IN THE HIGH COURT OF KARNATAKA AT BANGALORE. DATED THIS THE 9th DAY OF JULY 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND

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1 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE BETWEEN; DATED THIS THE 9th DAY OF JULY 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON BLE MR. JUSTICE B MANOHAR STRP No.456 OF 2012 And STRP Nos /13 M/s.MicroFx No.23, Doddabylakere, Shivakote Post, Hesaraghatta Hobli, Bangalore Represented by Mr.Sahib Jan, The partner of the firm. PETITIONER (By Smt. Akkamahadevi Hiremath, Advocate) AND: The State of Karnataka, By Joint Commissioner of Commercial Taxes, Bangalore-1. RESPONDENT These STRPs are filed under Section 65(1) of the KST Act, against the order dated passed in

2 2 STA.No.1749 to 1772/2010 on the file of the Karnataka Appellate Tribunal, Bangalore, dismissing the appeals. These STRPs coming on for admission this day, N. KUMAR, J. passed the following:- ORDER The assessee has preferred these revision petitions challenging the order passed by the Tribunal holding that the claim of the assessee that their product falls under H.S.N. Code 8471 is not factually acceptable. 2. The assessee is a partnership firm registered as a permanent small scale industrial unit engaged in the business of manufacture and sale of handheld electronic ticketing machines(etms). The assessee has sold handheld electronic ticketing machines to KSRTC. For the period to they have paid value added tax at 12.5% because of the residuary entry as it does not fall under any of the schedules. However, they realized that the said product falls under entry 8471 as it is an I.T. product and therefore they paid 4% tax

3 3 thereon. The assessing authority issued a proposition notice dated as he found discrepancies in the books of accounts in relation to the returns of turnover declared in VAT100 and CST and percentage of tax paid. The assessee replied. However, the assessing authority passed the order under Section 39 of the KVAT Act reassessing the returns filed by the petitioner and imposed tax at 12.5% for the assessing period to The assessing authority held that the product is hand held ticket issuing machine which does not fall either under entry of III Schedule to KVAT Act, 2003 or covered by any notifications issued under the KVAT Act for IT products. The assessee challenged the said order before the appellate authority. The appellate authority partly allowed the appeal but on the question of rate of tax it held that it has to be taxed under the residuary provision at 12.5% thus affirming the finding of the assessing authority. Against the said order, the assessee preferred an appeal to the Tribunal. The Tribunal after referring to the various notifications,

4 4 the entries in the Central Excise Tariff Act held that bus ticket issuing machines manufactured and sold by the assessee are nothing but ticket issuing machines. Notifications on which reliance is placed does not refer to such ticket issuing machines. Therefore, the product of assessee does not fall under the notification as IT product and is not eligible for rate of tax as provided under III Schedule in entry No.53. Therefore, the claim of the assessee was rejected. Aggrieved by the said orders, these revision petitions are filed. 3. The learned counsel for the assessee assailing the impugned order contended that the product in question is electronic ticketing machine which is an IT product and it falls at Sl.No.4 in the notification dated issued including in entry 43 of the III Schedule. Therefore, the assessee is entitled to the benefit of 4% tax as the product in question falls within the III Schedule.

5 5 4. Per contra, the learned counsel for the revenue supporting the impugned order contended that the product in question falls under entry 8470 in the Central Excise Tariff Act which is not an IT product. It neither falls at Sl.No.3 or Sl.No.4 of the notification and therefore, the assessee is not entitled to tax at 4% and rightly the authorities have levied tax at 12.5%. Therefore, she submits that no case is made out for interference. 5. In the light of the aforesaid facts and rival contentions, the question of law that arises for consideration in these revision petitions is as under:- Whether portable hand held electronic ticketing machine is an IT produce and falls under heading and sub-heading No.8471 to be eligible for tax at 4%? 6. The name of the product is portable hand held electronic ticketing machine. The technical specifications in respect of the said machinery is

6 6 produced at Annexure- F. The assessee has set out in para 2 of the appeal memorandum under the heading facts of the case regarding the operations conducted by the said machine which reads as under:- The portable Automatic Data Processing Machine(Hand Held Computer) consists of a Hardware and Programmable Software and weights around 500 Gms. The hardware unit consist of a Micro Processor based Central Processing Unit(CPU), Memory, Radio Frequency Identification(RFID), Keyboard as the Input device and Printer, Display as the output device. This device has got various applications like Electronic Ticketing, Micro Finance Application, Partking Management System, Attendance Management System Etc., and can be freely programmed in accordance with the application/requirements of the user. For example, when used as Electronic Ticketing

7 7 Machine(ETM) in buses, necessary details like fare, destination type of the bus route details etc. are programmed to the device as per the requirements of the customer. When the conductor enters the ticket detail through the keyboard the device automatically process this data, performs arithmetic computations without human intervention and generates the printouts of electronic tickets. Apart from this all necessary reports like MIS reports, number of passengers in the bus etc. can be generated with a single click of the button. All the details performed by the device can be downloaded to the main server for data storage. Advance features like Smart Card Reader, GSM/GPRS, GPS, Wi-Fi, Bluetooth etc, are inbuilt in these devices. Li-ion battery with inbuilt charge control and termination enables the portability of the machine as in the case of other mobile devices.

