Diebold Systems Pvt. Ltd. v The Commissioner of Commercial Taxes: Case Comment

Author: Priya Shah, GLS Law College

DIEBOLD SYSTEMS PVT. LTD. VS THE COMMISSIONER OF COMMERCIAL TAXES

Citations: ILR 2005 KAR 2210, 2006 144 STC 59 Kar

Decided on: 31 January 2005

FACTS

• The appellant is a public limited company engaged in the manufacture and supply of Automated Teller Machines (ATM’s for short). In view of the configuration and for the purpose for which is put to use, the appellant company is of the view that the sale of ATMs is eligible to single point levy of tax under Sec 5(3)(a) of the Karnataka Sales Tax Act, 1957.
• Advance Ruling Authority constituted by the Commissioner of Commercial Taxes in exercise of his powers under Section 4 of the Act, the appellant company had filed an application before the Advance Ruling Authority in Form 54 as provided under Rule 27-E (1) of the Karnataka Sales Tax Rules, 1957, seeking clarification on the rate of tax applicable under the Act on sale of Automated Teller Machines.
• In response to the notice of the hearing issued by the Advance Ruling Authority, Sri Mohan Mudkavi learned Chartered Accountant along with the Vice-President of the Company had appeared before the Authority and represented the facts and also had produced the literature and description of the ATM’s.

The judgement of Advance Ruling Authority

• The Chairman of the Advance Ruling Authority has dissented from the majority view and has opined, that the goods in question would fit into the description of electronic goods, parts and accessories thereof and therefore falls under Entry 4 of Part ‘E’ of the Second Schedule to the KST Act and the basic rate of tax applicable is 12%.
• Now the question that would arise for consideration and decision in this appeal is, is an ATM is a “computer” as contended by learned Senior Counsel or a “computer terminal” as classified by the Advance Ruling Authority (Majority view) in its order dated 1.10.2002? or is it “electronic goods” are classified by the Commissioner of Commercial Taxes in his order dated 29.11.2003, while revising the order passed by the Advance Ruling Authority?
• Entry 20 of Part ‘C’ of the Second Schedule to the Act firstly speaks of computers of all kinds namely, mainframe, mini personal, microcomputers, and the like and their parts. The question of law raised by the appellant before us is whether ATM is a computer and as such squarely falls under Entry 20 (i) Part ‘C’ of the Second Schedule to the Act, though the Advance Ruling Authority on the request made by the appellant for clarification has opined, that ATM’s are “terminals” and would fall under Entry 20 (ii) (b) of Part ‘C’ of the Second Schedule to the Act, Sri K.P. Kumar, learned Senior Counsel would submit that ATM’s are “computers” in view of the words like “namely” and “and the like” in the Entry immediately after naming the commodity i.e. computer of all kinds.
• The Advance Ruling Authority (Majority View) has classified ATM’s as ‘terminals’ falling under Entry 20 (ii) (b) of Part ‘C’ of the Second Schedule to the Act since ATM machine is also understood as computer terminal in the commercial world. This view of the Advance Ruling Authority was not strongly supported by learned Senior Counsel, and a passing remark was made, that if it does not fall under Entry 20 (i) of Part ‘C’ of the Second Schedule to the Act, it can be brought under “terminal” as envisaged under Entry 20 (ii) (b) of Part ‘C’ of the Second Schedule to the Act.
• Entry 20 (ii) of Part ‘C’ of Second Schedule to the Act speaks of “peripherals”. The Entry is as under:

(ii) Peripherals that is to say,-

(a) All kinds of printers and their parts namely, dot matrix, inkjet, laser, line matrix and the like

(b) Terminals, scanners, multimedia kits, plotters, modem, and their parts.

• Immediately after the expression “peripherals”, the Legislature has used the expression “that is to say, all kinds of printers and their parts and terminals, scanners, multi-media kits, plotters, modem, and their parts”.
• With this background, let us come back to the findings and the conclusions reached by the revisional authority to hold that ATM’s cannot be considered as ‘computer terminals’ but can be considered only as ‘electronic goods’. The revisional authority had issued a notice dated 2.9.2003 under Section 22-A of the Act, proposing to revise the order passed by the Advance Ruling Authority and further proposing to classify ATM’s as electronic goods, and liable to tax at a higher rate, on the ground that the Advance Ruling Authority has erroneously, classified ATM as computer and the same has caused prejudice to the interest of the revenue. A detailed reply had been filed by the appellant company, after receipt of the show cause notice, justifying the findings and the conclusion reached by the Authority for clarifications and Advance Rulings, and nowhere in the reply, the appellant company had conceded that ATM works on the principles of electronics and is commonly understood to be electronic goods. Why we have noticed the aforesaid statement is only because, the revisional authority while concluding and confirming the proposal made by him in the show cause notice, specifically observes this aspect of the matter to conclude his findings, apart from other reasons, that the ATM’s are electronic goods. These passing observations made by the revisional authority cannot be said that there is a total non-application of mind by the authority while holding that ATM’s are electronic goods. Apart from noticing the so-called concession made by the appellant/assessee, the revisional authority has assigned other reasons to support his conclusion and therefore, the stray observation made by the revisional authority can be just ignored, while considering the other findings and conclusions reached by the revisional authority.

Karnataka High Court

• Section 22-A(2) of the Karnataka Sales Tax Act is amended with effect from 1.4.2002 and the amended provision authorizes the Commissioner to invoke his suo-motu revisional powers when there is a divergent opinion among the members of the Advance Ruling Authority, and if the majority opinion is erroneous and prejudicial to the interest of the revenue. That is what that has been done by the Commissioner in the present case. Therefore, in our opinion, there is no jurisdictional error committed by the Commissioner of Commercial Taxes invoking his powers under Section 22-A of the Act.
• As the result, the appeal fails and accordingly, it is rejected. In the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly.