IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 25 TH DAY OF OCTOBER 2013 PRESENT: THE HON'BLE Mr. JUSTICE N.KUMAR AND THE HON'BLE Mrs. JUSTICE RATHNAKALA T.A.E.T. No. 02/2011 BETWEEN : M/s. Methodex Systems Limited, S1, S2, No.547, Premier Court Building, CMH Road, Indiranagar, Bangalore – 560 038. Represented by its General Sales Manager, Sri. Sumit Guha. ...Appellant (By Sri G.K.V.Murthy, Sri.P.E.Umesh & Sri K.R.Kini, Advocates) AND : The Additional Commissioner Of Commercial Taxes (Zone-1), Vanijya Terige Bhavan, Gandhinagar Bangalore – 560 009 ...Respondent (By Smt. S.Sujatha, AGA)
Transcript
IN THE HIGH COURT OF KARNATAKA, BANGALORE
DATED THIS THE 25TH DAY OF OCTOBER 2013
PRESENT:
THE HON'BLE Mr. JUSTICE N.KUMAR
AND
THE HON'BLE Mrs. JUSTICE RATHNAKALA
T.A.E.T. No. 02/2011
BETWEEN: M/s. Methodex Systems Limited, S1, S2, No.547, Premier Court Building, CMH Road, Indiranagar, Bangalore – 560 038. Represented by its General Sales Manager, Sri. Sumit Guha. ...Appellant
(By Sri G.K.V.Murthy, Sri.P.E.Umesh
& Sri K.R.Kini, Advocates) AND: The Additional Commissioner Of Commercial Taxes (Zone-1), Vanijya Terige Bhavan, Gandhinagar Bangalore – 560 009 ...Respondent
(By Smt. S.Sujatha, AGA)
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THIS TAET IS FILED UNDER SECTION 16(1) OF THE ACT 1979, AGAINST THE REVISION ORDER DATEED 30.12.2010 PASED IN ZAC-1/BNG/SMR-27/2010-11 ON THE FILE OF THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES, ZONE-1, BANGALORE, SETTING ASIDE THE APPEAL ORDER IN HOLDING THE GOODS IN QUESTION AS ELECTRONIC GOODS, RESTORING THE ENTRY TAX ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY AND REMANDING THE MATTER IN LEVY OF PENALTY UNDER SECTION 5(5) TO THE ASSESSING AUTHORITY AND ALSO REMANDING THE MATTER IN LEVY OF INTEREST AS APPLICABLE IF ANY TO ASSESSING AUTHORITY, ACCORDINGLY CONCLUDING THE REVSIION PROCEEDINGS.
THIS TAET COMING ON FOR FINAL HEARING, THIS
DAY, N.KUMAR, J., DELIVERED THE FOLLOWING:-
J U D G M E N T
The assessee has preferred this appeal against the
order dated 30.12.2010 passed by the Additional
Commissioner of Commercial Taxes (Zone-1), Bangalore in
ZAC-1/BNG/SMR-27/2010-11 under Section 15(2) of the
Karnataka Tax on Entry of Goods Act 1979 (for short,
hereinafter referred to as the ‘KTEG Act’) where the
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Revisional Authority after setting aside the order of the
Appellate Authority has restored the assessment order.
2. The assessee is a public limited company
registered under the Karnataka Sales Tax Act and the
Central Sales Tax Act. The assessee is a dealer in sale of
furnitures. On verification of books of accounts by the
Assessing Authority, it revealed that the assessee in addition
to has effected sales of furnitures and craft items and
electronic items. The assessee has claimed exemption from
payment of entry tax under the Act. The assessing authority
found that on verification of books of accounts, it has
revealed that the assessee has received currency counting
machines and bundling machines amounting to
Rs.22,50,950/- from its Head Office and also other branches
outside the State. The assessee had not declared the said
turnover and paid the entry tax thereon. According to the
Assessing Authority, currency counting machines and
bundling machines comes under the entry machinery (all
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kinds) and liable for tax @ 2% as per Notification No.FD 11
CET 2002 dated 30.03.2002, though the assessee had
caused the scheduled goods into the local area. Therefore,
he proposed to conclude the assessment to the best of his
judgment under Section 5(4) of the KTEG Act .
