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CASE NO.: Appeal (civil)  1120 of 2006

PETITIONER: State of Karnataka & Others

RESPONDENT: Balaji Computers & Others

DATE OF JUDGMENT: 07/12/2006

BENCH: ASHOK BHAN & DALVEER BHANDARI

JUDGMENT: J U D G M E N T WITH

CIVIL APPEAL NO. 1835 OF 2006.

The Assistant Commissioner of Commercial Taxes & Others                                          ... Appellants

Versus

M/s Intent Compu System & Another       ... Respondents

Dalveer Bhandari, J.

These appeals are directed against the judgments of  the Division Bench of the High Court of Karnataka at  Bangalore dated 1.9.2005 passed in Writ Appeal No.  1931 of 2005 and dated 24.10.2005 passed in Writ  Appeal No.2383 of 2005. The controversy in both these appeals is identical,  therefore, both the appeals are disposed of by common  order.  For the sake of convenience, we are referring to  the facts of Civil Appeal No.1120 of 2006.

The respondents are registered as dealers under the  provisions of the Karnataka Sales Tax Act, 1957  (hereinafter referred to as "the KST Act").

Under Section 6-B of the KST Act, turnover tax is  imposed.  Section 6-B reads as under:- "Section 6-B. Levy of Turnover Tax \026 (1)  Every registered dealer and every dealer who is  liable to get himself registered under sub- sections (1) and (2) of Section 10 whose total  turnover in a year is not less than the  turnovers specified in the said sub-sections  whether or not the whole or any portion of  such turnover is liable to tax under any  provisions of this Act, shall be liable to pay  tax.            xxx                     xxx                     xxx"

        Under Section 8-A of the KST Act, the State  Government has given exemption of the tax.  Section 8-A  reads as under:- "Section 8-A.  Power of State Government  to notify exemptions and reductions of tax

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\026 (1) The State Government may, by  notification, make an exemption, or reduction  in rate, in respect of any tax payable under  this Act.

x                        x                        x"

In pursuance to Section 8-A, the Government of  Karnataka issued notification dated 31.3.2001.  The said  Notification reads as under:-  "Sl.No.834 NOTIFICATION

No.FD 97 CSL 2001(7), No.660, dated  31.03.2001

Karnataka Gazette, Extraordinary, dated  31.03.2001

In exercise of the powers conferred by  Section 8-A of the Karnataka Sales Tax Act,  1957 (Karnataka Act 25 of 1957), the  Government of Karnataka hereby exempts  with effect from the First day of April, 2001,   the turnover tax payable by a dealer under  Section 6-B of the said Act on the turnovers  relating to the following goods, namely :

[Exemption has been given to 32 items.  Items  8 and 9 relate to computers.  We are  reproducing both these items.  We are in fact  concerned with item 9 only]

8.      Computer software; works contract of  programming and providing of computer  software; and leasing of computer  software.

9.      Computers, computer peripherals,  computer consumables and computer  cleaning kits falling under Serial Number  20 of Part ’C’ of Second Schedule."

The items indicated at Serial No. 20 of Part ’C’ of the  Second Schedule of the KST Act read as under:                 "From 01.04.1989 to 31.03.1996

20.     Computers, micro-computers, computer  peripherals and parts and accessories  thereof.

From 01.04.1996 to 31.03.1998, Entry reads  thus:-

20.     (i)     Computers, micro-computers,  micro processors, computer peripherals  and parts and accessories thereof;

(ii)    Computer stationery

From 01.04.1998, the entry reads thus:-

20      (i)     Computers of all kinds namely \026  main frame, mini, personal, micro  computers and the like and their parts

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(ii)    Peripherals, that is to say \026

(a)     All kinds of printers and their  parts, namely \026

Dot matrix, ink jet, laser, line, Line  matrix and the like

(b)     Terminals, scanners, multi Media  kits, plotters, modem and their  parts."

It would be relevant to mention that the  Commissioner of Commercial Taxes, Karnataka issued a  clarification dated 15.12.2004 clarifying that parts of  computer and parts of computer peripherals were not  liable to payment of turnover tax by virtue of exemption  notifications issued under Section 8-A of the KST Act.   This clarification issued under Section 3-A(2) of the KST  Act was withdrawn by the Commissioner of Commercial  Taxes, Karnataka on 23.12.2004 which reads as under: "PROCEEDINGS OF THE COMMISSIONER OF  COMMERCIAL TAXES (KARNATAKA),  BANGALORE UNDER SECTION 3A(2) OF  KARNATAKA SALES TAX ACT, 1957

Sub: KST Act, 1957 \026 Clarification under  Section 3A(2) \026 regarding RST on "computer  parts".

