to 1815 of 2012, whereby, 12 appeals, bearing Appeal Nos. VAT/AP/2566-A to 2566L/2010-11, filed by the petitioner u/s 63 of the Act, were dismissed by the Joint Commissioner of Commercial Taxes (Appeals-V), Bangalore (for short "the Appellate Authority") vide order dated 31-5-2012. The appeals before the Appellate Authority, u/s 62 of the Act, were preferred against the reassessment orders passed by the Assessing Authority imposing tax for the period between April 2006 and March 2007 i.e., for 12 months, including penalty and interest under Sections 72(2) and 36 of the Act respectively.

The petitioner is a public limited company involved in the business of trading of net working equipments like routers, switches, modems etc., and so also very small Aperture Terminals (for short, ''VSATs''). In the present revision petitions, we are concerned only with VSATs. The petitioner would pay value added tax for the sale of VSATs at the rate of 4% as per Section 4(1)(a)(ii) of the KVAT Act read with Entry 53 of the Third Schedule to the Act, having described it as "IT products including telecommunication equipments as may be notified".

Though the basis for claiming that VSATs are covered by Entry 53 is the notifications dated 31-3-2006 and 6-4-2006, as observed earlier, the petitioner, before us, claim benefit under the said Entry only on the strength of notification dated 6-4-2006 issued by the Government of Karnataka in the exercise of powers conferred u/s 4(1)(a) read with Entry 53 of Third Schedule of the Act. This notification gives description of the goods, to be covered by Entry 53, with reference to the goods specified with the heading and the sub-heading numbers under the Tariff Act, as IT products.

We have heard learned Counsel for the parties and with their assistance, gone through the relevant materials placed before us in the light of relevant entries in the Third Schedule of the Act, the Tariff Act and general Rules for the interpretation of the entries in the Tariff Act.

In view of the grounds of challenge and the questions raised, we have examined the contentions urged by learned Senior Counsel for the petitioner that the case of the petitioner, is covered by Entry 53 of the Third Schedule of the Act read with Section 4(1)(a)(ii) thereof, in the light of the notification dated 6-4-2006 and that the item 5 in the table as reflected in the notification had not been interpreted by the Tribunal as provided for by the Rules for interpretation of the Tariff Act read with explanatory notes therein. It would be advantageous to reproduce the notification dated 6-4-2006 so as to appreciate the contentions urged on behalf of the petitioner as well as the respondent. The notification dated 6-4-2006 reads thus. --

NOTIFICATION

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), the Government of Karnataka hereby specifies with immediate effect, the goods specified in column (3) of the table below with heading and sub-heading numbers under the Central Excise Tariff Act, 1985 (Central Act No. 5 of 1986), specified in corresponding entries in columns (1) and (2), as IT (Information Technology) products, namely.--

Explanations. -- (1) The Rules for the interpretation of the Central Excise Tariff Act 1985 read with the Explanatory Notes as updated from time to time published by the Customs Co-operation Council, Brussels apply for the interpretation of this notification.

(2) Where any commodities are described against any heading or, as the case may be, sub-heading and the aforesaid description is different in any manner from the corresponding description in the Central Excise Tariff Act, 1985, then only those commodities described as aforesaid 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.

(3) Subject to Explanation 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 the commodities covered for the purposes of the said tariff under that heading or sub-heading will be covered by the scope of this notification.

(4) Where the description against any heading or sub-heading is shown as "other" then the interpretation as provided in Explanation 2 shall apply.

By Order and in the name of Governor of Karnataka.

In the instant revision petitions, we are concerned with Item 5 in the notification dated 6-4-2006. Item 5 makes reference to sub-heading 8525.20 in the Tariff Act i.e., transmission apparatus incorporating reception apparatus. The Explanation 1 in the notification clearly provides that the Rules for interpretation of the First Schedule-Excise Tariff to the Tariff Act read with explanatory notes as updated from time to time by the Customs, Co-operation Council Brussels would apply for the interpretation of the entries in this notification (6-4-2006). The notification further provides that where any commodities are described against any heading or, as the case may be, sub-heading, and the aforesaid description is different in any manner from the corresponding description in the Tariff Act, then only, those commodities described as aforesaid will be covered by the scope of the notification and other commodities though covered by corresponding description in the Central Excise Tariff will be covered by the scope of the notification. It further provides that for the purpose of any entry contained in the 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 the commodities covered for the purposes of said tariff under that heading or sub-heading will be covered by the scope of the notification.

