The Telangana High Court has ruled that a statutory government notification granting a concessional rate of sales tax continues to remain operative until it is expressly rescinded, and cannot be rendered ineffective merely because the relevant entry in the taxing statute has been amended.
Holding that a concession granted under a valid notification survives unless specifically withdrawn, the bench of Justice P. Sam Koshy and Justice Suddala Chalapathi Rao dismissed the State Revenue’s revision petition and upheld the Sales Tax Appellate Tribunal’s decision granting the benefit of concessional tax to a distributor of audio cassettes.
Mayuri Film Distributors, a registered dealer engaged in the distribution of audio cassettes, was initially issued a show-cause notice by the Commercial Tax Officer proposing to levy tax at 12% under Section 5AA on the ground that it was the trademark holder of “Mayuri.” The dealer contested the proposal, arguing that audio cassettes constituted electronic goods and were therefore taxable at the concessional rate applicable to such goods.
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While the assessing authority ultimately treated audio cassettes as electronic goods, it nevertheless levied tax at 8%. On appeal, the Appellate Deputy Commissioner partly modified the assessment, holding that audio cassettes attracted tax at 4% up to December 31, 1999 under G.O.Ms. No. 252 dated May 19, 1995, but became liable to tax at 12% from January 1, 2000 following the introduction of Entry 10 in the First Schedule to the Act.
The assessee challenged this finding before the Sales Tax Appellate Tribunal (STAT), which relied on earlier Supreme Court precedents and concluded that G.O.Ms. No. 252 had never been rescinded. Accordingly, it held that the concessional rate continued to apply and remanded the matter for determination of tax at the concessional rate of 3.5%.
The State questioned whether the Tribunal was correct in holding that G.O.Ms. No. 252 continued to remain in force despite subsequent amendments to the First Schedule. According to the Revenue, the insertion of Entry 10 with effect from January 1, 2000 automatically rendered the earlier notification redundant, making audio cassettes taxable at 12%.
The State relied upon Supreme Court decisions concerning the effect of statutory amendments on notifications and argued that once the relevant statutory entry had changed, the concession under the earlier notification could no longer survive.
The High Court framed the principal issue as whether audio cassettes, classified as “electronic goods” by the Electronics Commission of India and covered by G.O.Ms. No. 252, lost their entitlement to concessional tax merely because a new entry was introduced in the First Schedule from January 1, 2000.
The Bench observed that the Electronics Commission’s classification was based on scientific and technical expertise and had been expressly adopted by the Government while issuing G.O.Ms. No. 252 under Section 9(1) of the Act. As long as that notification remained in force, the Revenue could not ignore the classification or levy tax contrary to it.
The Court emphasized that a notification issued under statutory authority operates independently of the Schedule to the Act and continues to remain effective until it is expressly withdrawn, superseded or rescinded. It held that a mere amendment of an entry in the First Schedule cannot, by implication, extinguish a concession granted under a valid statutory notification.
Since G.O.Ms. No. 252 had admittedly not been rescinded during the relevant assessment year, the introduction of Entry 10 through G.O.Ms. No. 910 dated December 31, 1999 did not automatically withdraw the concessional rate available to electronic goods.
The High Court noted that its conclusion was supported by earlier judicial precedents recognizing pre-recorded audio cassettes as electronic goods entitled to concessional treatment. It referred to the Supreme Court’s decisions in State of Andhra Pradesh v. Concap Capacitors and State of Andhra Pradesh v. Dunlop India Ltd., which held that statutory exemption or concession notifications continue to operate until specifically rescinded and that tax authorities remain bound by classifications adopted under such notifications.
The Bench rejected the Revenue’s reliance on Sales Tax Officer v. Dealing Dairy Products and Commissioner, Sales Tax v. Agra Belting Works, observing that those decisions arose under different statutory provisions and factual circumstances and therefore did not govern the present controversy.
Affirming the Tribunal’s interpretation, the High Court held that the benefit under G.O.Ms. No. 252 could not be denied merely because Entry 10 had been introduced into the First Schedule. It concluded that the Tribunal had correctly interpreted the Government Order, the Electronics Commission’s classification and the applicable Supreme Court precedents.
The Court answered the substantial questions of law against the department and in favour of the assessee, dismissed the Tax Revision Case and upheld the assessee’s entitlement to the concessional rate of tax.
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