Ref. : 1)       Application dated 26.11.2004 of the  Vice President, Association for  Information Technology, 15/13  Floor, Dickenson Road, Bangalore

2)      This office Proceedings vide  No.CLR.CR.157/04-05, dated  15.12.2004.

In the application cited above, the respondents  association has sought clarification on  turnover tax applicable to computer parts.

The matter was examined with reference to  Section 3-A(2) of the Karnataka Sales Tax Act,  1957 which empowers the Commissioner of  Commercial Taxes to clarify with regard to rate  of tax payable under the Act, if he considers it  necessary or expedient so to do for the  purpose of maintaining uniformity in the work  of assessments and collection of revenue.  It  was considered that the clarification as sought  by the petitioner association was within the  scope of the aforesaid provision and  accordingly a clarification was issued.

However, the matter has now come up for  reconsideration in view of the interpretation of  the Government Notification No. FD 54 CSL  2002(4) dated 30.03.2002 as given to it by the  Accountant General.  There is now, therefore a  need to re-examine in greater detail the matter  with regard to applicability of the said

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notification to computer parts.

Hence, the following :

CLARIFICATION NO. CLR.CR.157/04-05,  DATED 23.12.2004

For the reasons as detailed out in the  Preamble, the clarification issued on  15.12.2004 and referred to at (2) above is  hereby withdrawn.                                                                   Sd/- (Ashok Kumar Sharma) Commissioner of Commercial Taxes

Copy to:

The Vice President, Association for Information  Technology, 15/13 Floor, Dickenson Road,   Bangalore."

       The Commissioner of  Commercial Taxes, Karnataka  exercising the powers under Section 3-A of the KST Act  issued another circular No.15/2004-05 dated 31.12.2004  directing the Assessing Authorities, Revisional  Authorities, Joint Commissioners, Inspecting Authorities,  Audit Authorities etc., to levy turnover tax on parts of  computer and parts of computer peripherals.  The  Assessing Authorities exercising the powers under  Section 12-A of KST Act issued proposition notices to the  dealers proposing to levy turnover tax on parts of  computer and parts of computer peripherals for the  relevant assessment years concerned.

       The respondents challenged the notices issued by  the authorities in pursuance of the said notification  dated 31.12.2004 under Section 12-A of the KST Act in  Writ Petition numbers 5158-5161/2005 as arbitrary and  opposed to Article 14 of the Constitution of India and  sought for issuance of a declaration that the Circular  No.15/04-05 dated 31.12.2004 issued by the  Commissioner of Commercial Taxes in the State of  Karnataka as being contrary to law, arbitrary, ultra virus  the Notifications dated 18.7.2000, 31.3.2001 and  30.3.2002 and also sought for a direction that turnover  tax are exempted on the sales of parts of computer and  parts of computer peripherals as per the said  Government notifications issued under Section 8-A of the  KST Act.

       The respondents filed Writ Petition numbers 5158- 5161 of 2005 before the learned Single Judge of the  Karnataka High Court who vide order dated 10.2.2005  dismissed the writ petition as not maintainable since the  dealers had not exhausted the alternate remedy available  to them under the Statute before filing writ petitions  under Article 226 of the Constitution.          The respondents aggrieved by the order of the  learned Single Judge filed a Writ Appeal No. 1931 of 2005  before the Division Bench of the Karnataka High Court.   In the meantime, during the pendency of the writ appeal,  re-assessment orders were passed by the Assessing

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Authority confirming the levy of turnover tax on parts of  computer and parts of computer peripherals.  The  Division Bench in the impugned judgment has held that  parts of computer and parts of computer peripherals are  to be treated as computers and computer peripherals  falling under Entry-20 of part ’C" of the Second Schedule  of the Karnataka Sales Tax Act by legal fiction and are  exempted from levy of turnover tax payable under Section  6-B of the KST Act.  The Division Bench quashed the  circular instructions issued by the Commissioner of  Commercial Taxes of Karnataka dated 31.12.2004.

