I Choice Retail Private Limited vs Commercial Tax Officer and Others

Ramesh Ranganathan, J.—With the consent of both Sri S. Dwarakanath, Learned Counsel for the petitioner, and Sri M. Govind Reddy, Learned Special Standing Counsel for Commercial Taxes, this Writ Petition is being disposed of at the admission stage.

The order of the third respondent dated 17.12.2013, for the tax period February, 2010 to July, 2012 levying higher rate of tax treating mobile phones as falling in the V Schedule to the Andhra Pradesh Value Added Tax Act, 2005 (the Act), is questioned in this Writ Petition as being contrary to G.O.Ms. No. 76 dated 14.02.2014 and the clarificatory memo issued by the Government dated 17.05.2014. The petitioner seeks a declaration that they are liable to pay tax @ 4%/5% for the tax period February, 2010 to July, 2012 on the sale of mobile phones as per the ruling of the Advance Ruling Authority dated 25.11.2006, as validated by the government by G.O.Ms. No. 76 dated 14.02.2014.

The petitioner, a private limited company carrying on business as a wholesale stockist for Nokia mobile phones at Hyderabad, is a registered dealer under the Act and the Central Sales Tax Act. Pursuant to an audit conducted by the 2nd respondent the petitioner was assessed to tax under the Act and, by order dated 17.12.2013, tax was levied on mobile phones at 4%/5%. The third respondent revised the assessment order, passed by the 2nd respondent, on 24.11.2012 holding that the petitioner was liable to pay tax under the V Schedule; and mobile phones did not fall within Entry 39(15) of the IV Schedule to the Act. Aggrieved thereby, the petitioner invoked the jurisdiction of the Sales Tax Appellate Tribunal ("Tribunal" for short) on 21.02.2014.

Sri S. Dwarakanath, Learned Counsel for the petitioner, would submit that the appeal, though filed before the Tribunal, has not even been numbered till date; the petitioner undertakes to withdraw the appeal filed before the Tribunal; by G.O.Ms. No. 1615, dated 31.08.2005 HSN Codes were prescribed; in terms of the HSN Codes, mobile phones fell under Entry 39(15) of the IV Schedule; pursuant to the judgment of this Court, in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, , the government issued G.O.Ms. No. 140 dated 19.03.2013 rescinding the notification issued earlier in G.O.Ms. No. 1615 dated 31.08.2005; thereafter G.O.Ms. No. 76 dated 14.02.2014 was issued validating the orders passed, advance rulings and clarifications issued by the Commercial Taxes Department following the classification of goods in G.O.Ms. No. 1615, dated 31.08.2005, till the said G.O. was rescinded in G.O.Ms.140 dated 19.03.2013; the government had, thereafter, issued memo dated 17.05.2014 clarifying that cell phones/mobile phones were taxable @ 4%/5% under Entry 39(15) of the IV Schedule to the Act; while this memo dated 17.05.2014 was withdrawn by the Government of Telangana on 20.09.2014, G.O.Ms. No. 76 dated 14.02.2014 is still in force; as the advance rulings given earlier, have been validated in G.O.Ms. No. 76 dated 14.02.2014, mobile phones sold by the petitioner are liable to tax only at 4%/5%, and not at 12.5%/14.5%; even otherwise, the petitioner had filed elaborate objections, to the show cause notice, contending that mobile phones constituted "transmission apparatus" under Entry 39(15) of the IV Schedule; the 3rd respondent did not consider the objections, and has merely relied on G.O.Ms.140 dated 19.03.2013, whereby the earlier notification in G.O.Ms. No. 1615, dated 31.08.2005 was rescinded; and the action of 3rd respondent, in levying 14.5% tax on the sale of mobile phones by the petitioner, is illegal.

