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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
VINEET KOTHARI, J.
M/s Bella Premier Happy Hygiene Care Private Limited – Appellant
Versus
State of Karnataka - Respondents
Writ Petition No.49577 of 2014 (TRES)
Decided on : 23-10-2017
KARNATAKA VALUE ADDED TAX ACT, 2003 [K.A. No. 32/2004] - Section 60(7), (8) (as amended by Karnataka Act No. 54 of 2013 - Constitutional validity being questioned – Petitioner, manufacturer of ‘All-in-one Diapers, under-pads and Sanitary Napkins’ – Clarification by C.C.T. clarifying rate of tax and over ruling previous decision by Advance Ruling Authority holding said commodities is taxable at concessional rate of 4.5% under Schedule III of Act and that said commodities are taxable at 14.5% - Held, The petitioner cannot successfully challenge the constitutional validity and vires of Section 60(8) of the Act and there is no lack of legislative competence of the State Government in enacting and amending Section 60(8) of the Act. The delegation by the Commissioner of his powers to issue clarifications and Advance Rulings by constituting an Authority for clarifications and Advance Rulings of atleast three Additional Commissioners, his subordinates is not illegal in any manner. However, such orders of Advance Ruling Authority can be undone or modified by overriding power vested in the Commissioner himself under sub-section (8) inserted by Act No. 54 of 2013 with effect from 01.08.2013, and that cannot be said to be inconsistent, conflicting or ultra vires the provisions nor the said provisions can be said to be lacking the legislative competence on the part of the State Legislature. Therefore, as far as the validity of the Sub-section (8) challenged is concerned, that deserves to fail and that contention is accordingly rejected. A clarification issued by a Quasi Judicial Authority in a delegated power in exercise of such power, cannot be made retrospective, unless specifically empowered by the parent legislation. Sub-section (8) of Section 59 does not give any such power to the Commissioner to issue any such Clarification or Ruling with a retrospective effect. In the absence of any such specific power, the respondent-Commissioner could not have issued the impugned clarification by the impugned order at Annexure-A dated 11.09.2014 to be effective from 01.04.2005 onwards. Therefore, the retrospectivity of the said order does not fit into the parameters of sub-section (8) of Section 59 of the Act and to that extent, it deserves to be quashed. The heading of the said Entry 60 namely, ‘Medical and Pharmaceutical preparation’ enumerating several items also inter alia including therein, “Wadding Gauze, Bandages and similar articles for medical, surgical etc., purposes” has to be read ‘ejusdem generis’ and the items manufactured and sold by the assessee are not the items which are alien to the said Entry 60. They may not be exactly “Wadding Gauze or Bangages” but they serve almost same or similar purposes. They are soft under pads made with non-woven top layers for wicking fluid and cellulose fibers make them comfortable and absorbent and a strong, leak proof back sheet holds the fluid and old people and senior citizens generally require them to avoid embarrassment of leaking fluids or urine passed out by them without even noticing, as their senses get weak in the old age. Such Underpads or Diapers definitely help them in maintaining good medical and hygienic conditions of their body and therefore, such items can certainly be said to be “similar articles” read with “wadding gauze and bandages for medical and surgical purpose” etc. Therefore, the opinion that the impugned order passed on 11.09.2017 by the Commissioner does not deserve to be upheld even on merits and the same is liable to be quashed. Further there was no good reason to upset the said decision of the Advance Ruling Authority after so many years.
The petitioner, a manufacturer of ‘All-in-one Diapers, Underpads and Sanitary Napkins’ has approached this Court by way of present writ petition, aggrieved by the Clarification Order dated 11.09.2014 passed by the Respondent Commissioner of Commercial Tax Department under Section 59(4) R/w Section 60(8) of Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ‘the Act’ for brevity), purportedly clarifying the rate of tax and overruling the previous decision by the Advance Ruling Authority (for short ‘the ARA’) on 30.03.2007 issued in favour of the petitioner holding these commodities as taxable at the concessional rate of 4.5% under Schedule III of the Act.
2. Learned Commissioner by the impugned Clarification Order dated 11.09.2014 reversing the decision of Advance Ruling Authority has held that the said items cannot fall under Entry 60 of the Schedule III of the Act, and therefore, these items would be taxable in the residuary entry at the rate of 14.5% of the Act. The petitioner therefore, filed this petition challenging the said order as well as the vires of Section 60(8) of the Act, which was brought on the statute book by the later amendment w.e.f. 01.08.2013 by Act No.54 of 2013.
3. Learned counsel for petitioner Mr. Shivadass G. has urged before the Court that the ARA (a Committee of three Additional Commissioners constituted by the Commissioner himself and delegated the power by the Commissioner under Section 60 of the Act) had not only passed the order in favour of the petitioner under Section 60(2)(d) of the Act and which order is final, as per Section 60(7) of the Act but it was passed after examining the matter in detail and giving an opportunity of hearing to the Department also and it held that that these items were taxable as “Medical and pharmaceutical preparations; Medicated ointments manufactured or imported under license granted under the Drugs and Cosmetics Act, 1940; light liquid paraffin of IP grade; Wadding gauze, bandages and similar articles for medical, surgical, dental or veterinary purpose; Diagnostics or laboratory reagents including prepared diagnostic or laboratory reagents” and rightly so, but the learned Commissioner in the impugned order at Annexure-A dated 11.09.2014 following such Clarifications issued by him in two other cases of M/s. Xtra Care Products Private Limited and M/s. Dowell Surgical Private Limited, Bangalore, held that the ‘Adult Diapers of various sizes’ were taxable under Residuary entry taxable from 12.5% to 14.5% for the periods commencing from 01.04.2005 till the date of passing of the order.
4. The Learned counsel for petitioner, Mr.Shivadass G., also submitted that the State Government later on has issued a Notification on 31.03.2016 specifying the concessional rate of 5.5% on such Adult Diapers. He contended that firstly, the order passed by the learned Commissioner under Section 60(8) of the Act, could not be given any retrospective effect and secondly, the said Clarification on merits also is not legally sustainable and in the case of the petitioner itself, the Advance Ruling Authority had rightly held such products to be taxable at the concessional rate of 4.5% under Schedule III of the Act.
5. He further submitted that the respondent-Department had an option of filing a Revision Petition against the order passed by the Advance Ruling Authority before the Commissioner within a period of four years, under Section 64(2) of the Act and if the assessee was so aggrieved by the order passed by the Advance Ruling Authority under Section 60(2)(d) of the Act, the assessee could also file an appeal before the High Court under Section 66(1) of the Act. He urged that since the Advance Ruling was in favour of the assessee-dealer, there was no question of assessee-dealer filing an appeal against the said order in the present case, but however, the Department havin
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