       The Division Bench adjudicated several questions of  law in the impugned judgment, but we are confining our  judgment to the main controversy in the case regarding  liability of the respondents to pay the turnover tax on  parts of computer and computer peripherals.

       The respondents-assessees submitted before the  Division Bench that parts of computer and computer  peripherals were exempted from payment of turnover tax  by a dealer under Section 6-B of the KST Act.  The High  Court did not accede to the submission of the appellants  that the respondents were not exempted from payment of  turnover tax for several reasons.   (1)     The definition of ’computer’ and  ’Peripherals’ within its fold, by means of a legal  fiction, embraces parts of Computer and  Computer peripherals.    

(2)     Part ’C’ of the Second Schedule of the Act  sets out various items of goods in respect of  which single point tax is leviable on the first or  earliest of successive dealers in the State  under Section 5(3)(a) of the Act.   The Schedule  has been further bifurcated into several parts.    Under Sl. No. 20 of Part ’C’ of the Second  Schedule of the Act, computers, peripherals,  computer cleaning kits, computer software are  the items provided in respect of which tax is  leviable under Section 5(3) of the Act.  In other  words, the Legislature intended to levy sales  tax under Section 5(3) of the Act in respect of  various types of computers, computer  peripherals, computer consumables, computer  cleaning kits and computer software.

       Section 6-B of the Act provides for levy of turnover  tax on every registered dealer and every dealer who is  liable to get himself registered under Sections (1) and (2)  of Section 10.  Sl. No. 20(i) refers to various types of  computers in respect of which tax is leviable.  After the  words ’Computers of all kinds’, the word ’namely’ is used  setting out the various types of computers like main  frame, mini, personal, micro computers and the like.  The  words ’and the like’ are indicative of the fact that various  types of computers, similar to main frame, mini, personal  and micro computers have been exempted from payment  of tax under Section 8A of the KST Act. Immediately after  the description of various types of computers, the words  ’and the like’ and the words ’and their parts’ are referred  to.  The question was whether the words ’and their parts’  following the words ’and the like’ were to be read  conjunctively as contended by the respondents or  disjunctively as contended by the appellants and should

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they be excluded from the definition of computer?  It is  not proper to read the words ’and their parts’  disjunctively.  The legislative intention becomes clear  when these words are read conjunctively.  On proper  construction of the Statute, it would be reasonable to  take  the  view, by legal fiction  that  the  legislature,  for   the  purposes  of  levy  of  tax  under  the KST  Act wanted parts of computer also to be treated as  computers.  Similarly, when the appellants in exercise of  its powers under Section 8-A of the KST Act exempted  computers from payment of tax, the parts of computer  are also exempt from payment of tax.  

The computers are produced by assembling various  parts or configuration.   Therefore, for the purpose of levy  of turnover tax, if the legislature, by means of legal fiction  or definition, intended to treat the parts of computer as  computers, in that context the words ’and their parts’  occurring immediately after specific reference to ’main  frame, mini, personal micro computers and the like’  should be understood that the parts of computers were  also treated as computers by legislative intendment.   

       For proper construction, we deem it necessary to  explain how the word ’namely’ has been described in  various dictionaries.

       In Black’s Law Dictionary, Fifth Edition, the word  ’namely’ has been stated as "a difference, in grammatical  sense, in strictness exists between the words namely and  including.  Namely imports interpretation, i.e., indicates  what is included in the previous term; but including  imports addition, i.e., indicates something not included".

       In Webster’s Encyclopedic Unabridged Dictionary of  the English Language, the word ’namely’ has been stated  as ’that is to say, explicitly, specifically to wit; on item of  legislation, namely, certain bail."    

       In Chambers 21st Century Dictionary the word  ’namely’ has been stated as "used to introduce an  expansion or explanation of what has just been  mentioned".

In World Book Dictionary, the word ’namely’ has  been stated as ’that is to say to wit’.  Therefore, the word  ’namely’, ordinarily imports of what is comprised in the  preceding clause; and it ordinarily serves of equating  what follows with the clause described before.   

This Court in State of Bombay v. Bombay  Education Society reported in AIR 1954 SC 561, had an  occasion to examine the meaning of the words ’that is to  say’ which have been described as ’explanatory or  illustrative words and not words either of amplification or  limitation’.   