On the other hand Sri M. Govind Reddy, Learned Special Standing Counsel for Commercial Taxes, would submit that reliance placed by the petitioner on G.O.Ms. No. 76 dated 14.02.2014 is misplaced; this Court, in MGRM Medicare Ltd., declared G.O.Ms. No. 1615, dated 31.08.2005 to be illegal; in view of the said judgment, the ruling, of the Advance Ruling Authority, is of no consequence; giving effect to G.O.Ms. No. 76 dated 14.02.2014 would result in the petitioner now being extended the benefit under G.O.Ms. No. 1615, dated 31.08.2005 which this Court held to be illegal; granting the petitioner the relief sought for by them would, in effect, result in revival of the earlier illegal order in G.O.Ms. No. 1615 dated 31.08.2005; the Writ Petition is liable to be dismissed on the ground of delay and laches; and, while the order of the revisional authority is dated 17.12.2013, the petitioner invoked the jurisdiction of this Court nearly ten months thereafter on 13.10.2014. He would rely on Godde Venkateswara Rao Vs. Government of Andhra Pradesh and Others, .

By G.O.Ms. No. 1615, dated 31.08.2005, HSN Codes were prescribed for various goods in the Schedules to the Act. The said G.O. was issued in the exercise of the powers conferred on the government under Section 76(2) of the Act. The HSN Code prescribed for mobile phones, in terms of G.O.Ms. No. 1615, dated 31.08.2005, was 8525.20.17; and as cellular phones/mobile phones were shown under Entry 39(15) of the IV Schedule to the Act, the tax leviable thereon was only 4%/5%.

In Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, , this Court held:

"................While the submission of the learned standing counsel cannot be said without merit, more so as the VAT Act places onus on the assessee to prove that the goods in question are exempt from tax under the First Schedule to the VAT Act, we are satisfied that the impugned order of assessment must be set aside as entry 2 of the First Schedule can neither be amended nor circumscribed except in accordance with Section 79 of the VAT Act, or by way of a legislative amendment. A Division Bench of this Court, in ESPI Industries and Chemicals Pvt. Ltd. Vs. Commercial Tax Officer and Others, , held that the power conferred on the Government to alter, add or cancel any of the Schedules to the Act, under Section 79(1), can be exercised only for a limited period till the amendment to the Schedule is either approved or rejected by the State Legislature; the power under Section 79(1) is hedged and circumscribed by the conditions stipulated in sub-section (2) thereof; the notification, issued under Section 79(1) amending the Schedule, is required to be introduced in the legislative Assembly at the earliest and, in any case, during the next session of the legislative Assembly following the date on which the notification is issued, introduction of the notification, in the legislative Assembly, is to be by way of a Bill giving effect to the alteration, addition or cancellation of the Schedule specified in the notification; and on the Bill becoming law, with or without modification, the notification issued under Section 79(1) ceases to have effect.

A Schedule to an enactment forms an integral part of the said Act. It is only if the Schedule is amended following the procedure stipulated in Section 79 of the VAT Act, or by way of a legislative exercise, would it be valid and not by mere issuance of a notification under Section 76(2) of the VAT Act. It is not even the case of the respondents that the notification in G.O.Ms. No. 1615 is a legislative exercise. The power to remove difficulties under Section 76(2) of the VAT Act, by issuance of an executive/administrative order, can neither nullify nor circumscribe entries in the Schedules to the VAT Act. Reliance placed by the respondent - assessing authority on the HSN Codes to restrict the scope of entry 2 of the First Schedule to the VAT Act is, therefore, illegal. We consider it appropriate, therefore, to quash the impugned order of assessment, and remand the matter back to the first respondent - assessing authority who shall, after giving the petitioner an opportunity of being heard, pas a fresh order of assessment in accordance with law without reference to the HSN Codes mentioned in G.O.Ms. No. 1615 dated August, 31, 2005 as relatable to entry 2 of the first Schedule to the VAT Act............

(emphasis supplied)

As G.O.Ms. No. 1615 dated 31.08.2005, issued in exercise of the power conferred under Section 76(2) of the Act, was neither a legislative exercise nor was it issued under Section 79 of the Act, this Court held that no reliance could be placed on these HSN Codes to restrict the scope of the Entries in the Schedules to the Act and, in view thereof, the assessing authority could not have relied upon G.O.Ms. No. 1615, dated 31.08.2005 to levy tax on mobile phones only at 4%/5%. To this extent the action of the 3rd respondent, in revising the assessment order, cannot be faulted.

