(Prayer: 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.411-418/13-14, 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.)Alok Aradhe, J.1. 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 bus

iness. 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.