In this case, while considering what is the meaning  that is required to be given to the word ’namely’ employed  in the circular issued by the State of Bombay directing  that no primary or secondary school shall from the date  of the order, admit to a class where English is used as a  medium of instruction any pupil other than a pupil  belonging to a section of citizens the language of which is  English wherein it is explained by stating ’namely’ Anglo-

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Indians and citizens of non-Asiatic descent has observed  that ordinarily the word ’namely’ imports enumeration of  what is comprised in the preceding clause and it  ordinarily serves the purpose of equating what follows  with the clause described before.   Further, the word  ’namely’ has also been explained in the said decision and  also in the Oxford English Dictionary as ’that is to say’.   In this connection, it is useful to refer to the observation  made by the Court in paragraph 12 of the judgment  which reads as under: "12. Re(1): As already indicated Barnes High  School is a recognized Anglo-Indian School  which has all along been imparting education  through the medium of English.  It receives aid  out of State funds.  The daughter of Major  Pinto and the son of Dr. Gujar are citizens of  India and they claim admission to Barnes High  School in exercise of the fundamental right  said to have been guaranteed to them by  Article 29(2) of the Constitution.  The School  has declined to admit either of them in view of  the circular order of the State of Bombay.  The  provisions of the circular order, issued by the  State of Bombay on the 6th January, 1954,  have already been summarized above."

The operative portion of the order, set forth in Clause 5  thereof, clearly forbids all primary or secondary schools,  where English is used as a medium of instruction to  admit to any class any pupil other than a pupil belonging  to a section of citizens, the language of which is English  namely Anglo-Indians and citizens of Non-Asiatic  descent.  The learned Attorney General contended that  this clause did not limit admission only to Anglo-Indians  and citizens of non-Asiatic descent, but permitted  admission of pupils belonging to any other section of  citizens the language of which is English.   

       The learned counsel for the respondents pointed out  that one of the meanings of the word ’namely’, as given in  the Oxford English Dictionary, Volume VII P.16 is ’that is  to say’ and he then referred to the decision of the Federal  Court in Bhola Prasad v. Emperor reported in AIR 1942  FC 17, where it was stated that the words ’that is to say’  were explanatory or illustrative words and not words  either of amplification or limitation.  It should, however,  be remembered that those observations were made in  connection with one of the Legislative heads namely  Entry No. 31 of the Provincial Legislative List.  The  fundamental proposition enunciated in the case of The  Queen v. Burah reported in (1878) 3 AC 889 (B) was that  the Indian Legislatures within their own sphere had  plenary powers of legislation as large and of the same  nature as those of Parliament itself.   

       In that view of the matter, every Entry in the  legislative list had to be given the widest connotation and  it was in that context that the words ’that is to say’ relied  upon by the learned Attorney General were interpreted in  that way by the Federal Court.  To do otherwise would  have been to cut down the generality of the legislative  head itself.  The same reason cannot apply to the  construction of the Government Order in the present  case for the consideration that applied in the case before

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the Federal Court had no application.   Ordinarily, the  word ’namely’ imports enumeration of what is comprised  in the preceding clause. In other words, it ordinarily  serves the purpose of equating what follows with clause  described before.

       In Stroud’s Judicial Dictionary (4th Edition, Volume  5), it is observed that the words ’that is to say’ are  employed and to make clear and fix the meaning of what  is to be explained or defined; and such words are not  used, as a rule, to amplify a meaning while removing a  possible doubt for which purpose the word ’includes’ is  generally employed.

       In Stroud’s Judicial Dictionary (4th Edition, Volume  5, at page 2753), it is observed: "THAT IS TO SAY \026 (1) "That is to say" is the  commencement of an ancillary clause which  explains the meaning of the principal clause.   It has the following properties: (1) it must not  be contrary to the principal clause; (2) it must  neither increase nor diminish it; (3) but where  the principal clause is general in terms it may  restrict it."

       The quotation, given above, from Stroud’s Judicial  Dictionary shows that, ordinarily, the expression ’That is  to say’ is employed to make clear and fix the meaning of  what is to be explained or defined.  Such words are not  used, as a rule, to amplify a meaning while removing a  possible doubt for which purpose the word ’includes’ is  generally employed.               In view of the ratio of various judgments and on  plain construction of the Statute, it is clear that parts of  computer, by legal fiction, need to be treated as  computers under Sl. No. 20(i) of Part ’C’ of the Second  Schedule of the Act.  When parts of computer and  computer peripherals are treated as computers and  computer peripherals, there cannot be any doubt that  parts of computer and computer peripherals are not to be  treated as computer and computer peripherals, whether  in the light of the language employed in the exemption  Notifications referred to in the preceding paragraphs of  the judgment are parts of computer and computer  peripherals are also exempted from levy of turnover tax.

