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TMI Blog2015 (8) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry No.41 or 41A (Description 15)? ii) Whether the Tribunal was right in holding that there was deemed waiver of the application for pre-determination and if the Tribunal was wrong, effect thereof? iii) Whether the Tribunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eras 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, 1985 (5 of 1986) Sr.No. Description Central Excise Tariff Heading 15. Transmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 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 acceptance by the Commissioner of the determination application could be drawn since by filing an application on 6th July 2008, the said deemed acceptance of the determination application stood waived. However, the contention of the Revenue that the Appellant had withdrawn its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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), the Commissioner has to mandatorily decide the determination application within the prescribed period. Under Rule 58 (5) of the DVAT Rules, the Commissioner is required to pass an order on the said application within the period of six months from the date of the submission of question, faili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 determination'. Did Entry 41 include DSCs for the period up to 7th August 2005? 22. The Court now turns to first substantial question that arises: whether for the period up to 7th August 2005 DSCs could be classified as IT products under Entry 41 in Schedule III to the DVAT Act? If the plea of the Appellant is ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition 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, tele-printer and wireless equipment and parts thereof etc. and not DSCs, the plea of the Appellant that DSCs are IT products must fail. 28. As regards the second contention, the Court observes that the wording of Entry 15 of Schedule IV of Serial No. 39 of the VAT legislation of Andhra Pradesh reads different from Entries 41 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 were classified under 8525 40 and described as under: Product description Classification Classification rationale Digital still camera fitted with a Charge Coupled Device (CCD) and based on video camera recorder technology. It records, processes and stores images in digital format. It features a built-in, high resolution. 1.8" colour LCD screen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re "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 by the Empowered Committee of State Finance Minister contains about 41 items under the table "Goods with 4% Floor Rate". A copy of this is to be found in Annexure-1, Discussion Paper of the National Institute of Public Finance & Policy New Delhi, published in May 2001 under the tile 'Road Map for National and Sub-National VATs in India' prepared by Mahesh C. Purohit. Entry 14 in this list, lists out IT products. Sub-item 85.25 reads as under: "85.25 Transmissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 original file. This is because the bracket preceding the words 'other than' in Item 15 of Entry 41 A, closing with the bracket after the words 'digital still image video cameras' is certainly unique to the Delhi statute. The exercise was to find whether this was a mere misprint. 43. When the file was produced before the Court on 11th November 2014, the Court noted as under: 'Relevant file has been produced. As per the said file the bracketed portion end with the words "digital still im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 conclusion is that the addition of bracket in Item 15 of Entry 41-A was, apart from being totally uncalled for and unintended, without any particular rationale. It appears that the insertion of the brackets before the words 'other than' and after the words '... video cameras' was not as a result of a conscious decision. 47. However, as a result of the addition of the brackets an entirely new and unintended meaning has been sought to be given to Item 15 of Entry 41 A. In other words, the entry is so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'video cameras'. The addition of brackets appears to be unintended. Secondly, there can be no doubt that DSCs are not transmission apparatus and therefore the brackets could not have brought out the unintended result of excluding such equipment, viz., DSCs from the first item viz., 'transmission apparatus'. 51. In the present case, the brackets really do not serve any particular purpose at all other than to bring out an anomaly which was unintended. To accept the brackets as they are and to try to make s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 language used". 53. In CIT v. National Taj Traders (1980) 1 SCC 370, it was held that one of the instances where the Court could depart from the rule of not supplying omissions was "If literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature". Quoting the opinion of Lord Reid in Luke vs. IRC (1966 AC 557), it was said 'Where to apply words literally would "defeat the obvious intention of the legislation and produce a wholly unreasonable r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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