Mgrm Medicare Limited vs Commercial Tax Officer (Int.), Abids DIVISION, Hyderabad and Another

Ramesh Ranganathan, J.—The assessment order passed by the first respondent on June 23, 2011 is under challenge in this writ petition. The petitioner, a registered dealer and an assessee on the roils of the second respondent, deals in orthopedic splints and fracture appliances. It shifted its factory in Gurgaon, Haryana to Hyderabad in the year 2007. It is the petitioner''s case that the goods manufactured and sold by them are covered under HSN Code 9021.10.00 and are exempt from levy of tax under the Andhra Pradesh Value Added Tax Act, 2005 (the VAT Act); M/s. Dhanvanthri Surgicals, the petitioner''s distributor, had filed an application u/s 67 of the VAT Act seeking clarification regarding their liability to pay VAT in respect of the products manufactured and sold by the petitioner; the Advance Ruling Authority had examined the brochures, sales invoices and tax invoices of M/s. Dhanvanthri Surgicals and had clarified that the orthopedic splints and fracture appliances covered under HSN Code 9021.10.00 fall under entry 2 of the First Schedule and were, therefore, not liable to tax. Despite objections filed by them, wherein they had specifically contended that the goods sold by them were used as aids and implements by handicapped persons and hence exempt from tax under entry 2 of the First Schedule, the first respondent had passed the impugned order of assessment holding that these goods fell under entry 111 of the Fourth Schedule, and not under entry 2 of the First Schedule to the VAT Act.

Sri S. Dwarakanath, learned counsel for the petitioner, would challenge the order of assessment on the following, among other, grounds. The order of the Advance Ruling Authority dated August 8, 2006 is binding on the assessing authority, and it is not open for him to pass the impugned assessment order contrary to the rules of the Advance Ruling Authority; HSN Codes were notified in G. O. Ms. No. 1615, dated August 31, 2005 and, since the power to issue orders under the said G. O is referable only to section 76(2) of the VAT Act and not to section 79 thereof, the HSN Codes cannot be read into entry 2 of the First Schedule; and, de hors the HSN Codes, it is not in dispute that the goods sold by the petitioner fell within entry 2 of the First Schedule to the VAT Act.

In so far as the first contention is concerned, the Advance Ruling Authority, by their clarification dated August 8, 2006, ruled that "orthopedic splints and fracture appliances", covered under HSN Code No. 9021.10.00, alone fell under entry 2 of the First Schedule, and were not liable to tax. Sri P. Balaji Varma, learned Standing Counsel for Commercial Taxes, would submit that, in the absence of adequate information regarding the goods for which clarification was sought being available on record, it is not known whether the goods now sought to be taxed under the assessment order, and the goods which were the subject-matter of the Ruling of the Advance Ruling Authority, are the same; even, as per the clarification of the Advance Ruling Authority, orthopedic splints and fracture appliances covered under HSN Code 9021.10.00 alone fell under entry 2 of the First Schedule; and, in the absence of details being furnished by the petitioner in this regard, the assessment order cannot be faulted.

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, u/s 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 u/s 79(1) is hedged and circumscribed by the conditions stipulated in sub-section (2) thereof; the notification, issued u/s 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 u/s 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 u/s 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 u/s 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, pass 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.

The writ petition is, accordingly, disposed of. However, in the circumstances, without costs.