The reading of exemption Notifications, in that  context, makes it clear that it intended to give exemption  to all the items of computers and their parts.   This is  clear from the fact that the Notifications grant exemption  to computers, computer peripherals, computer  consumables and computer cleaning kits falling under Sl.  No. 20 of Part ’C’ of the Second Schedule of the Act.     The same is the language employed in the Notifications.   The exemption notifications intended to exempt all the  items referred to in Sl. No. 20 of Part ’C’ of the Second  Schedule and the intention was not to grant exemption  for all items referred to in Sl. No. 20 of Part ’C’ of the  Second Schedule of the Act. The Court observed that if  the Government intended to exclude parts of computer  and computer peripherals, the same would have been  made clear by stating computers and computer  peripherals falling under Sl. No. 20 of Part ’C’ of the

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Second Schedule.  The construction of the Statute and  the intention of the framers of the Legislature also lead to  a clear conclusion that parts of the computer and  computers peripherals are also exempted from the levy of  turnover tax.

In Krishi Utpadan Mandi Samiti, Kanpur v.  Ganga Dal Mill and Co. [(1984) 4 SCC 516], the  question that came up for consideration before this Court  was whether legume, whole grain, when notified as a  ’specified agricultural produce’ within the meaning of the  expression of Section 2(t) of the U. P. Krishi Utpadan  Mandi Adhiniyam Act, 1964 would also comprehend its  split folds of parts, commercially called ’dal’ so as to  enable the Market Committee to levy market fee under  Section 17 of the Mandi Adhiniyuam Act on the  transaction of sale of ’dal’ of legumes specified in the  schedule to the Mandi Adhimiyam Act.  The Court, on  consideration of the definition of ’agriculture produce’,  took the view  that it would mean not only those items of  produce of agriculture as specified in the schedule, but  will also include the admixture of two or more of such  items as also any such items in its processed form.    

       In Prestige Engineering (India) Ltd v. Collector of  Central Excise, Meerut [(1994) 6 SCC 465], the question  that came up for consideration before this Court was, as  to what is the true meaning and purport of Notification  issued by the Central Government under Rule 8(1) of the  Central Excise Rules, 1944 which exempted the goods  falling under Item 68 of the First Schedule to the Central  Excises and Salt Act, 1944 manufactured in a factory as  a job work from exemption of duty of excise leviable  thereon as is in excess of the duty calculated on the basis  of the amount charged for the job work.  While  considering the said question, after referring to the  cleavage of opinion expressed by various High Courts and  various benches of Customs, Excise and Gold Appellate  Tribunal, this Court held that once an expression is  defined in the Act, that expression wherever it occurs in  the Act, Rules or Notifications issued thereunder, should  be understood in the same sense.

       In the case of Steel Authority of India Ltd. v.  Collector of Central Excise, Bolpur, West Bengal  reported in (1997) 10 SCC 335, this Court took the view,  while considering the question as to what is the meaning  that is required to be given to the exemption notification  issued under Rule 8(1) of the Central Excise Rules, 1944  by the Central Government exempting levy of excise duty  in respect of "tar", falling under Item 11(5) of the First  Schedule to the Central Excises and Salt Act, 1944, that  the meaning of "tar" has to be gathered from the tariff  description given in Clause 5 of Tariff Item No. 11 and,  therefore, "tar" will include everything which has been  included in the extended definition.  It is useful to refer to  the observations made at paragraph 4 of the judgment,  which read as under: "4. The Exemption Notification exempts "tar"  falling under Item 11 of the First Schedule to  the Central Excises and Salt Act, 1944.  The  meaning of "tar" has to be gathered from the  Tariff description given in clause (2) of Tariff  Item 11.   An inclusive definition has been  given to "tar" which includes "partially

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distilled tars and blends of pitch will creosote  oils or with other coal tar distillation  products".   Therefore, "tar" will include  everything which has been included in the  extended definition.   Having regard to the  wording of the notification and wording of the  Tariff Item 11, we have no doubt that the  product of the assessee (PCM) qualifies for  the benefit of the exemption notification."