The law declared by the Court is presumed to be the law at all times. The decision of a Court, enunciating a principle of law, is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Court is, in fact, the law from the inception. M.A. Murthy Vs. State of Karnataka and Others, . A judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a "new rule" but to maintain and expound the "old one". In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood. Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., . The judgment of this Court, in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, , would apply from 31.08.2005 when G.O.Ms. No. 1615 was issued, and cannot be made applicable from a future date several years thereafter.

The notification in G.O.Ms. No. 76 dated 14.02.2014, validating the orders passed, advance rulings and classifications issued by the authority following G.O.Ms. No. 1615, dated 31.08.2005, till it was rescinded by G.O.Ms.140 dated 19.03.2013, in effect, gives the judgment, in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, , prospective application, that too from a date more than a year after the judgment was pronounced on 19.07.2011. The Executive cannot sit either in appeal or in judgment over the orders of this Court and choose not to apply the law declared by it, or apply it prospectively. Reliance placed by the petitioner on G.O.Ms. No. 76 dated 14.02.2014 to contend that, since the assessment period in question is between February, 2010 to July, 2012 prior to G.O.Ms.140 dated 19.03.2013, the revisional authority could not have levied tax at 14.5%, does not, therefore, merit acceptance. To the extent the 3rd respondent refused to extend the benefit of G.O.Ms. No. 1615, dated 31.08.2005 to the petitioner, relying on the judgment of this Court in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, the impugned order cannot be faulted.

The fact, however, remains that the 3rd respondent has not dealt with the contentions, elaborately urged before him by the petitioner in the objections to the show cause notice, that the mobile phones, sold by them, were "transmission apparatus" falling under Entry 39(15) of the IV Schedule to the Act. Entry 39(15) reads thus:-

IT Products, that is to say:-

...........

(15). Transmission apparatus other than apparatus for radio broadcasting or TV broadcasting, transmission apparatus incorporating reception apparatus, digital still image video cameras;

The HSN Codes in G.O.Ms. No. 1615 dated 31.08.2005 listed mobile phones under the head "transmission equipment". This Court, in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, , merely held that no reliance could be placed on the HSN Codes as they were introduced by an executive order, and not by way of legislation. The question whether or not the goods, classified in terms of the HSN Codes, fell under the relevant entries of the Schedules to the Act neither arose for consideration nor was it examined by this Court in Mgrm Medicare Limited Vs. Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another, . The 3rd Respondent was, therefore, obligated to consider whether the "mobile phones", sold by the petitioner, were "transmission apparatus" falling under Entry 39(15) of the IV Schedule to the Act. It is only after considering the objections put forth by the petitioner, and if he records a finding that mobile phones do not fall under the head "transmission apparatus", could the 3rd respondent have taxed the petitioner at 14.5% under the V Schedule to the Act. This exercise, the 3rd respondent has not undertaken.

As noted hereinabove, against the order of the 3rd respondent dated 17.12.2013 the petitioner filed an appeal, before the Tribunal on 21.02.2014, well within the period of limitation prescribed under Section 33 of the Act. It is not in dispute that the Tribunal has not passed any order therein, and the petitioner now undertakes to withdraw the said appeal. We see no reason, therefore, to non-suit the petitioner on the ground of delay and laches more so, as he had invoked the jurisdiction of the Tribunal well within the period of limitation.

The impugned order is set aside to the limited extent the 3rd respondent did not consider the contention, urged on behalf of the petitioner, that mobile phones were "transmission apparatus" falling under Entry 39(15) of the IV Schedule to the Act. The matter is remanded back to the 3rd respondent for his consideration afresh, in accordance with law, after giving the petitioner an opportunity of being heard. As the order of the 3rd respondent is being set aside to this limited extent, the consequential order passed by the 1st respondent dated 18.12.2013 is also set aside. It is made clear that, after an order is passed afresh by the 3rd respondent, it is open to the 1st respondent, if need be, to issue necessary consequential orders in accordance with law.

The Writ Petition is, accordingly, disposed of. Miscellaneous petitions pending, if any, shall also stand disposed of. There shall be no order as to costs.