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2005 DIGILAW 108 (KAR)

BALAJI COMPUTERS v. STATE OF KARNATAKA

2005-02-10

D.V.SHYLENDRA KUMAR

body2005
ORDER D. V. SHYLENDRA KUMAR J. - These writ petitions are by persons who are registered as dealers under the provisions of the Karnataka Sales Tax Act, 1957 (for short, "the Act"). Petitioners are aggrieved by the notices issued to them by the assessing authority invoking the powers under section 12-A of the Act proposing to reopen of the concluded assessments in respect of the first petitioner for the year 2001-2002 and in respect of the second and third petitioners for the year 2002-2003. The proposition notices indicate that insofar as the levy of turnover tax relating to computer, computer parts and computer peripherals is concerned, there was some escapement from the turnover that was subject to levy; that it was required to be brought to tax by reopening the assessment and has indicated the proposed amount of tax after such reopening, etc. Petitioners have approached this court being perturbed by these notices, where under the assessments that had been concluded for the respective years are sought to be reopened. The reopening of the assessments in terms of the notices issued during January 2005 is said to be on the basis of a circular No. CLR.CR.157/2004-2005 dated December 31, 2004 issued by the Commissioner of Commercial Taxes (copy produced as annexure D to the petition), where under the Commissioner has issued directions to all the assessing authorities, that the authorities had not understood the scope and effect of the exemption notification that had been issued in the matter of levy of turnover tax on these items, viz., the computer and computer parts; that while the pending assessments were required to be concluded on the basis of the contents of the circular, even assessments that were concluded were required to be reopened and the mistake that had occurred is required to be corrected. It is at this stage petitioners' seek for interference by this court through these writ petitions. Sri. It is at this stage petitioners' seek for interference by this court through these writ petitions. Sri. Narasimha Murthy, learned Senior Counsel for the petitioners, submits that the assessment had been concluded in respect of the petitioners; that the petitioners have paid taxes that are due by them in terms of the provisions of the Act; that such concluded assessments are sought to be reopened by the respective assessing authorities solely based on the circular issued by the Commissioner, that the circular itself is not on a proper understanding of the relevant statutory provision, particularly the exemption notification that had been issued by the Government in exercise of its power under section 8-A of the Act to grant exemption from the liability for payment of turnover tax in respect of the computers and computer peripherals as per the Government notification that govern the field for different periods, ever since the entry at item 20 of Part C was introduced in the Second Schedule to the Act, subjecting to tax the sales of the computer and computer peripherals and their parts. Submission of the learned Senior Counsel is that while the exemption notification makes a specific reference to the item or the subject-matter of exemption, viz., computer, computer peripherals, etc., falling under entry at item 20 of Part C of the Second Schedule, under the circular the benefit and exemption given under the exemption notification is sought to be curtailed; that the circular is at variance with the notification and if such is the basis, the circular itself is contrary to the statutory provisions and reopening of assessment on such erroneous basis is not to be permitted; that the petitioners having paid the taxes that are due by them, should not be subjected to further unnecessary proceedings under the Act. Learned Senior Counsel further submits that when such is the dispute or controversy, it is not necessary for the petitioners to go before the authorities to show further cause to the notices nor file a further or revised return as called for and it is open to the petitioners to call in question the legality of the circular as also the proposition notices before this Court even by filing a writ petition under article 226 of the Constitution of India. Learned counsel submits that the question involves rights of the petitioners, particularly the fundamental right to carry on their trade guaranteed under the Constitution of India; that when the petitioners rights are affected and the matter is brought to the notice of the Court, it is the duty of this Court to examine this aspect without relegating such petitioners to the mercy of statutory functionaries. Learned counsel submits that this proposition of law is well-settled and supported by a catena of decisions both of the High Court and the Supreme Court. Respondents have entered caveat. Learned Advocate-General has appeared on behalf of the respondents. What has been pointed out by the learned Advocate-General by drawing attention of the court to the entry at item 20 of Part C of the Second Schedule to the Act is that the entry which reads as under : 20(i) Computers, micro-computers, micro-processors, computer peripherals, and parts and accessories thereof : April 1, 1996 to March 31, 1998 : 4 per cent, (ii) Computer stationery : April 1, 1996 to March 31, 1998 : 4 per cent. With effect from April 1, 1998 the said entry was amended to read as follows : "20(i) Computers of all kinds namely : Mainframe, mini, personal, micro computers and the like and their parts : (ii) Peripherals, that is to say : (a) all kinds of printers and their parts, namely dot matrix, ink jet, laser line, line matrix and the like : (b) Terminals, scanners, multi media kits, plotters, modem and their parts : (iii) Computer consumables, viz., stationery, floppy disks, CD ROMs, DAT tapes, printer ribbons, printer cartridges and cartridge tapes. (iv) Computer cleaning kit (with effect from April 1, 1999). (v) Computer Software (with effect from April 1, 2001)." is different from the contents of the exemption notification. While the charge is on computer including the computer peripherals and also on their parts what is exempted is only as mentioned in the exemption notification. If by a misunderstanding or a wrong application of the exemption notification, what was in reality should have been taxed under the entry has not been taxed and has escaped assessment, the authorities are entitled to reopen the same, examine the issue and if there is a loss of revenue it should be right. If by a misunderstanding or a wrong application of the exemption notification, what was in reality should have been taxed under the entry has not been taxed and has escaped assessment, the authorities are entitled to reopen the same, examine the issue and if there is a loss of revenue it should be right. What is essentially pointed out is that the scope of the exemption