Karnataka High Court
Cerner Healthcare Solutions Pvt ... vs The Additional Commissioner Of on 21 January, 2021
Author: Alok Aradhe Rangaswamy
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 21ST DAY OF JANUARY 2021
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY
S.T.A. NO.155 OF 2016
BETWEEN:
CERNER HEALTHCARE SOLUTIONS PVT. LTD.,
MANYATHA BUSINESS PARK, LEVEL-III
CEDAR, BLOCK-C-2, NAGAWARA
K.R. PURAM, INNER RING ROAD
BENGALURU-560045
REP. HEREIN BY ITS
COMPANY CONTROLLER
MR. ANIL BHUTORIA.
.... APPELLANT
(BY MR. T. SURYANARAYANA, ADV.,)
AND:
THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES, ZONE-I
VANIJYA THERIGE KARYALAYA
KALIDASA ROAD
GANDHI NAGAR, BANGALORE-560009.
... RESPONDENT
(BY MR. JEEVAN J. NEERALGI, ADV.,)
---
THIS S.T.A. IS FILED UNDER SEC. 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER
DATED 3.10.2016 PASSED IN NO.ZAC-1/BNG/KVAT/SMR-11/2016-
17 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL
TAXES, ZONE-1, BENGALURU, REVISING AND MODIFYING THE
ORDER OF APPEAL DATED 15.7.2014 IN NO.KVAT.AP.411-418/13-
2
14, PASSED UNDER SEC.62(6) BY THE JOINT COMMISSIONER OF
COMMERCIAL TAXES, (APPEALS)-1, BENGALURU FOR THE TAX
PERIODS OF MAY, JULY, SEPTEMBER TO DECEMBER 2012 AND
DIRECTING THE ACCT, LVO-20, DVO-1 TO ISSUE REVISED
DEMAND NOTICE IN TERMS OF THE OBSERVATION MADE IN PARA
9(V) ABOVE AND LEVY PENALTY AND INTEREST AS APPLICABLE
UNDER SEC.72(2) AND 36 OF THE KVAT ACT, 2003.
THIS S.T.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 66(1) of the Karnataka Value
Added Tax Act, 2003, has been filed by the appellant against
the judgment dated 03.10.2016 passed by the Additional
Commissioner of Commercial Taxes, (Appeals)-1, Bengaluru.
2. Facts leading to filing of this appeal briefly stated are
that the appellant is a unit located in Special Economic Zone
(hereinafter referred to as 'SEZ' for short). The appellant is
engaged in the business of software development. It is the
case of the appellant that in terms of Section 20(2) of the
Act, the appellant was entitled to refund of tax paid on
purchase of inputs. The appellant, for the tax periods May
2012 to December 2012, made an application of refund of an
amount of Rs.28,30,481/- being tax paid on purchase of
inputs, before the Assistant Commissioner of Commercial
Taxes, who by an order dated 27.08.2013 granted refund to
the extent of Rs.22,82,460/- only. The refund was further
reduced by the Joint Commissioner of Commercial Taxes to
Rs.20,45,275/-. Thus, the claim of the appellant for refund
was disallowed to the extent of Rs.7,85,207/-. The inputs
disallowed included purchase of food and beverages,
housekeeping and office maintenance, printing and
stationery, maintenance of photocopying machine, sports
goods and events, car lease etc.
3. Thereupon, the appellant filed an appeal before the
Appellate Authority. The Appellate Authority, by an order
dated 15.07.2014, allowed the appeal preferred by the
appellant. However, the Additional Commissioner of
Commercial Taxes, in purported exercise of powers under
Section 54(1) of the Act, by an order dated 03.10.2016,
disallowed the inputs on the ground that the inputs are for
any use and do not have any connection with the
manufacture and processing of the goods. In the aforesaid
factual background, the appellant has filed this appeal.
4. Learned counsel for the appellant submitted that
under the EXIM Policy of 1997-2002, the Government of
India had announced the concept of SEZs in order to provide
an internationally competitive and hassle free environment of
production of goods and services for exports. The SEZs are
specifically treated as duty free enclaves free from all the
rules and regulations governing the import and export. It is
also pointed out that for the aforesaid purpose, the
Government of India enacted the Special Economic Zones
Act, 2005 (hereinafter referred to as 'the SEZ Act' for short)
and notified Special Economic Zones Rules, 2006 (hereinafter
referred to as 'the SEZ Rules' for short). Section 50 of the
SEZ Act empowers the States to grant exemptions from
State taxes, levies and duties to the SEZ developers and
units located in SEZ. Rule 5(5) of the SEZ Rules also
provides that the State shall endeavour to exempt the SEZ
developers and units from State and local taxes, levies and
duties on goods required for their authorized operations. It
is also pointed out that in accordance with the aforesaid
policy of the Central Government, the Government of
Karnataka issued a Government Order dated 25.02.2002
introducing the SEZ policy and paragraph 5(2) of the
aforesaid policy provides that SEZ units shall be exempted
from State and local body taxes in respect of purchase made
by SEZ units for setting up, operation or maintenance or for
use in manufacture, trading, production, processing,
assembling, repairing, reconditioning, re-engineering or
packing.