8 8 7. Therefore, it was contended that this electronic ticketing machine is an IT product. Schedule-III Item No.53 namely IT products including telecommunication equipments as would be notified are taxed at 4% and therefore, the assessee is entitled to the said benefit. 8. The notification dated classifies the goods specified in column-(3) of the table with heading and sub-heading numbers under the Central Excise Tariff Act, 1985 as IT(Information Technology) products as under: Electronic calculator capable of Operations without an external Source of electrical power and Pocket size data recording, Reproducing and displaying Machines with calculating Functions(including electronic Diaries other than those covered Under heading No.8471) or incorporating a printing device Automatic data processing Machines and units thereof; magnetic or Optical readers,

9 9 machines for Transcribing data on to data media in coded form and machines for Processing such data. The assessee relies on Item No.4 i.e., 8471 and contends that the case falls under the said entry. To the said notification, explanations are added. The explanations reads as under:- 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

10 10 Excise Tariff will not be covered by the scope of this notification. (3)Subject to Explanation(2), for the puropose of any entry contained in this notification, where the description against any heading or, as the case may be, subheading, 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. From the aforesaid explanations, it is clear that where a commodity is described against any heading or subheading, if 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

11 11 though covered by the corresponding description in the Central Excise Tariff will not be covered by the scope of this notification. Explanation (3) makes it clear that subject to explanation (2), where the description against any heading or sub-heading matches fully with the corresponding description in the Central Excise Tariff, then only the commodities covered for the purposes of the said tariff under that heading or sub-heading will be covered by the scope of the notification. In other words, if a description of the goods in the notification and in the Central Excise Tariff Act, 1985 are common, then the benefit of this notification is available. Now let us see the description in Central Excise Tariff Act, which reads as under: Calculating machines and pocket-size data Recording, reproducing and displaying machines with calculating functions; accounting machines, postagefranking machines, ticket-issuing machines and similar machines, incorporating a calculating device, cash registers.

12 Electronic calculators capable of operation without an external source of electric power and pocket-size data recording, reproducing and displaying machines with calculating functions Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included in the notification at Sl.No.4 is the replica of the description contained in the Central Excise Tariff Act at In the Central Excise Tariff Act, against the said description in the end they have used the words not elsewhere specified or included. Now 8471 under the Tariff act includes ticket issuing machines. Therefore, by virtue of the words used in 8471 not elsewhere specified or included, 8471 do not include ticket issuing machines. When ticket issuing machines are expressly mentioned in 8470 and in the notification issued on under the heading the Information Technology product 8470 is not included, the assessee is not entitled to the benefit of 4% tax. In

13 13 fact, the Apex Court in the case of Plasmac Machine Manufacturing Company Pvt. Ltd.,.vs. Collector of Central Excise, Bombay has held as under:- It is an accepted principle of classification that goods should be classified according to their popular meaning or as they are understood in their commercial sense and not as per the scientific or technical meaning. How the product is identified by the class or section of people dealing with or using the product is also a test when the statute itself does not contain any definition and commercial parlance would assume importance when the goods are marketable. The KSRTC invited tender for supply of ticketing machines with technical specifications detailing the hardware and software components. They called the said goods as portable handheld ticketing machine. As per Annexure-A the assessee is in the business of sale of ticketing machines. The Annexure- A which is issued by them reads that it is versatile bus ticketing

14 14 machines from the pioneers of ticketing machines in India. Introduces compact and rugged hand held bus ticketing machines. Over 10,000/- machines in use in various State Road Transport Corporations including KSRTC, NEKRTC, NWKRTC AND BMTC in Karnataka and KSRTC, Kerala apart from various private organizations in India and Abroad. In the hind portions, they have given the specifications of the hardware. 10. Therefore, in the light of the aforesaid judgment of the Supreme Court, how the goods are understood in the commercial sense has to be taken into consideration for the purpose of classification of the goods and the scientific and technical meaning has no place. Therefore, when the goods involved is a portable handheld ticketing machine that is how the assessee has described the machine and that is how the customers have also understood it and in the Central Excise Tariff Act this ticket issuing machines are expressly included in Entry 8470, by any stretch of

15 15 imagination, the Court cannot hold that it falls under 8471 especially when it specifically states that not elsewhere specified or included. The notification issued specified 8471 does not include this ticketing machine. This is precisely what the authorities have concurrently held. Therefore, we do not see any error in the orders passed by any of the authorities. Therefore, the finding is just and proper and in accordance with law. Accordingly, we answer the said question of law in favour of the revenue and against the assessee. 11. There is no merit in these revision petitions and accordingly, the revision petitions are dismissed. Sd/- JUDGE. Sd/- JUDGE. *alb/-.