notification is not co-extensive with the scope of the charge as could be seen on an examination of the exemption notification as the notification does not grant exemption in respect of all items mentioned under the entry at item 20 of Part C of the Second Schedule to the Act. Sri. Narasimha Murthy, learned Senior Counsel for the petitioners, while responding to this, submits that the reply and submission made on behalf of the respondents justifying not only the circular, but also issue of notice under section 12-A of the Act is not tenable; that the subject-matter of levy under entry at item 20 of Part C of the Second Schedule to the Act is made known very clearly, while the entry itself reads that computer means computer, computer peripherals and computer parts, etc., there is no ambiguity with regard to this aspect; that it can be taken as word "computer" includes computer parts and if the charge is on computer inclusive of the parts and if the computer includes computer parts, then the exemption notification even by merely mentioning the word computer is sufficient to grant exemption in respect of other phrases used in the entry. Learned Senior Counsel for the petitioners further submits that assuming that there is scope for some debate, it is necessary for this court to clarify this aspect of the legal position rather than relegating the petitioners to show cause or file a revised return and pursue the matter through the hierarchy of remedial measures provided under the Act. One another submission is that the circulars having been issued by the Commissioner, as the authorities are bound by the contents of the same and the understanding of the scope of the exemption notifications as indicated therein, the petitioners may be subjected to unnecessary proceedings before the authorities. One another submission is that the circulars having been issued by the Commissioner, as the authorities are bound by the contents of the same and the understanding of the scope of the exemption notifications as indicated therein, the petitioners may be subjected to unnecessary proceedings before the authorities. Learned counsel submits that this position of law is also well-settled and this court should not relegate the petitioners to the statutory authority but should necessarily examine the question in these petitions itself and resolve the matter. Even on a cursory glance of the entry and the exemption notification, it appears there is scope for a debate whether it can be characterised as a proper understanding or a misunderstanding. Ultimately the subject-matter of levy is on the identification of the actual items that had been transacted. What had been sold by the petitioners, if in fact falls within the contents of the exemption notification the matter ends there. If it can be described as goods which is not covered under the exemption notification in the sense that it is not one of the words that is used in the entry, viz., computer, computer peripherals, computer samples and computer cleaning kit falling under entry at Sl. No. 20 of Part C of the Second Schedule, then the question arises for determination. It is only in such a situation it may become necessary for examining the scope of the exemption notification as also the scope of the entry itself. I am of the opinion that it is not necessary for this court to indulge in this exercise at this stage in a writ petition. Ultimately independent of the fact situation, viz., the actual goods that were the subject-matter of transactions by the petitioners, all other debate will be more academic. The proposition notice, prima facie indicates that the issue of notices is because of particular understanding of the scope of the exemption notification earlier and a rethinking of the understanding of the provisions and the exemption notification as it was realised that certain part of the turnover, though not covered under the exemption notification had nevertheless been not brought to tax. Such understanding and the reason for reopening being general in nature cannot be characterised as one aimed at any particular assessee or without bona fides. Such understanding and the reason for reopening being general in nature cannot be characterised as one aimed at any particular assessee or without bona fides. If that is the situation, it will be better for the petitioners to make clear their stand before the authorities, file their objections and if need be file revised return and invite a decision at the hands of the authorities. I am of the clear view that it is not necessary for this court to interfere at this stage of the proceedings. Though the learned Senior Counsel for the petitioners has submitted that the issue of the proposition notices to reopen the assessments involves denial of petitioners' fundamental right to carry on any trade or business of their choice guaranteed under article 19(1)(g) of the Constitution of India and as such this Court should necessarily examine the questions raised in the petition and answered them, I find no merit in this submission. Issue of proposition notices under section 12-A of the Act by itself does not in any way interfere with the right of the petitioner to carry on its business. The notices in no way prevents the petitioners from carrying on their business activities to any extent leave alone totally. The notices at the best can be described even if all contentions urged on behalf of the petitioners are to be accepted as bad in law, in the sense, they are in violation or contrary to the provisions of the Act. That does not and cannot mean that the notices are also violative of article 19(1)(g) of the Constitution of India. The proposition notices if are adjudicated and if it is found that actually certain turnover which should have been otherwise subjected to tax has not been so done may result in additional liability on the petitioner to that extent. Levy of tax in terms of the provisions of the Act can never be characterised as an action either curtailing or denying the freedom of trade and business guaranteed to the petitioners under article 19(1)(g), Constitution of India. Assuming that there are possibilities of an erroneous order being passed, the Act itself provides for remedial measures in such situations through an hierarchy of appeals and revisions. Even an erroneous order by itself does not amount to denial of right under article 19(1)(g), Constitution of India. Assuming that there are possibilities of an erroneous order being passed, the Act itself provides for remedial measures in such situations through an hierarchy of appeals and revisions. Even an erroneous order by itself does not amount to denial of right under article 19(1)(g), Constitution of India. In any view of the matter I am unable to see merit in the submission that the impugned proposition notices by themselves have the effect of depriving the petitioners their right to trade guaranteed under article 19(1)(g), Constitution of India. Accordingly these writ petitions are dismissed.