5. It is also pointed out that Section 20(2) of the Act
provides for refund of tax paid on purchase of inputs by a
registered dealer located in SEZ. Rule 130(A) of the
Karnataka Value Added Tax Rules, 2005 (hereinafter referred
to as 'the Rules' for short) provides that the refund under
Section 20(2) of the Act shall be subject to the condition that
the inputs are purchased, inter alia, for the purpose of
setting up, operation and maintenance of a unit in the SEZ
and also in respect of the inputs purchased for use in
manufacture, trading, production, processing, assembling,
repairing, reconditioning, re-engineering or packing in a unit
located in SEZ. Therefore, it is contended that is not the
purchase of inputs which are used in manufacture, etc that
are eligible for refund but also inputs which are used for the
purpose of operation and maintenance of a unit in a SEZ are
also eligible for refund. It is also pointed out that Section
2(19) of the Act which defines the expression 'inputs', not
only includes goods purchased for use in the manufacture or
processing etc., but also for those purchased for any other
use in business. Therefore, the appellant is entitled to full
refund of the tax paid on purchase of the inputs. It is
submitted that the Appellate Authority in view of the legal
provisions, had passed a detailed order on 15.07.2014
relying on a decision of Karnataka Appellate Tribunal in the
case of COGNIZANT TECHNOLOGY which was subsequently
affirmed by this Court in 'STATE OF KARNATAKA Vs.
COGNIZANT TECHNOLOGY SOLUTIONS INDIA PRIVATE
LIMITED' (2017) 98 VST 45 (KAR). It is submitted that
invocation of power under Section 64 of the Act in the fact
situation of the case is erroneous and cannot be justified in
the eye of law.
6. On the other hand, learned Additional Government
Advocate, while inviting our attention to Section 20(2) of the
Act, submitted that the inputs are eligible for refund subject
to restrictions contained in Section 20(2) of the Act read with
Rule 130(A) of the Rules. It is further submitted that the
usage of inputs should be in processing area and should have
direct connection with the activity of the manufacture. It is
further submitted that the order passed by the Additional
Commissioner of Commercial Taxes is just and legal and
does not call for any interference.
7. We have considered the submissions made on both
sides and have perused the record. The sine qua non for
exercise of power under Section 64(1) of the Act is that the
Commissioner has to form an opinion that the order passed
by any officer subordinate to him is erroneous or is
prejudicial to the interest of the revenue. Thus, before
exercising the powers under Section 64 of the Act, the
Commissioner has to form an opinion that the order passed
by any subordinate officer is either erroneous or is prejudicial
to the interest of the revenue. In the light of the aforesaid
facts, the order passed by the Joint Commissioner of
Commercial Taxes may be seen. The Joint Commissioner of
Commercial Taxes, in its order dated 15.07.2014, has
considered the question whether the disallowance of income
tax on food items, housekeeping and office maintenance,
printing and stationery, maintenance of photocopying
machine, sports goods and events, car lease rentals is
proper. The Joint Commissioner of Commercial Taxes has
taken note of Section 20(2) of the Act and has held that SEZ
developer is eligible for input tax paid and does not stipulate
any condition. It has further been held that it is not
necessary that SEZ unit should be engaged in the activity of
involving goods as output. The Joint Commissioner of
Commercial Taxes has also taken note of Rule 130(A) of the
Rules and has held that the aforesaid provision makes a SEZ
unit or SEZ developer entitled to claim refund of input tax
under Section 20(2) of the Act on the purchases made. It
has also been held that no condition has been specified under
Section 20(2) of the Act to claim refund. The Joint
Commissioner of Commercial Taxes has also placed reliance
on 'MP PORTAL INDIA WIRELESS SOLUTION Vs.
COMMISSIOENR OF COMMERCIAL TAXES, BENGALURU'
and has held that even though the export of software was
not a taxable service, the assessee shall not be denied the
CENVAT credit.
8. The Joint Commissioner of Commercial Taxes has
also placed reliance on the decision of the Tribunal in
'COGNIZANT TECHNOLOGY SOLUTIONS INDIA
PRIVATE LIMITED Vs. STATE OF KARNATAKA' 77 KLJ
609 and has held that a unit is entitled for refund of tax
paid on inputs under Rule 130(A)(1)(b) as a unit operating in
a processing area of SEZ. It has also noted that the
expression used in Clause (b) sub Rule (1) to Rule 130A of
the Rules "setting up, operation or maintenance of a unit in
the processing area of SEZ", the expression 'operation' has a
different meaning as compared to the expressions used in
Rule 130(A)(1)(c) i.e. manufacture, trading, production,
processing, assembling, repairing, reconditioning, re-
engineering or packing in a unit. Thus, relying on the
aforesaid decision of the Tribunal, the Joint Commissioner of
Commercial Taxes has held that SEZ unit is also entitled to
refund of input tax paid on inputs by a developer or an
operator and also for the units located in the SEZ area for
setting up of operation or maintenance of the unit.
Therefore, it has been held that the appellant has satisfied
the conditions mentioned in Rule 130(a)(1)(b) of the Rules.
The Joint Commissioner of Commercial Taxes has also taken
note of the definition of input in Section 2(19) of the Act and
it has been held that the input means any goods including
capital goods purchased by a dealer in the course of his
business for re-sale or for use in the manufacture or
processing or packing or sorting of other goods or any other
use in the business. It has also been held that use of
expression 'any other use in business' in the definition of
input, has wider meaning and certainly includes any
purchases made which are for any other uses in the business
carried out by the appellant. Thus, the appellant has been
held entitled to claim refund of input tax paid on purchase of
Rs.7,06,435/-. In the result, the appeal has been allowed.
9. The order passed by the Joint Commissioner of
Commercial Taxes cannot be said to be erroneous. The
Additional Commissioner of Commercial Taxes has proceeded
on the assumption that the benefit of refund of tax paid on
purchase of inputs can be granted only in respect of
manufacture and processing of goods which is not prescribed
under the law. Therefore, in the fact situation of the case,
there was no justification on the part of the Additional
Commissioner of Commercial Taxes in invoking the power
under Section 64(1) of the Act.
10. In view of preceding analysis, the order dated
03.10.2016 passed by the Additional Commissioner of
Commercial Taxes is hereby quashed.
In the result, the appeal is allowed.
Sd/-
JUDGE
Sd/-
JUDGE
RV