3. A proposition notice was issued on 15.10.2005
which was served on the assessee on 27.10.2005. The
assessee filed his objections contending that the currency
counting machines and bundling machines are not liable for
entry tax under the aforesaid Notification. Therefore, he
sought for dropping of the proceedings. The Assessing
Authority on consideration of his objections did not accept
the stand of the assessee. Therefore, he proceeded to hold
that the assessee has not produced any proof to show that
the currency counting machines and bundling machines are
electronic goods. Therefore, he proposed to levy of tax @ 2%.
Accordingly, a sum of Rs.45,019/- was levied as entry tax.
Though he had proposed to levy penalty of Rs.40,000/-, he
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levied the penalty of Rs.10,000/- under Section 5(5) of the
Act.
4. Aggrieved by the said order, the assessee
preferred an appeal to the Joint Commissioner of
Commercial Taxes (Appeals), DVO–I & III, Bangalore.
Relying on the judgment of the Division Bench of this Court
in the case of M/s.Diebold Systems Pvt. Ltd. –vs- CCT
reported in 2005(59) KLJ page 80, where, while dealing with
the question whether Automated Teller Machine (ATM)
installed in the various Banks is an electronic good or a
Computer, it was held that if the goods are not technical, the
definition in the market parlance would apply. Thereafter,
he had proceeded to hold that in commercial circles and in
common parlance, a machinery is understood to be a
mechanical contrivance which produces output when an
input is fed into it either manually or any other means. But
in the case of currency counting machine and bundling
machine, no input could be induced so as to obtain an
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output, instead it only displays the number of currencies
counted and bundled with the operation of the said
machines. When the currencies are placed in the box
provided in these machines and when the button provided
therein is pressed, the flow of electrons takes place within
the machine. When the electrons are flowed, then
automatically the machine display the result electronically
on the screen provided therein specifying the number of
currencies counted and number of currencies bundled. The
Assessing Authority has not analysed these aspects before
forming an opinion that the currency counting machines and
bundling machines are scheduled goods classifiable under
“machinery (all kinds) parts and accessories thereof”. The
currency counting machines and bundling machines are
classifiable as electronic goods in the light of the judgment of
the Hon’ble High Court of Karnataka referred to above.
Since electronic goods are not scheduled goods under the
KTEG Act, 1979 no entry tax is leviable on the purchases of
currency counting machines and bundling machines caused
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entry into the local area by the appellant. Therefore the
appeal was allowed, and the assessment order was set aside.
5. The Additional Commissioner exercising his
suomoto power of revision under Section 15(2) of the Act
found that the order of the Appellate Authority is erroneous
in so far as it is prejudicial to the interest of the Government
revenue and therefore, initiated proceedings. Therefore, he
issued a notice to the assessee calling upon the assessee to
file his written objections within ten days from the receipt of
the notice and also giving him an opportunity of being heard.
After service of notice, the assessee entered appearance and
filed written objections. After hearing the assessee and
considering the objections filed by him, the Revisional
Authority held that, the judgment relied upon by the
Appellate Authority has no application to the facts of this
case as the dispute involved therein is, whether the item
involved was an electronic good or a Computer? Whereas, in
this case, the dispute is, whether the item is a “machinery”
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or an “electronic good”. He held, currency counting machine
is not an electronic good. It is a machine which falls under
Item No.7 of the Schedule and therefore, he passed an order
setting aside the order of the Appellate Authority, restoring
the assessment order passed by the Assessing Authority. He
also set aside the reduction of penalty imposed by the
Assessing Authority in so far as levy of penalty under Section
5(5) of the Act is concerned. Aggrieved by the said order, the
assessee is before this Court.
6. The learned counsel appearing for the appellant
assailing the impugned order contended as under:
(a) Currency Counting Machine in common parlance is
known as an “electronic good” in respect of which no
entry tax is payable. It is not a “machine” and
therefore, the finding recorded by the Revisional
Authority is illegal and requires to be set aside.
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(b) The Currency Counting Machine could be construed
as a machinery or as an electronic good. When two
views are possible, it is not open to the Revisional
Authority to interfere with the order of the Appellate
Authority, which has taken a particular view and
substituted his another view. Such an exercise cannot
be done under Section 15(2) of the Act while exercising
revisional power.
(c) The Revisional Authority cannot interfere with the
reduction of penalty imposed by the Appellate
Authority.
7. Per contra, the learned Government Advocate
supported the impugned order.
8. In view of the aforesaid facts and the rival
contentions, the points that arise for our consideration in
this appeal are as under:-
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1. Whether the currency counting machine is a
machine or electronic goods?
2. Whether a revisional authority in exercise of
power under Section 15(2) of the Act could
interfere with the order of penalty, on the ground
that the maximum penalty as prescribed under
law is imposed?
POINT NO.1:
9. The material on record discloses that the
assessee has classified currency counting machine as
“machinery” under Entry 1(iii) (a) of Part ‘M’ of second
schedule to Karnataka Sales Tax (KST) Act, 1957. The
assessee has understood the commodity in question as
machinery only. As per the copies of the annual
maintenance contract and invoices raised thereto, the buyers
who have entered into annual maintenance contract have
clearly considered cash/currency counting machines as
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machines only. The buyers as seen from the aforesaid
documents are banks and financial institutions like Bank of
India, Punjab National Bank, State Bank of Mysore, etc., It
is clear that both the seller and buyer have traded in the
goods on bargains as machinery. As per statements
available in the assessment records like Profit and Loss
account, purchase statements, stock statement etc., the
goods in question is classified as machinery. It is in this
background, the question for consideration is, is it a
“machinery” or an “electronic good?” The Appellate
Authority was of the view that in commercial circles and in
common parlance, a machinery is understood to be a
mechanical contrivance which produces output when an
input is fed into it either manually or any other means. But
in the case of currency counting machine and bundling
machine, no input could be induced so as to obtain an
output instead it only displays the number of currencies
counted and the bundled with the operation of the said
machines. When the currencies are placed in the box
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provided in these machines and when the button provided
therein is pressed, the flow of electrons takes place within
the machine. When the electrons are flowed, then
automatically the machine display the result electronically
on the screen provided therein specifying the number of
currencies counted and number of currencies bundled. The
currency counting machines and bundling machines are
classifiable as electronic goods in the light of the judgment of
the Hon’ble High Court of Karnataka referred to supra and it
is not a scheduled goods under the Act. As such, no tax is
payable. Therefore, in the view of the Appellate Authority, to
call particular goods as a “machine”, there should be a
manufacturing activity. When a raw material is fed into a
machine, a finished product should emerge, then only it
should be construed as a machine. The question is, whether
this reason is justifiable? Therefore, it is necessary to
ascertain the correct meaning of the word “machinery”.
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10. The earliest case in which the word “machinery”
was interpreted is the decision of the Privy Council in
Corporation of Calcutta –vs- Cossipore Municipality (AIR
1922 P.C. 27). The Privy Council while dealing with the
question, whether a overhead tank was a machinery has laid
down the basic guidelines, which are as under:
(i) The word “machinery” must mean
something more than a collection of ordinary
tools. It must mean something more than a
solid structure built upon the ground whose
parts either do not more at all or, if they do
move, do not move the one with or upon the
other in interdependent action with the object
of producing a specific and definite result.
(ii) It is not possible to define
“machinery” as applicable to all cases.
However, it could be said that, when used in
ordinary language, prima facie, means some
mechanical contrivances, which by themselves
or in combination with one or more other
mechanical contrivances, by the combined
movement and interdependent operation of
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their respective parts, generate power, or
evoke, modify, apply or direct natural forces
with the object in each case of effecting so
definite and specific a result.
(iii) Determination as to what is or what
is not “machinery” must, to a large extent,
depend on the special facts of each case.
(iv) Illustrations are better guides to
ascertain the true meaning of the word
“machinery”, when used ordinarily and not as
a specific definition.
(v) Whether an intelligent person
would, in the ordinary use of language,
describe a particular thing as machinery.
11. The said judgment of the Privy Council has been
followed subsequently by various Courts by this Country.
12. A Division Bench of this Court following the said
judgment of the Privy Council in the case of State of Mysore
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–vs- M.N.V.Rao reported in [1964] 15 S.T.C. page 540 held
as under:
“In simpler language ‘machinerry’ is a
contrivance whereby several things are put
together to work in such a way that force may
be applied at a most convenient point in a most
convenient way to get a particular work or an
item of work done or to produce a specific
article or manufactured goods”.