       The principle enunciated by this Court in the  decisions referred to above, it is clear that the language  employed in the exemption Notifications and items in  respect of which exemption had been given, had to be  understood in the context in which exemption  Notifications came to be issued.  In case there is any  doubt that if the language employed in exemption  Notification admits of two views and is not clear and  ambiguous, the Division Bench in the impugned  judgment aptly observed, the view which is beneficial to  the assessee, will have to be taken.     

In the case of Poulose & Mathen v. Collector of  Central Excise reported in (1997) 3 SCC 50, wherein  this Court has taken the view that where two opinions  are possible, the assessee should be given the benefit of  doubt, and that opinion which is in his favour should be  given effect to.  It is useful to refer to the observation  made at paragraph 15 of the judgment, which reads as  under:         "One aspect deserves to be noticed in  this context.  The earlier Tariff Advice No. 83  of 1981 on the basis of which Trade Notice  No. 220 1981 was issued by the Collector of  Central Excise and Customs is binding on  the department.  It should be given effect to.   There is no material on record to show that  this has been rescinded or departed from,  and even so, to what extent.  Even assuming  that the later Tariff Advice No. 6 of 1985 has  taken a different view - about which there is  no positive material \026 the facts point out that  the concerned department itself was having  considerable doubts about the matter.  The  position was not free from the doubt.  It was  far from clear.  In such a case, where two  opinions are possible, the assessee should be  given the benefit of doubt and that opinion  which is in its favour should be given effect  to."

       In the instant case, computer, computer  peripherals, computer consumables, computer cleaning  kits and computer software are exempted from levy of  turnover tax.  Under these circumstances, even  assuming for the sake of argument that the exemption  Notifications and circulars do not clearly specify as to  whether they are exempted from turnover tax, it is not  possible to take the view in the background in which  exemption Notifications came to be issued that the State  would have picked up only computer parts and parts of  computer peripherals for levy of tax.    Obviously, the  intention of the State in granting exemption is to promote

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Information Technology industry in the State by  attracting a large number of investors into the State and  setting up of Information Technology industries and  provide job opportunities to a large number of youth as  aptly observed in the impugned judgment.  When that  being the object of exemption Notifications issued under  Section 8-A of the Act and various items referred to in Sl.  No. 20 of Part ’C’ of the Second Schedule have been  granted exemption even if it is assumed that the things  are not made clear in the exemption Notifications, it is  fair and reasonable to place the construction which is  beneficial to the assessee by exempting levy of tax on  parts of computer and computer peripherals.   

       In the instant case, all the Assessing Authorities  except one have taken the view ever since the year 1997- 98 that parts of computer and computer peripherals are  exempted from levy of tax.  Further, the revisional  authorities have also not exercised the suo moto power  conferred on them under Sections 21 and 22-A(2) of the  Act thereby impliedly approving the decisions of the  Assessing Authorities.  All these indicate that the  Assessing/Revisional Authorities and the Commissioner,  till the objection was raised by the Deputy Accountant  General, have understood that the Notification exempted  parts of computer and computer peripherals from levy of  turnover tax under Section 6-B of the Act.  The  Commissioner also, in the Circular Annexure-H, filed in  the High Court, has clarified that parts of computer and  computer peripherals are exempted from levy of turnover  tax under Section 6-B of the Act.  The contemporaneous  interpretation placed by the Assessing Authorities and  also the clarification issued by the Commissioner  supports the view taken by the Court that parts of  computer and computer peripherals are exempted from  levy of turnover tax.    

       This Court in the case of K. P. Varghese v. Income  Tax Officer, Ernakulam  reported in (1981) 4 SCC 173,  while considering the binding nature on the circulars  issued by the Central Board of Direct Taxes on the  department, has also observed that the  Rule of  construction by reference to contemporanea expositio is  a well established rule for interpreting a statute by  reference to exposition it has received from contemporary  authorities, though it must give way where a language of  the statute is plain and unambiguous.  It is useful to  refer to the observation made by the Court, which reads  as under: "These two circulars of the Central  Board of Direct Taxes are, as we shall  presently point out, binding on the Tax  Department in administering or executing  the provision enacted in sub-section (2), but  quite apart from their binding character, they  are clearly in the nature of contemporanea  expositio furnishing legitimate aid in the  construction of sub-section (2). The rule of  construction by reference to contemporanea  expositio is a well established rule for  interpreting a statute by reference to the  exposition it has received from contemporary  authority, though it must give way where the  language of the statute is plain and  unambiguous. This rule has been succinctly