In view of the explanations, we have perused the general Rules for interpretation of the First Schedule to the Tariff Act. These Rules provide that classification of goods in the First Schedule shall be governed by principles mentioned therein. The general explanatory note in the said Rules provide as to how the columns in the First Schedule should be read and understood. Additional notes appended to these Rules further make the meaning of words "heading", "sub-heading", "tariff item" etc. clear.

We have carefully perused these Rules including general explanatory notes and examined the notification dated 6-4-2006 and so also, Entry 53 of the Third Schedule to the Act. We have also gone through the impugned orders, We find substance in the submissions advanced by Mr. K.P. Kumar, learned Senior Advocate on behalf of the petitioner to the extent that the Rules for interpretation of the notification were not taken into consideration by the Tribunal. In other words the Tribunal did not interpret the entries in the table, as reflected in the notification dated 6-4-2006, in the light of these rules which provide for interpretation of the notification.

Mr. K.P. Kumar, submitted that "Heading 8525", "Sub-heading 8525.20" and Tariff Item "8525.20.91" in the CET ought to have been read by the authorities below in the light of the Rules for interpretation of the First Schedule-Excise Tariff. He submitted that the description of articles in Tariff Item 8525.20.91 will have to be read to understand that the article mentioned therein is a sub-classification of sub-heading 8525.20, that is, transmission apparatus incorporating reception apparatus and that the sub-heading in the Tariff Act and Entry 53 in the Third Schedule to the Act is identical. In other words, he submitted that VSAT terminals, being, Tariff Item 8525.20.91 is a sub-classification of the article described in sub-heading 8525.20.

Learned Counsel for the respondent, on the other hand, submitted that this contention was not raised either before the First Appellate Authority or before the Tribunal and therefore, the Tribunal had no occasion to examine the case of the petitioners, in the light of the Heading 8525 read with sub-heading 8525.20 and Tariff Item 8525.20.91 and the Rules for interpretation of the First Schedule-excise tariff. He also submitted that the commodity involved in the present petition is not covered either by the first notification dated 31-3-2006 or the said notification dated 6-4-2006.

Having considered the submission advanced by the learned Counsel for the parties and so also the fact that the entries in the notification and the Central Excise Tariff were not examined by the Tribunal in the light of the rules for interpretation of the First Schedule-excise tariff, we are inclined to set aside the order of the Tribunal in the present revision petition without expressing any opinion on merits of the case with direction to the Tribunal to consider the appeal afresh in the light of the observations made in this order. Hence we pass the following order:

The order dated 21st June, 2013 passed by the Tribunal in STA Nos. 1804 to 1815 of 2012 is set aside (HCL Comnet Limited, Bangalore v State of Karnataka 2013(77) Kar. L.J 459 (Tri.) (DB). The appeals are restored to file. The Tribunal shall consider and decide the appeals afresh in the light of the Rules for interpretation, as indicated in this judgment, as expeditiously as possible and preferably within a period of six months from the date of receipt of this order. All contentions of the parties on merits as well as on the questions of law are kept open. It is needless to mention that insofar as the questions of law are concerned, the Tribunal shall address only the questions formulated and reproduced in the third paragraph of this judgment.

At this stage, Mr. Kumar, learned Senior Counsel appearing for the petitioner submits that during the pendency of the appeals, before the Tribunal the petitioner had deposited 85% tax, interest and penalty and in addition, they had also furnished bank guarantee in respect of the entire amount. This statement has not been disputed by learned Counsel for the respondent. Mr. Kumar, further submits that the said bank guarantee may be directed to be returned to the petitioners and they may be allowed to furnish another bank guarantee of a nationalized/scheduled bank for the remaining 15% of the total liability. In view thereof, we direct the petitioners to furnish bank guarantee of any nationalised/scheduled bank for the remaining 15% of the amount (tax, interest and penalty) and on its furnishing the Assessing Authority, after verifying, shall return the earlier bank guarantee furnished by them for the entire amount. It is needless to mention that the petitioner shall keep the bank guarantee alive till disposal of the appeals by the Tribunal and for a period of four weeks from the date of disposal of the appeals.

With these observations, the revision petitions are disposed of.