“If this is the essential feature of a
machinery which distinguishes it from other
things, the mode or the manner in which power
is fed into it or force is applied need not and
should not make any difference. It is
conceded, for example, that a machinery would
be a machinery whether it is fed by electrical
power or other form of power applied by steam
or generated by burning combustible oils. If
the mode or the manner in which the power is
applied makes no difference in these specified
cases, it should make no difference either if the
source of power is either human or animal”.
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13. Following the aforesaid judgment, a Division
Bench of this Court in the case of K.B.Dani –vs- State of
Karnataka reported in 1979 Sales Tax Cases Vol. 44
page 276 held as under:
“The above meanings indicates that
“Machine” means a mechanical device
consisting of a planned and an organized
arrangement of various parts, each part having
definite functions and, as a results of combined
functioning, does some work, which may be
impossible or difficult for human physical
power to perform or, even if it can be done, it
cannot be done continuously for a long period
or with the speed and with the same uniformity
with which the machinery does the same work.
Supply of power to the machine could be either
by the natural forces or by human or animal
energy, or electric energy or any other type of
energy”.
14. Therefore, in the light of the aforesaid
judgments, in order to construe a particular goods as
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machinery, it is not the requirement of the law that there
should be a manufacturing activity conducted with the aid of
the said goods. Even it is not necessary that such a
machine should be operated with an electric energy or any
other type of energy. Even natural force or human or animal
energy could be used to perform the work for which the said
machine is invented. The essence of a machine is, it is a
mechanical device consisting of a planned and an organized
arrangement, to perform a work which otherwise a man
would have performed. Such a work is done in a more
convenient way and may be faster than what a human being
could do. It is a case of substitution of manual work by a
machine. Such work may result in a new product or may
not result in a new product at all and therefore, the said
finding recorded by the Appellate Authority is unsustainable
and is contrary to the well settled legal principles over a
period.
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15. Yet another test prescribed is, how the said
goods are perceived in the market. The Apex Court in the
case of Commissioner of Sales Tax, Madhya Pradesh,
Indore –vs- Jaswant Singh Charan Singh reported in
1967 SC Vol.19 page 469 has held as under:
“Now, there can be no dispute that while
coal is technically understood as a mineral
product, charcoal is manufactured by human
agency from products like wood and other
things. But it is now well settled that while
interpreting items in statutes like the Sales Tax
Acts, resort should be had not to the scientific
or the technical meaning of such terms but to
their popular meaning or the meaning attached
to them by those dealing in them, that is to
say, to their commercial sense”.
“A sales tax statute, being one levying a
tax on goods, must, in the absence of a
technical term or a term of science or art, be
presumed to have used an ordinary term as
coal according to the meaning ascribed to it in
common parlance. Viewed from that angle,
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both a merchant dealing in coal and a
consumer wanting to purchase it would regard
coal not in its geological sense but in the sense
as ordinarily understood and would include
“charcoal” in the term “coal”. It is only when
the question of the kind or variety of coal would
arise that a distinction would be made
between coal and charcoal; otherwise, both of
them would in ordinary parlance as also in
their commercial sense be spoken as coal”.
16. The said legal position has been reiterated by
this Court in the aforesaid Diebold Systems Private Limited
case as under:-
“It is also useful to refer to the meaning
of the words “machinery” and “machine” given
in Webster’s Third New International
Dictionary, to the extent it is relevant, which
reads:
“Machine, engine, apparatus, appliance
signify, in common, a device, often complex, for
doing work beyond human hand or mind;
machine applies to a construction or
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organization whose parts are so connected and
interrelated that it can be set in motion and
perform work as a unit (those most practical
machines of our modern life, the dynamo and
the telephone – Havelock Ellis) (calculators,
billers, duplicators, and other business
machines).
Machinery: machines as a functioning
unit.”