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and felicitously expressed in Crawford on  Statutory Construction (1940 Edn.) where it  is stated in paragraph 219 that  "administrative construction  (i.e. contemporaneous construction  placed by administrative or  executive officers charged with  executing a statute) generally  should be clearly wrong before it is  overturned; such a construction,  commonly referred to as practical  construction, although non- controlling, is nevertheless entitled  to considerable weight; it is highly  persuasive."  

The validity of this rule was also  recognized in Baleshwar Bagarti v.  Bhagirathi Dass ILR 35 Cal. 701 where  Mookerjee, J. stated the rule in these terms:  It is a well-settled principle of  interpretation that courts in  construing a statute will give much  weight to the interpretation put  upon it, at the time of its enactment  and since, by those whose duty it  has been to construe, execute and  apply it. and this statement of the rule was quoted  with approval by this Court in Deshbandhu  Guptu & Co. v. Delhi Stock Exchange  Association Ltd. [(1979) 4 SCC 565]. It is  clear from these two circulars that the  Central Board of Direct Taxes, which is the  highest authority entrusted with the  execution of the provisions of the Act,  understood sub-section (2) as limited to  cases where the consideration for the  transfer has been understated by the  assessee and this must be regarded as a  strong circumstance supporting the  construction which we are placing on that  sub-section."  

       Further, in the case of Bangalore Wood Industries  v. Asst. Commissioner of Commercial Taxes  (Assessment), Hassan & Another reported in (1994) 92  STC 603 (Kar), the Division Bench of the High Court,  after referring to the observations made by this Court in  the case of K. P. Varghese (supra), has observed that  ’the understanding of law at the earliest point of time of  its enactment cannot be ignored."  What applies to the  statute, the Division Bench was of the view, must be  applied to the contents of the circular also.   

It may be relevant to mention that all the assessing  authorities in the State excepting one, from the years  1997-98 had taken the view that till the issuance of  Circular dated 31st December, 2004, parts of computer  and computer peripherals were exempted from levy of  turnover tax under Section 6-B of the Act.

The appeals of the appellants are devoid of any  merit because of the following reasons:

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1.      In the impugned judgment, the Division  Bench of the High Court was justified in  observing that the parts of computer by  employing legal fiction need to be treated  as computer under Sr. No.20(i) of the Part  ’C’ of the Second Schedule of the Act;

2.      The computer itself is produced by  assembling various parts or  configuration.  When the legislature  intended to exempt the computer then by  employing the legal fiction it would be  appropriate to hold that parts of  computer and its peripheral are also  exempted from payment of tax;  

3.      The language employed in the exemption  notifications and items in respect of  which exemption was granted had to be  understood in the context in which  exemption notifications were issued;

4.      The Rule of Construction by reference to  contemporanea expositio is a well  established rule for interpreting a statute  by reference to the exposition it has  received from contemporary authorities.  When language of the statute is plain and  unambiguous, the method of  contemporanea expositio need not be  employed;

5.      It is well settled that even if it is assumed  that the things are not made clear and  explicit in the exemption notifications, it  is proper and reasonable to place the  construction which is beneficial to the  assessee by exempting levy of tax on  parts of computer and computer  peripherals;

6.      It is our duty and obligation to properly  comprehend legislative intention while  constructing the Statute.  In the instant  case, computer, computer peripherals,  computer consumables, computer  cleaning kit and computer software are  exempted from the levy of tax.  To reach  the conclusion that the State intended  only computer parts and computer  peripherals for levy of tax would not be  proper in this background; and

7.      Plain construction of the statute leads to  a clear conclusion that the legislature  intended to exempt computer and parts  of computer and computer peripherals  from levy of turnover tax.

We have carefully considered the rival submissions  and decided cases. In our considered view, no  interference is called for in the well reasoned impugned  judgment of the High Court.  Consequently, the appeals  filed by the State are dismissed being devoid of any merit.  

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In the facts and circumstances of the case, we direct  the parties to bear their own respective costs.