17. So, in this background, from the material on
record, it is clear, the assessee has classified these goods as
a currency counting machines. The customers of the
assessee are financial institutions. One of the functions
performed by all these financial institutions is counting of
currency notes where currency notes are given to a customer
or whether currency notes are received from a customer
before it is taken into account, it has to be counted. It
involves human labour. The role and function of a machine
is to reduce or eliminate human labour or effort in doing
certain thing as desired to perform that work more
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efficiently. The currency counting machine is invented and
that is how, all these financial institutions have purchased
these currency counting machines from the assessee and
also entered into annual maintenance contract to see that
these machines are operational throughout the year. One of
the operations conducted by the machine is by way of an
electronic device would not make that machine an electronic
good.
18. In the Notification dated 30.03.2002 setting out
the goods in respect of which entry tax is leviable. Item No.7
in the Table reads as under:
“Machinery (all kinds) and parts and
accessories thereof but excluding agricultural
machinery”.
19. The language employed is simple and there is no
ambiguity. Agricultural machinery are excluded. All other
machineries are liable to entry tax @ 2%. The goods in
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question is described by the assessee himself as currency
counting machine and therefore, it falls within the said entry
and the Assessing Authority was justified in levying entry tax
on currency counting machine as it is not an electronic item
as contended by the assessee.
20. It is true that if two views are possible and if the
Appellate Authority or the Assessing Authority has adopted a
particular view, it is not open to the Revisional Authority to
substitute his reasoning and interfere with the said orders.
In this case, in the light of the aforesaid material, when it
cannot be said that it is an electronic good and the test
prescribed by the Appellate Authority for coming to such
conclusion is exfacie illegal, it cannot be said that two views
are possible. As set out above, in the series of judgments,
what a “machine” is? How it is to be understood is clearly
explained. In none of the cases, no such finding of the
Appellate Authority is found. In those circumstances, the
finding recorded by the Assessing Authority is erroneous. It
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is not the case of two views being possible. Therefore, the
Revisional Authority was justified in interfering with the
order of the Appellate Authority and restoring the order of
the Assessing Authority.
POINT NO.2:
21. The Assessing Authority after noticing that the
assessee has not reported to tax, the said turnover in respect
of import of currency counting machines has levied tax @
2%. Therefore, he was of the view though he has proposed a
penalty of Rs.40.000/- after hearing the assessee, he came
to the conclusion that it appears to be more in the present
case. He was of the view that it is not a case of evasion of
payment of tax. It is a case where the assessee was
contending it was not liable to entry tax. In the facts of the
case, he was of the view that it is a case for taking lenient
view in the case of penalty was made out. Therefore, instead
of levying tax of Rs.40,000/-, at the time of levying it, he only
levied Rs.10,000/- under Section 5(5) of the KTEG Act. The
Revisional Authority has set aside the order of the Appellate
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Authority and remanded the matter to the Assessing
Authority for redoing. He was of the view that maximum
penalty is to be imposed, which the Assessing Authority has
not done and therefore, he wants the Assessing Authority to
apply its mind and impose the penalty again. Section 5(5) of
the Act deals with the payment of penalty, which reads as
under:
“While making any assessment under
sub-section (4), the assessing authority may
also direct the dealer to pay in addition to the
tax assessed a penalty not exceeding one and
a half times the amount of tax due that was
not disclosed by the dealer in his return or in
the case of failure to submit a return one and a
half times the tax assessed, as the case
may be”.
22. The language of the aforesaid provision makes it
clear that the imposition of penalty is not automatic. This is
not a case where the assessee has not filed his returns nor it
was a case where returns had been filed but the turnover in
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respect of a particular good was not disclosed in the returns.
Having regard to the dispute between the parties, the
Assessing Authority was justified in not imposing the
maximum penalty for non-disclosure of the said tax. He was
justified in imposing Rs.10,000/-. The Revisional Authority
was not justified in interfering with the said order on the
ground that maximum penalty is not imposed. As the suo
motu powers can be exercised by the Revisional Authority
only when the order sought to be revised is prejudical to the
interest of Revenue. As such, no case for interference with
the said operation of the order was made out. Accordingly,
the portion of the order of the Revisional Authority setting
aside the penalty and remanding the matter to the Assessing
Authority to re-impose the penalty is hereby set aside. In
the result, we pass the following order:
The Appeal is partly allowed.
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The order imposing the penalty by the revisional
authority is hereby set aside. The order of the Assessing
